-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M2EdtDoxvNsGJG8bhxnkaWtQQGG/uYyVFuz1jngKcDJJhi0ITggs6UjpyCweaG/C XgRb81ZgPE7U2PY+a2ATtw== 0000027116-98-000005.txt : 19981030 0000027116-98-000005.hdr.sgml : 19981030 ACCESSION NUMBER: 0000027116-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981029 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATRON SYSTEMS INC/DE CENTRAL INDEX KEY: 0000027116 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 952582922 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07445 FILM NUMBER: 98732841 BUSINESS ADDRESS: STREET 1: 304 ENTERPRISE ST CITY: ESCONDIDO STATE: CA ZIP: 92029 BUSINESS PHONE: 6197473734 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 [ ] 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: 0-7445 DATRON SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) Delaware 95-2582922 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 304 Enterprise Street, Escondido, California 92029-1297 (Address of principal executive offices) (zip code) (760) 747-3734 (Registrant's telephone number, including area code) (Former name, former address and formal fiscal year, if changed since last report) 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. [ X ] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of October 23, 1998, the Registrant had only one class of common stock, par value $0.01, of which there were 2,685,932 shares outstanding. 1 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements.
DATRON SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (In thousands) Sept 30, March 31 1998 1998 -------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $845 $634 Accounts receivable, net 14,259 15,487 Inventories 13,421 14,048 Deferred income taxes 3,502 3,502 Prepaid expenses and other current assets 833 848 -------- -------- Total current assets 32,860 34,519 Property, plant and equipment, net 9,763 10,864 Goodwill, net 5,544 5,646 Other assets 481 255 -------- -------- Total assets $48,648 $51,284 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $5,264 $8,745 Accrued expenses 3,771 3,932 Customer advances 2,072 965 Income taxes payable 541 203 Current portion of restructuring reserve --- 320 Current portion of long-term debt 1,681 --- -------- -------- Total current liabilities 13,329 14,165 Long-term debt 3,212 5,600 Deferred income taxes 1,914 1,914 -------- -------- Total liabilities 18,455 21,679 -------- -------- Stockholders' equity: Preferred stock -- par value $0.01; authorized 2,000,000 shares, none issued or outstanding --- --- Common stock -- par value $0.01; authorized 10,000,000 shares, 3,076,711 and 3,070,063 shares issued in September and March, respectively 31 31 Additional paid-in capital 10,716 10,670 Retained earnings 21,796 21,254 Treasury stock, at cost; 390,779 shares in September and March (2,106) (2,106) Stock option plan and stock purchase plan notes rec (244) (244) -------- -------- Total stockholders' equity 30,193 29,605 -------- -------- Total liabilities and stockholders' equity $48,648 $51,284 ======== ======== See notes to consolidated financial statements.
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DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per-share amounts) Three Months Ended Six Months Ended September 30, September 30, 1998 1997 1998 1997 ------- -------- -------- -------- Net sales $13,729 $14,937 $29,018 $25,278 Cost of sales 9,661 11,326 20,872 19,312 ------- -------- -------- -------- Gross profit 4,068 3,611 8,146 5,966 Selling, general and admin. 2,870 2,797 6,102 5,545 Research and development 513 471 963 860 -------- ------- -------- -------- Operating income (loss) 685 343 1,081 (439) Interest expense (84) (81) (212) (202) Interest income 39 --- 46 3 Other expense --- (4) --- (10) -------- ------- -------- -------- Income (loss) before income taxes 640 258 915 (648) Income taxes (benefit) 261 109 373 (249) -------- ------- -------- -------- Net income (loss) $379 $149 $542 ($399) ======== ======= ======== ======== Earnings (loss) per common share--basic $0.14 $0.06 $0.20 ($0.15) ======= ======== ======== ======== Weighted average number of common shares outstanding 2,686 2,667 2,684 2,666 ======= ======== ======== ======== Earnings (loss) per common share--assuming dilution $0.14 $0.06 $0.20 ($0.15) ======= ======== ======== ======== Weighted average number of common and common equivalent shares outstanding 2,686 2,689 2,684 2,666 ======= ======== ======= ========= See notes to consolidated financial statements.
3
DATRON SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Six Months Ended September 30, 1998 1997 ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $542 ($399) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,238 1,284 Restructuring (320) (452) Changes in operating assets and liabilities: Accounts receivable 1,228 1,341 Inventories 627 475 Prepaid expenses and other assets (220) (50) Accounts payable and accrued expenses (3,642) (689) Customer advances 1,107 1,757 Income taxes payable 338 --- --------- --------- Net cash provided by operating activities 898 3,267 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (102) (436) Proceeds from sales of property, plant and equipment 76 --- --------- --------- Net cash used in investing activities (26) (436) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in long-term debt 3,293 --- Decrease in revolving credit facility (4,000) (3,600) Stock options exercised --- 126 Issuance of common stock 46 --- Purchase of treasury stock --- (53) --------- --------- Net cash used in financing activities (661) (3,527) --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 211 (696) Cash and cash equivalents at beginning of period 634 1,072 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $845 $376 ========= ========= See notes to consolidated financial statements.
4 Datron Systems Incorporated Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation --------------------- The unaudited consolidated financial statements included herein contain the accounts of Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in connection with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended March 31, 1998. In the opinion of the Company's management, the accompanying unaudited financial statements contain all adjustments, consisting only of normal recurring adjustments, unless otherwise stated, which are necessary to present fairly its financial position at September 30, 1998 and the results of its operations and its cash flows for the periods presented. Results of operations for the periods presented herein are not necessarily indicative of what results will be for the entire fiscal year. The balance sheet at March 31, 1998 has been derived from audited financial statements. 2. Earnings (Loss) per Share ------------------------- Effective for the three-month period ended December 31, 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement provides simplified standards for the computation and presentation of earnings per share ("EPS"), making EPS comparable to international standards. SFAS No. 128 requires dual presentation on the face of the income statement of "Basic" and "Diluted" EPS by entities with complex capital structures, replacing "Primary" and "Fully Diluted" EPS illustrated under Accounting Principles Board Opinion No. 15, "Earnings Per Share." Basic EPS excludes dilution from common stock equivalents and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects potential dilution from common stock equivalents, similar to Fully Diluted EPS, but uses only the average stock price during the period as part of the computation. Shares used in computing earnings (loss) per common share assuming dilution include the weighted average of common stock outstanding plus equivalent shares issuable under the Company's stock option plans, when such amounts are dilutive. Options to purchase 317,000 shares of common stock at prices ranging from $6.50 - $15.73 were not included in the computation of diluted EPS at September 30, 1998 because the effect of such options would be anti-dilutive. Such options expire at various dates from May 16, 1999 to August 4, 2008. 3. Cash Equivalents ---------------- Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less and which are readily convertible into cash. 5 4. Accounts Receivable ------------------- At September 30, 1998 and March 31, 1998, accounts receivable were as follows:
September 30, March 31, 1998 1998 ------------ ----------- Billed $10,085,000 $ 8,676,000 Unbilled 4,485,000 7,001,000 ------------ ----------- Subtotal 14,570,000 15,677,000 Allowance for doubtful accounts ( 311,000) (190,000) ----------- ----------- Total $14,259,000 $15,487,000 =========== ===========
5. Inventories ----------- At September 30, 1998 and March 31, 1998, inventories were as follows:
September 30, March 31, 1998 1998 ------------ ----------- Raw materials $ 7,419,000 $7,830,000 Work-in-process 3,568,000 4,067,000 Finished goods 2,434,000 2,151,000 ------------ ----------- Total $13,421,000 $14,048,000 ============ ===========
Inventories are presented net of allowances for obsolescence of $1,753,000 and $1,656,000 at September 30, 1998 and March 31, 1998, respectively. 6. Property, Plant and Equipment ----------------------------- At September 30, 1998 and March 31, 1998, property, plant and equipment was as follows:
September 30, March 31, 1998 1998 ------------ ------------- Land and buildings $ 8,643,000 $ 8,557,000 Machinery and equipment 14,966,000 15,201,000 Furniture and office equipment 1,504,000 1,506,000 Leasehold improvements 817,000 821,000 Construction-in-process 113,000 299,000 ------------ ------------ Subtotal 26,043,000 26,384,000 Accumulated depreciation and amortization (16,280,000) (15,520,000) ------------ ----------- Total $ 9,763,000 $10,864,000 ============ ===========
7. Long-Term Debt -------------- On August 7, 1998, the Company issued a promissory note to a life insurance company in the amount of $3,300,000 pursuant to a loan agreement under which the Company borrowed the same amount. The note is secured by a deed of trust on the Company's Simi Valley facility and has a maturity date of September 1, 2008. Monthly payments are calculated on a 20-year amortization. Interest is payable at a rate of 6.76% per annum through September 1, 2003, at which date the interest rate becomes variable and tied to LIBOR, adjusting every quarter for the remainder of the term. On September 1, 2003, the Company may either prepay the note without penalty or accept the variable rate provisions. 6 At September 30, 1998 and March 31, 1998, long-term debt was as follows:
September 30, March 31, 1998 1998 ------------ ---------- Revolving line of credit at prime plus 1.50% in September and at prime plus 0.85% in March, due April 30, 1999. $1,600,000 $5,600,000 6.76% note payable due September 1, 2008 3,293,000 --- ---------- ---------- Total long-term debt $4,893,000 $5,600,000 Less current portion (1,681,000) --- ---------- ---------- Long-term debt $3,212,000 $5,600,000 ========== ==========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Datron Systems Incorporated and its wholly owned subsidiaries (the "Company") report operations in two business segments: Antenna and Imaging Systems, and Communication Products and Services. The Antenna and Imaging Systems business segment designs and manufactures specialized satellite communication systems, subsystems and antennas that are sold worldwide to commercial and governmental customers, including the U.S. Department of Defense ("DoD"). This segment also sells remote sensing satellite earth stations to worldwide commercial, scientific and military organizations. Another additional market for this segment is mobile direct broadcast satellite ("DBS") television reception systems for recreational vehicles, boats and large business jets. The Communication Products and Services business segment designs, manufactures and distributes high frequency and very high frequency radios and accessories for worldwide military and civilian purposes. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. A variety of factors could cause the Company's actual results to differ from the anticipated results expressed in such forward-looking statements. These include, among others, uncertainties stemming from the dependence of the Company on foreign sales and on large orders from a relatively small number of customers, risks relating to the decline in the Company's traditional defense business and the Company's efforts to develop and market consumer products, lack of timely development or customer acceptance of new products, worldwide economic downturns and currency devaluations, and the impact of competition. Investors are referred to the Company's periodic reports under the Securities Exchange Act of 1934, including without limitation, the Investment Considerations set forth in the Company's Annual Report on Form 10-K. Results of Operations - --------------------- Net income for the second quarter of fiscal 1999 was $379,000, or $0.14 per share, compared with net income of $149,000, or $0.06 per share, in the second quarter of fiscal 1998. Net sales in the second quarter of fiscal 1999 were $13,729,000, an 8% decrease from second quarter net sales last fiscal year of $14,937,000. The decrease in sales was primarily due to lower sales of remote sensing systems and radio products, partially offset by higher sales of DBS antenna products. The increase in net income for the second quarter resulted primarily from higher gross margins. Net income for the six months ended September 30, 1998 was $542,000, or $0.20 per share, compared with a net loss of $399,000, or $0.15 per share, for the comparable period last fiscal year. Net sales for the six months were $29,018,000, a 15% increase from net sales of $25,278,000 for the first six months last fiscal year. All product categories contributed to the higher sales, including a 51% increase in sales of DBS products from the first six months last fiscal year. The improvement from a net loss to net income for the recent six months was primarily due to higher gross profits on the higher sales, partially offset by higher operating expenses. 7 Operating results for each business segment were as follows: Antenna and Imaging Systems - --------------------------
Three Months Ended Six Months Ended September 30, September 30, 1998 1997 1998 1997 ---------- ---------- ----------- ----------- Net sales $9,378,000 $9,769,000 $19,405,000 $16,988,000 ========== ========== =========== =========== Gross profit $2,420,000 $1,876,000 $4,775,000 $3,235,000 ========== ========== =========== =========== Operating income (loss) $749,000 $234,000 $1,099,000 ($108,000) ========== ========== =========== ===========
Sales of Antenna and Imaging Systems products decreased 4% in the second quarter of fiscal 1999 compared with the second quarter of fiscal 1998. The decrease was due to lower sales of remote sensing systems, partially offset by higher sales of DBS antenna products. Sales in the first six months of fiscal 1999 were 14% higher than in the first six months of fiscal 1998. The increase was due to higher sales in all product categories. Gross profit percentage on sales of Antenna and Imaging Systems products was 25.8% in the second quarter of fiscal 1999 compared with 19.2% in the second quarter last fiscal year. The increase was primarily due to production efficiencies and the absence of severance costs related to a reduction in personnel in the second quarter of fiscal 1998. Gross profit percentage for the first six months of fiscal 1999 was 24.6% of sales compared with 19.0% of sales for the first six months of fiscal 1998. The increase was primarily due to production efficiencies and to a more favorable product mix. Operating income percentage on sales of Antenna and Imaging Systems products was 8.0% in the second quarter of fiscal 1999 compared with 2.4% in the second quarter last fiscal year. The increase resulted from higher gross profits. Operating income percentage for the first six months of fiscal 1999 was 5.7% of sales compared with an operating loss percentage of 0.6% of sales for the first six months of fiscal 1998. The improvement was primarily due to higher gross profits. Communication Products and Services - -----------------------------------
Three Months Ended Six Months Ended September 30, September 30, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Net sales $4,351,000 $5,168,000 $9,613,000 $8,290,000 ========== ========== ========== ========== Gross profit $1,648,000 $1,735,000 $3,371,000 $2,731,000 ========== ========== ========== ========== Operating income $285,000 $468,000 $654,000 $381,000 ========== ========== ========== ==========
Sales of Communication Products and Services decreased 16% in the second quarter of fiscal 1999 compared with the second quarter of fiscal 1998. The decrease was due to lower order bookings resulting from delays in anticipated international orders. Sales in the first six months of fiscal 1999 were 16% higher than in the first six months of fiscal 1998. The increase was primarily due to a faster turn around of orders in backlog at the beginning of the fiscal year. Worldwide economic instability has been responsible for the delay of several anticipated orders, and future anticipated orders may likewise be delayed. Gross profit percentage on sales of Communication Products and Services was 37.9% in the second quarter of fiscal 1999 compared with 33.6% in the second quarter last fiscal year. The increase was primarily due to a more favorable product mix. Gross profit percentage for the first six months of fiscal 1999 was 35.1% of sales compared with 32.9% of sales for the first six months of fiscal 1998 due to manufacturing efficiencies related to a higher level of sales. 8 Operating income percentage on sales of Communication Products and Services was 6.6% in the second quarter of fiscal 1999 compared with 9.1% in the second quarter last fiscal year. The decrease was primarily due to higher administrative expenses. Operating income percentage for the first six months of fiscal 1999 was 6.8% of sales compared with 4.6% of sales for the first six months of fiscal 1998. The increase was due to higher gross profits. Consolidated expenses were as follows: - ------------------------------------- Selling, general and administrative expenses were $2,870,000 in the second quarter of fiscal 1999, a 3% increase compared with second quarter of fiscal 1998 expenses of $2,797,000. The increase was primarily due to higher administrative expenses at the Communication Products and Services business segment. Selling, general and administrative expenses for the first six months of fiscal 1999 were $6,102,000, a 10% increase compared with first six months of fiscal 1998 expenses of $5,545,000. The increase was in line with the higher sales level and resulted from higher selling and administrative expenses at both business segments. Research and development ("R&D") expenses were $513,000 in the second quarter of fiscal 1999 compared with $471,000 in the second quarter last fiscal year. The 9% increase resulted from higher spending on development programs at the Antenna and Imaging Systems business segment. R&D expenses in the first six months of fiscal 1999 were $963,000, a 12% increase compared with first six months of fiscal 1998 expenses of $860,000. The increase resulted from higher spending on development programs at both business segments. The Company plans to increase R&D spending during the last six months of fiscal 1999 to further improve tracking antenna capabilities and to improve its mobile DBS television products. Order backlog at September 30 was as follows: - --------------------------------------------
1998 1997 ----------- ----------- Antenna and Imaging Systems $24,221,000 $23,971,000 Communication Products and Services 3,866,000 5,988,000 ----------- ----------- Total $28,087,000 $29,959,000 =========== ===========
The 1% increase in Antenna and Imaging Systems backlog at September 30, 1998 compared with September 30, 1997 was primarily due to a higher order backlog at the beginning of the current fiscal year, partially offset by higher sales during the first six months ended September 30, 1998. The 35% decrease in Communication Products and Services backlog at September 30, 1998 compared with September 30, 1997 was primarily due to lower order bookings in the second fiscal quarter ended September 30, 1998. As previously noted, worldwide economic instability has been responsible for the delay of several anticipated orders. Future results of operations may be adversely affected if additional orders are likewise delayed. Liquidity and Capital Resources - ------------------------------- At September 30, 1998, working capital was $19,531,000 compared with $20,354,000 at March 31, 1998, a decrease of $823,000 or 4%. Major changes affecting working capital during this period were the following: accounts receivable decreased $1,228,000 as collections exceed sales; inventories decreased $627,000 due to reductions in both antenna and radio products inventories; accounts payable and accrued expenses decreased $3,642,000; and customer advances increased $1,107,000. Additionally, borrowings on the Company's line of credit with its bank in the amount of $1,600,000 were reclassified as current from long-term because the Company's credit agreement with its bank is scheduled to expire in less than one year. The Company's cash position at September 30, 1998 was $845,000 compared with $634,000 at March 31, 1998, an increase of 33%. At September 30, 1998, the Company had borrowed $1,600,000 in term debt from its bank to meet operating cash requirements. On August 7, 1998, the Company borrowed $3,300,000 from a life insurance company in exchange for a promissory note secured by a deed of trust on the Company's Simi Valley facility. The promissory note bears interest at 6.76% per annum and has a maturity date of September 1, 2008. See Note 7 to the Consolidated Financial Statements in Part I, Item 1. 9 Capital equipment expenditures were $102,000 during the first six months of fiscal 1999 compared with $436,000 in the first six months last fiscal year. The decrease was due to lower purchases of equipment at both business segments. The Company anticipates expenditures for capital equipment will increase during the last six months of the current fiscal year. At September 30, 1998, the Company had a $15,500,000 committed revolving line of credit with its bank, of which up to $15,000,000 may be used for the issuance of letters of credit and up to $5,500,000 may be used for direct working capital advances provided that total credit extended does not exceed $15,500,000. The Company believes its existing working capital, anticipated future cash flows from operations, available credit with its bank and other financing alternatives available to the Company are sufficient to finance presently planned capital and working capital requirements through the end of fiscal 1999. Certain business opportunities could arise that would require working capital and credit availability for the issuance of letters of credit in amounts that exceed current credit limits with its bank. The Company believes there are alternative sources of financing available that would provide the necessary credit in that event; however, there can be no assurance the Company will be able to obtain such financing. Year 2000 Issues - ---------------- Some software included in products sold or licensed to the Company's customers and certain portions of the Company's internal operating systems may be subject to failure as a result of what is commonly known as the Year 2000 date issue (the "Year 2000 issue"). A discussion of this issue follows: The Company's state of readiness. - -------------------------------- The Company believes all systems and products currently sold and new products under development are Year 2000 compliant. Although the Company's assessment of its Year 2000 exposure is not complete, the Company currently believes its potential exposure to problems arising from the Year 2000 issue lies in three areas: - Information technology ("IT") previously sold or licensed to the Company's customers and non-IT components imbedded in products previously sold to the Company's customers. - IT and non-IT components (such as computer chips imbedded in hardware) used in the Company's internal operating systems. - Compliance with the Year 2000 issue by third parties with whom the Company has a material relationship. Products sold or licensed to customers: Most of the Company's antenna and image processing products and some of its radio communication products contain IT and non-IT components that may be affected by the Year 2000 issue. The Company is pursuing a three-phase program to identify and resolve this exposure: 1. Identify all products that contain IT and non-IT systems that are not Year 2000 compliant. To the extent practical, identify all customers who are still using those products. Status: Estimated 80% complete. Estimated completion date: December 31, 1998. 2. Determine appropriate solutions to remedy the non compliant products and systems. Those solutions may include software upgrades, replacement of non compliant components, referral of problems relating to third party-provided software to the original supplier, or determination that the age of the product or nature of the problem is such that replacement of the product or system is the only practical solution. Status: Estimated 50% complete. Estimated completion date: March 31, 1999. 3. Notify all identified customers of the Year 2000 issue associated with their products and systems, and inform them of the Company's policy regarding their situation. All products and systems under warranty or service agreement as of December 31, 1998 will be made Year 2000 compliant by the Company. Other customers who have products and systems that can economically be made Year 2000 compliant will be offered software upgrades and component replacement for a fee. Customers who have products or systems that cannot economically be made Year 2000 compliant will be so notified and informed of current product alternatives offered by the Company. Status: Estimated 10% complete. Estimated completion date: June 30, 1999. 10 Internal operating systems: Some of the Company's internal operating systems are Year 2000 compliant and some are not. The Company is pursuing a two-phase program to identify and resolve this exposure: 1. Systematically test and verify internal IT systems and modules for Year 2000 compliance. To the extent practical, systematically test and verify equipment and facility systems that contain non-IT components. Status: Estimated 65% complete. Estimated completion date: March 31, 1999. 2. Use internal programmers and outside consultants to upgrade those internal IT systems and modules that are not Year 2000 compliant. Replace non-IT components that are not Year 2000 compliant. Status: Estimated 50% complete. Estimated completion date: June 30, 1999. Third party relationships: Although the Company is rarely dependent on a single source of supply for IT and non-IT components, the failure of a selected supplier to timely deliver Year 2000 compliant IT and non-IT components could jeopardize the Company's ability to meet its required delivery schedules. (The Company is also dependent on third party service providers, such as telephone companies, banks and insurance carriers; however, the Company does not believe it has significant Year 2000 exposure from those providers and has not implemented any programs to assure Year 2000 compliance by them.) The Company is pursuing a two-phase program to identify and resolve Year 2000 exposure from third parties: 1. Develop a supplier compliance warranty for incorporation in all purchase orders issued after March 31, 1999. That warranty will require suppliers selling IT and non-IT components to the Company to certify that items delivered are Year 2000 compliant and require them to correct or replace any such item found to be non compliant. Status: Estimated 10% complete. Estimated completion date: March 31, 1999. 2. Develop alternative sources for IT and non-IT components that are Year 2000 compliant in the event existing suppliers are not able to meet compliance requirements. Status: Not yet started. Estimated completion date: September 30, 1999. Costs to address the Company's Year 2000 issues. - ----------------------------------------------- To date, the Company has spent approximately $50,000 in identifying and fixing Year 2000 issues and estimates it will incur an additional $230,000 for remediation of its remaining Year 2000 issues. Because the Company's assessment of its Year 2000 exposure is not complete, it is likely that this estimate will change. Risks of the Company's Year 2000 issues. - --------------------------------------- The Company believes the most reasonably likely worst case Year 2000 scenario would include a combination of some or all of the following: - - Products sold to some of its customers would fail to perform some or all of their intended functions. The Company estimates the maximum number of customers that may be affected is 75. In such a situation, the Company's maximum obligation would be to repair or replace the defective products to the extent the Company is required to do so under its contracts with its customers. - - Internal IT modules or systems may fail to operate or may give erroneous information. Such failure could result in production and shipping delays, inability to generate or delays in generation of financial reports and statements, and computer network downtime resulting in numerous inefficiencies and higher payroll expenses. 11 - - Non-IT components in HVAC, lighting, telephone, security and similar systems might fail and cause the entire system to fail. Non-IT components in production and test equipment might fail, resulting in delays in production and new product development. The Company's contingency plans. - ------------------------------- The Company believes its plans for addressing the Year 2000 issue as outlined above are adequate to handle the most reasonably likely worst case scenario. The Company does not believe it will incur a material financial impact for the risk of failure, or from the costs associated with assessing the risks of failure, arising from the Year 2000 issue. Consequently, the Company does not intend to create a contingency plan other than as set forth above. 12 PART II -- OTHER INFORMATION Item 1. Legal Proceedings. In August 1992, Trans World Communications, Inc. (Trans World), a wholly owned subsidiary of the Company and which was renamed Datron World Communications Inc. on March 31, 1995, was named as defendant in a lawsuit filed by ATACS Corporation (ATACS) and AIRTACS Corporation (AIRTACS) relating to a contract to provide radio communication shelters. ATACS and AIRTACS contend that Trans World entered into an agreement to team with them on the contract and then wrongfully failed to use them as subcontractors. They seek damages in excess of $2,000,000. In rulings on May 28, 1997 and September 3, 1997, the court found Trans World in breach of a teaming agreement and awarded ATACS and AIRTACS one dollar ($1.00) in damages. On September 8, 1998, the appeal court affirmed the district court's decision except as to the award of nominal damages, and remanded the matter to the district court for further hearing on damages. The Company believes that final resolution of this matter will not materially affect the consolidated financial position of the Company. Item 2. Changes in Securities. Pursuant to a business loan agreement with a bank, the Company must comply with certain financial covenants. The agreement also prohibits the Company from declaration or payment of dividends or other distributions on the Company's stock, except under certain conditions specified in the agreement. The Company is in compliance with both requirements. Item 4. Submission of Matters to a Vote of Security Holders On August 5, 1998, the Company held its annual meeting of stockholders, proxies for which were solicited pursuant to Regulation 14a under the Act. All existing directors were re- elected. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 10.65 Loan Agreement between Registrant and Jackson National Life Insurance Company dated August 7, 1998. 10.66 Datron Systems Incorporated Profit Sharing and Savings Plan (Amended and Restated as of April 1, 1998). (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter. 13 SIGNATURES Pursuant to the requirements 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. DATRON SYSTEMS INCORPORATED Date: October 29, 1998 /s/ WILLIAM L. STEPHAN Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-10.65 2 LOAN AGREEMENT by and between JACKSON NATIONAL LIFE INSURANCE COMPANY, as Lender and DATRON RESOURCES INC., as Borrower TABLE OF CONTENTS 1. INCORPORATION OF RECITALS 6 2. CERTAIN DEFINED TERMS 6 2.1. Affiliated Party 6 2.2. Agreement 6 2.3. Application/Commitment 6 2.4. Appraisal 6 2.5. Assignment of Leases 6 2.6. Intentionally Omitted 6 2.7. Building Laws 6 2.8. Business Day 7 2.9. Closing Date 7 2.10. Deed of Trust 7 2.11. Default Rate 7 2.12. Dollar 7 2.13. Environmental Indemnity Agreement 7 2.14. ERISA 7 2.15. Escrow Agent 8 2.16. Event of Default 8 2.17. Funding 8 2.18. Governmental Approvals 8 2.19. Governmental Authority 8 2.20. Intentionally Omitted 8 2.21. Guaranty 8 2.22. Hazardous Materials 8 2.23. Hazardous Materials Claims 8 2.24. Improvements 8 2.25. Interest 8 2.26. Internal Revenue Code 9 2.27. Laws 9 2.28. Lien 9 2.29. Loan 9 2.30. Loan Amount 9 2.31. Loan Closing 9 2.32. Loan Documents 9 2.33. Loan Fee 9 2.35. Maturity Date 10 2.36. Note 10 2.37. Payment Date 10 2.38. Permitted Exceptions 10 2.39. Phase I Environmental Assessment 10 2.40. Project 10 2.41. Real Property 10 2.42. Regular Interest 10 2.43. Regular Interest Payment Date 10 2.44. Regular Interest Rate 11 2.45. Security Agreement 11 2.46. Subordination Agreement 11 2.47. Taxes 11 2.48. Tenants 11 2.49. Title Company 11 3. LOAN AMOUNT. 11 3.1. Loan Amount 11 3.2. Borrower's Use of Loan Amount 11 4. FUNDING. 12 4.1. Amount of Funding 12 4.2. Procedure for Funding 12 4.3. Conditions Precedent to Funding 12 5. REGULAR INTEREST; DEFAULT INTEREST. 15 5.1. Accrual; Payment 15 5.2. Limitations on Regular Interest Payment Date 16 5.3. Default Interest Rate 16 5.4. Computation 16 5.5. Reset of Regular Interest Rate 16 5.6. Survival of Note and Other Loan Documents 17 6. PAYMENT 17 6.1. Amortized Payments 17 6.2. Prepayment 18 6.2.1. Prepayment Not Allowed 18 6.2.2. Prepayment Allowed 18 6.2.2.1. Second (2nd) Through Fifth (5th) Loan Years 18 6.2.2.2. Sixth (6th) Loan Year 18 6.2.2.3. Seventh (7th) Loan Year Through Date Ninety (90) Days Prior to Maturity Date 18 6.2.2.4. Ninety (90) Day Period Immediately Preceding Maturity Date 19 6.2.2.5. Partial Prepayment 19 6.2.3. Prepayment Premium Upon Acceleration 19 6.2.3.1. During the First (1st) Loan Year 19 6.2.3.2. After the First (1st) Loan Year 19 6.2.4. Waiver 20 6.3. Treatment of Payments 20 6.4. No Set-Off 20 6.5. Late Charges 21 7. MATURITY DATE 21 7.1. Maturity Date 21 7.2. Right to Accelerate Maturity Date 21 7.2.1. Lender's Option to Accelerate 21 7.2.2. Sale or Further Encumbrance 22 7.2.3. Change in Ownership 22 8. LOAN DOCUMENTS 22 9. LOAN FEE 23 10. REPRESENTATIONS AND WARRANTIES 24 10.1. Title 24 10.2. No Litigation 24 10.3. Due Authorization 24 10.4. Breach of Laws or Agreements 24 10.5. Leases 25 10.6. Condemnation 25 10.7. Consents and Taxes 25 10.8. Condition of Improvements 25 10.9. Information Correct 26 10.10. Material Adverse Change 26 10.11. Solvency 26 10.12. Zoning 26 10.13. Utilities 27 10.14. Brokerage Fees 27 10.15. Encroachments 27 10.16. Separate Parcel 27 10.17. ERISA 27 10.18. No Default 27 10.19. Trade Name; Principal Place of Business 27 10.20. FIRPTA 27 10.21. RICO 27 10.22. No Casualty 28 10.23. Hazardous Materials 28 11. BORROWER'S COVENANTS 28 11.1. Escrow Deposits 28 11.2. Payment of Taxes 29 11.3. Maintenance of Insurance 30 11.4. Mechanics' Liens 32 11.5. Maintenance, Repair and Restoration of Improvements 33 11.6. Leases and Lease Reports 33 11.7. Compliance With Laws 33 11.8. Alterations 33 11.9. Personal Property 34 11.10. Prohibition Against Cash Distributions and Application of Cash Flow 34 11.11. Inspection by Lender 34 11.12. Furnishing Information 34 11.13. Documents of Further Assurance 35 11.14. Furnishing Reports 35 11.15. Operation of Project and Zoning 35 11.16. Management, Agents' and Brokers' Contracts 36 11.17. Furnishing Notices 36 11.18. Corporate Existence 36 11.19. Articles of Incorporation 36 11.20. Publicity 36 11.21. No Additional Debt 36 11.22. Payments 37 12. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES 37 13. EVENTS OF DEFAULT 37 13.1. Events of Default 37 13.2. Remedies Conferred Upon Lender 39 13.2.1. Lender's Remedies 39 13.2.2. Non-Waiver of Remedies 39 13.2.3. Rents and Profits 39 13.2.4. Remedies Cumulative 40 13.2.5. Indemnification 40 14. EXPENSES, CHARGES AND ATTORNEYS' FEES 40 14.1. Expenses 40 14.2. Attorneys' Fees and Expenses 41 15. CASUALTY AND CONDEMNATION 42 15.1. Lender's Election to Apply Insurance and Condemnation Proceeds to Indebtedness 42 15.2. Borrower's Obligation to Rebuild and Use of Proceeds Therefor 43 16. ENVIRONMENTAL COVENANTS AND INDEMNITY 44 16.1. Compliance With Laws 44 16.2. Prohibited Acts 44 16.3. Notification; Right to Audit 44 16.4. Hazardous Materials Liabilities 45 16.5. Remedial Work 46 16.6. Indemnification 46 16.7. Survival 47 17. GENERAL PROVISIONS 47 17.1. Captions 47 17.2. Merger 47 17.3. Notices 47 17.4. Modification; Waiver 48 17.5. Governing Law 48 17.6. Further Assurances 48 17.7. General Provisions Relating to Interest 48 17.8. Estoppel Certificates 50 17.9. Acquiescence Not to Constitute Waiver of Lender's Requirements 50 17.10. Disclaimer by Lender 50 17.11. No Partnership 51 17.11.1. Creditor-Debtor Relationship 51 17.11.2. Indemnification 51 17.12. Right of Lender to Make Advances to Cure Borrower's Defaults 52 17.13. Definitions Include Amendments 52 17.14. Time Is of the Essence 52 17.15. Execution in Counterparts 52 17.16. Waiver of Consequential Damages 52 17.17. Jurisdiction and Venue 53 17.18. Severability 53 17.19. Assignments 53 17.19.1. Lender's Right to Assign 53 17.19.2. Prohibition of Assignments by Borrower 53 17.19.3. Intentionally Omitted 54 17.19.4. Successors and Assigns 54 17.20. Pronouns 54 17.21. Resolution of Drafting Ambiguities 54 17.22. Conflicts 54 17.23. Attorneys' Fees; Legal Action 54 17.23.1. Attorneys' Fees 54 17.23.2. Legal Action 55 17.24. Exhibits 55 17.25. Intentionally Omitted 55 17.26. Recourse 55 17.27. WAIVER OF JURY TRIAL 56 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement") is made as of the 7th day of August, 1998, by and between DATRON RESOURCES INC., a California corporation ("Borrower"), on the one hand, and JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan corporation, on the other hand ("Lender"). RECITALS This Agreement is made with reference to the following facts: A. Borrower is a corporation which has its principal place of business at 304 Enterprise Street, Escondido, California 92029. Borrower's sole shareholder is Datron/Transco Inc. B. Borrower is the owner of that certain real estate (the "Real Property") located in the City of Simi Valley, County of Ventura, State of California, consisting of approximately 8.90 acres which is improved with one (1) industrial building containing 111,960 net rentable square feet, consisting of approximately fifty percent (50%) corporate office finish, commonly known as the Datron Transco Building (the "Building"). The Real Property is more particularly described in Exhibit "A" attached hereto and made a part hereof. C. Borrower desires to refinance the Real Property and the Building, and to enable it to do so, Borrower desires to borrow from Lender the sum of Three Million Three Hundred Thousand and No/100 U.S. Dollars (U.S. $3,300,000.00). D. Lender is willing to lend the sum of Three Million Three Hundred Thousand and No/100 U.S. Dollars (U.S. $3,300,000.00) to Borrower upon the terms and subject to the conditions contained herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein and for other valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. INCORPORATION OF RECITALS. The above Recitals are incorporated herein by this reference. 2. CERTAIN DEFINED TERMS. The following terms as used herein shall have the following meanings: 2.1. Affiliated Party shall mean any person or entity who, directly or indirectly, whether by itself or through one or more intermediaries, controls or is controlled by, or is under common control with, Borrower, including but not limited to any entity whose principals are comprised of, identical to, or substantially in common with Borrower, or the principals of Borrower. 2.2. Agreement shall mean this Agreement, as originally executed or as may be hereafter supplemented or amended from time to time in writing. 2.3. Application/Commitment shall mean the written application submitted to PPM Finance, Inc. for the Loan (as defined below) dated April 22, 1998, as modified by handwritten comments thereon and that certain Mortgage Loan Application Amendment No. 1 - Revised, dated June 1, 1998, and the acceptance thereof as a commitment dated July 1, 1998. 2.4. Appraisal shall mean an appraisal which: (i) is prepared by an appraiser who (a) is a member of a national appraisal organization that has adopted the Uniform Standards of Professional Appraisal Practice (USPAP) established by the Appraisal Standards Board of the Appraisal Foundation, and (b) uses the assumptions and limiting conditions established by Lender; and (ii) conforms with Lender's appraisal guidelines and the requirements of the Application/Commitment. 2.5. Assignment of Leases shall mean that certain document entitled Assignment of Leases, Rents, Issues and Profits of even (or approximately even) date herewith executed by Borrower in favor of Lender, in the form attached hereto as Exhibit "D." 2.6. Intentionally Omitted. 2.7. Building Laws shall mean all federal, state and local laws, statutes, regulations, codes, ordinances, orders, rules and requirements applicable to the development, construction, use, operation, management and maintenance of the Property (as defined below), including any and all access, building, zoning, planning, subdivision, fire, traffic, safety, health, labor, discrimination, environmental, air quality, wetlands, shoreline, flood plain laws, regulations and ordinances, including, without limitation, all applicable requirements of the Fair Housing Act of 1988 (as amended), the Americans with Disabilities Act of 1990, as amended and all orders or decrees of any court adopted or enacted with respect thereto applicable to the Project, as any of the same may from time to time be amended, modified or supplemented. 2.8. Business Day shall mean any day on which (i) dealings in U.S. Dollar deposits between banks may be carried on in New York, New York, and (ii) Lender is open for business at its principal place of business in Chicago, Illinois. 2.9. Closing Date shall mean the date of the Funding (as defined below) and recordation of the Deed of Trust (as defined below). The Closing Date shall occur no later than August 31, 1998 or such later date as the parties may hereafter agree upon in writing. If the Funding has not occurred on or before August 31, 1998, this Agreement may be declared null, void and of no force or effect, at Lender's sole option. 2.10. Deed of Trust shall mean that certain Deed of Trust, Assignment of Rents and Security Agreement of even (or approximately even) date herewith, encumbering the Project (as defined below), executed by Borrower, as Trustor, for the benefit of Lender, as Beneficiary, in the form attached hereto as Exhibit "C," granting Lender a first priority lien and security interest in the Project to secure Borrower's payment of the amounts due and performance of the obligations under the Loan Documents (as defined below). 2.11. Default Rate shall mean a rate per annum equal to the lesser of (i) eighteen percent (18%), or (ii) the Highest Lawful Rate (as defined in Section 17.7, below). 2.12. Dollar, Dollars and $ shall mean dollars in lawful currency of the United States of America. 2.13. Environmental Indemnity Agreement shall mean the document entitled Environmental Indemnity Agreement of even (or approximately even) date herewith executed by Borrower, as "Indemnitor" thereunder, for the benefit of Lender and others, as "Indemnified Parties" thereunder, in the form attached hereto as Exhibit "G." 2.14. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder from time to time. 2.15. Escrow Agent shall mean Chicago Title Company, 700 South Flower Street, Los Angeles, California, 90017 Attention: Laine Cheng. 2.16. Event of Default shall mean any one of the "Events of Default" set forth in Section 13.1, below. 2.17. Funding shall mean the advance of the Loan Amount (as defined below) made by Lender to Borrower pursuant to Section 4, below. 2.18. Governmental Approvals shall mean all required consents, licenses and permits and all other authorizations or approvals relating to the operation of the Project (as defined below) by a Governmental Authority (as defined below). 2.19. Governmental Authority shall mean any federal, state, county or municipal government, or political subdivision thereof, any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality, or public body, or any court, administrative tribunal, or public utility. 2.20. Intentionally Omitted. 2.21. Guaranty shall have the meaning ascribed to it in Section 4.3(c), below. 2.22. Hazardous Materials shall have the meaning ascribed to it in Section 16.2, below. 2.23. Hazardous Materials Claims shall have the meaning ascribed to it in Section 16.3, below. 2.24. Improvements shall mean with respect to the Real Property (as defined below), all of Borrower's ownership interest in (i) the Building, including all present and future structures, buildings (including roofs and exterior walls), improvements, appurtenances, landscaping, pavement, and fencing, and (ii) fixtures of any kind located on any portion of the Real Property, including all apparatus, equipment, furniture, and appliances located on, in or at the Building, including without limitation, heating and air-conditioning systems, life safety systems, window coverings, drapes and rods, carpeting and floor coverings, as described in Exhibit "B" attached to the Deed of Trust and incorporated herein by this reference, it being intended and agreed that all such items shall be conclusively considered to be a part of the Real Property, whether or not attached or affixed thereto. 2.25. Interest shall mean Regular Interest (as defined below) or Default Interest (as defined in Section 5.3, below), as applicable. 2.26. Internal Revenue Code shall mean the Internal Revenue Code of 1986, as amended from time to time, the regulations promulgated thereunder from time to time, and any successor statute. 2.27. Laws shall mean collectively, all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the applicable jurisdiction, as any of the same may from time to time be amended, modified or supplemented. 2.28. Lien shall mean any lien, mortgage, pledge, security interest, lease, charge, option or encumbrance of any kind, whether voluntary or involuntary (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to create or give any security interest). 2.29. Loan shall mean the loan made by Lender to Borrower pursuant to the terms of this Agreement, the Note (as defined below) and the other Loan Documents (as defined below). 2.30. Loan Amount shall mean the principal amount of Three Million Three Hundred Thousand and No/100 U.S. Dollars (U.S. $3,300,000.00). 2.31. Loan Closing shall mean the Closing Date. 2.32. Loan Documents shall mean and include this Agreement, the Note (as defined below), the Deed of Trust, the Security Agreement (as defined below), the Assignment of Leases, the Guaranty, the UCC-1 Financing Statement, the Environmental Indemnity Agreement, the Subordination Agreement (defined below) and other specific written agreements and instruments by and between Borrower and Lender which evidence, secure or directly relate to the Loan, as originally executed or as any of the same may be hereafter supplemented or amended from time to time in writing. 2.33. Loan Fee shall mean a sum equal to the good faith deposit in the amount of Thirty-Three Thousand and No/100 U.S. Dollars (U.S. $33,000.00), the commitment fee in the amount of Thirty-Three Thousand and No/100 U.S. Dollars (U.S. $33,000.00), and the rate lock deposit in the amount of Thirty-Three Thousand and No/100 U.S. Dollars (U.S. $33,000.00), all payable as provided in Section 9, below. 2.34. Loan Year shall mean any twelve (12) month period commencing on September 1st in one calendar year and ending on August 31st in the succeeding calendar year. Notwithstanding the foregoing, the first Loan Year shall mean the period commencing on the date of Funding and ending on August 31, 1999, and the last Loan Year shall mean the period commencing on September 1, 2007 and ending on the Maturity Date. By way of example, the second Loan Year shall mean the period commencing on September 1, 1999 and ending on August 31, 2000, the third Loan Year shall mean the period commencing on September 1, 2000 and ending on August 31, 2001, and so on. 2.35. Maturity Date shall be as defined in Section 7.1, below. 2.36. Note shall mean that certain document entitled Promissory Note Secured By Deed of Trust to be executed by Borrower payable to the order of Lender in the face amount of Three Million Three Hundred Thousand and No/100 U.S. Dollars (U.S. $3,300,000.00) in the form attached hereto as Exhibit "B." 2.37. Payment Date shall mean (i) the date on which any payment of principal, Regular Interest (as defined below) or Default Interest (as defined herein) is due, or (ii) the Maturity Date, as the context requires. 2.38. Permitted Exceptions shall mean those Liens and other matters with respect to the Real Property which are described on Exhibit "K" attached hereto and made a part hereof and any such other title exceptions or objections, if any, as Lender may approve in advance in writing. 2.39. Phase I Environmental Assessment shall mean that certain Phase I Environmental Assessment of the Real Property dated as of July 15, 1998, prepared by Versar, Inc. 2.40. Project shall mean all of the Real Property and Improvements, including but not limited to the Building, all rights, privileges, easements, hereditaments and appurtenances, thereunto relating or appertaining, and all personal property, fixtures and equipment required or used (or to be used) for the operation thereof owned by Borrower in which Lender is granted a Lien and/or security interest under any of the Loan Documents. 2.41. Real Property shall mean that certain parcel of real property more particularly described in Exhibit "A" attached hereto and made a part hereof, as well as all entitlements, rights and easements appurtenant thereto. 2.42. Regular Interest shall mean interest on the unpaid principal balance of the Loan at the Regular Interest Rate (as defined below), as determined pursuant to this Agreement. 2.43. Regular Interest Payment Date shall mean the first (1st) day of each and every calendar month during the term hereof; provided, however, that if any such date is not a Business Day, the Regular Interest Payment Date shall be the first (1st) Business Day which precedes the first (1st) day of the calendar month. Regular Interest shall be payable on each Regular Interest Payment Date; provided, however, that if the Closing Date falls on any date which is not the first (1st) day of a calendar month, then the first payment of Regular Interest (which shall be a prorated amount based on the number of days from and including the date of Funding to and excluding the first (1st) Regular Interest Payment Date occurring after the date of Funding) shall not be made on the first Regular Interest Payment Date, but shall be due and payable concurrently with the Funding of the Loan. The second payment of Regular Interest shall then be due, according to schedule, on the second Regular Interest Payment Date occurring after the date of the Funding. Notwithstanding anything in this Agreement to the contrary, no Regular Interest Payment Date may extend beyond the Maturity Date. 2.44. Regular Interest Rate shall mean interest at an annual rate of six and seventy-six one-hundredths percent (6.76%), as such rate shall be reset in accordance with Section 5.5, below. 2.45. Security Agreement shall mean the document entitled Security Agreement of even (or approximately even) date herewith executed by Borrower in favor of Lender, in the form attached hereto as Exhibit "E." 2.46. Subordination Agreement shall mean that certain Subordination and Attornment Agreement, of even date (or approximately even) herewith, by and among Borrower, Lender and Tenant (defined below) substantially in the form attached hereto as Exhibit "H." 2.47. Taxes shall mean taxes, levies, imposts, duties, withholdings or other charges of whatever nature levied, imposed, collected, withheld or assessed by any Government Authority or any political subdivision or taxing authority thereof, other than any such charges on or measured by the net income, net worth or shareholders' capital of Lender. 2.48. Tenants shall mean the lessees of the Building, or any assignee or successor-in-interest thereto. 2.49. Title Company shall mean Chicago Title Company, whose address is set forth in Section 2.15, above. 3. LOAN AMOUNT. 3.1. Loan Amount. Subject to the terms and conditions of this Agreement, Lender agrees to lend to Borrower and Borrower agrees to borrow from Lender the Loan Amount for the purpose of refinancing the Project which must be substantially in accordance with the sources and uses statement attached to the Application/Commitment. To further evidence the Loan and/or to secure its payment, Borrower shall execute and deliver to Lender the Loan Documents as required by this Agreement. 3.2. Borrower's Use of Loan Amount. Borrower shall use the Loan Amount solely and exclusively for the purpose stated in Section 3.1, above and other uses directly related to maintaining, managing, owning and improving the Real Property and/or Improvements, including expenses incurred in connection with obtaining the Loan. Borrower shall not use any portion of the Loan Amount for any purpose not specifically permitted pursuant to this Section 3.2 without the prior written consent of Lender, which consent may be withheld in Lender's sole and absolute discretion. 4. FUNDING. 4.1. Amount of Funding. Unless otherwise specifically provided in writing by Lender and Borrower, the Loan shall be funded to Borrower in one funding in an amount equal to the Loan Amount. 4.2. Procedure for Funding. So long as (i) no Event of Default has occurred and/or is continuing hereunder, and (ii) all conditions precedent specified in Section 4.3, below, have been satisfied by Borrower or waived in writing by Lender by no later than one (1) day prior to the Closing Date, Lender shall wire transfer the Loan Amount to the Title Company and shall deliver Lender's closing instructions to the Title Company and/or the Escrow Agent. The Loan Amount shall be held in escrow by the Title Company until the Loan Documents have been fully executed by Borrower and have been delivered to Lender, or are held by the Title Company for delivery to Lender, and all other instructions contained in Lender's closing instructions to the Title Company have been satisfied. 4.3. Conditions Precedent to Funding. The obligation of Lender to make the Loan is subject to Borrower having satisfied or Lender having waived in writing (each as determined by Lender in its sole and absolute discretion) each of the following conditions precedent at or prior to the Closing Date: (a) Borrower has delivered, or the Title Company is prepared to deliver to Lender the Note, the Deed of Trust and all other Loan Documents each in form and substance satisfactory to Lender and each duly executed and delivered by Borrower. (b) Title Company is prepared to issue to Lender with respect to the Real Property an ALTA Extended-Coverage Lender's Policy of Title Insurance (at Borrower's sole expense), which policy shall have a liability amount not less than the Loan Amount and shall be subject only to the Permitted Exceptions (the "Title Policy"). The Title Policy shall (a) be issued in ALTA (1970) form, or another form accepted and approved by Lender, and (b) include: (i) coverage satisfactory to Lender, including, but not limited to, coverage insuring the priority of the Lien of the Deed of Trust over mechanic's, materialmen's or laborers' liens, notwithstanding the commencement of any work or improvement visible on the Real Property; (ii) endorsements required by Lender; and (iii) coverage and/or direct access reinsurance otherwise required by and satisfactory to Lender. (c) Borrower has delivered, has caused to be delivered, or the Title Company is prepared to deliver to Lender a guaranty (the "Guaranty"), executed by an authorized signatory of Datron Systems Incorporated (the "Guarantor"), as Guarantor for the benefit of Lender with respect to Borrower's obligations hereunder, in the form attached hereto as Exhibit "K." (d) Borrower shall have delivered to Lender an Urban ALTA/ACSM Land Title Survey of the Real Property and the Improvements (at Borrower's sole expense) prepared by a professional land surveyor entirely satisfactory to Lender (the "Survey"), which Survey shall be certified to Lender and the Title Company. In addition, the record legal description of the Real Property must appear on the Survey, and any record easements or servitudes and covenants affecting the Real Property must be plotted thereon. The Survey must (i) be dated no more than sixty (60) days earlier than the Closing Date, (ii) provide evidence satisfactory to Lender that all streets providing access to the Project are dedicated for public use and maintained by the appropriate governmental authority, (iii) provide evidence that all utilities, including electricity, gas, water and sewage, reach the property by means of valid easements and (iv) be in a form satisfactory to Lender. (e) Lender shall have received (i) a certified copy of the Articles of Incorporation of Borrower, (ii) a copy of the by-laws of Borrower, (iii) a Certificate of Status for Borrower (evidencing that Borrower is in good standing in California) issued by the Secretary of State of California dated as of a date not earlier than thirty (30) calendar days prior to the Closing Date, and (iv) a list of all officers, directors and shareholders of Borrower with an indication of shares held by each. (f) Lender shall have received a certified resolution of Borrower's Board of Directors authorizing (i) the borrowing made by Borrower pursuant to this Agreement, and (ii) the execution and delivery of the Loan Documents by the person(s) signing this Agreement and the other Loan Documents on behalf of Borrower. (g) Lender shall have received an opinion of counsel for Borrower and an opinion of counsel for Guarantor both in form and substance acceptable to Lender covering, without limitation, those items set forth in the Application/Commitment. (h) Borrower shall have delivered to Lender, at Borrower's sole expense, a UCC lien search on Borrower, Datron Systems Incorporated, and the Building, respectively, for the State of California (Secretary of State's Office) and the County of Ventura which: (i) is prepared by a search company acceptable to Lender; (ii) is dated as of a date not earlier than thirty (30) days prior to the Closing Date; and (iii) reflects no UCC financing liens on the Project other than those previously approved in writing by Lender's counsel. (i) Lender shall have received all financial information from Borrower required under the Application/Commitment, or otherwise, and all such information shall be satisfactory to Lender. (j) Lender shall have been provided with certificates evidencing all the insurance policies on the Project required by Lender pursuant to the Deed of Trust, which policies shall include a standard "Lender's Loss Payable Endorsement" satisfactory to Lender naming Lender as an additional insured and mortgagee. The originals of said certificates shall be provided to Lender no later than thirty (30) days after the Closing Date. (k) Lender shall have received and approved the Appraisal, which Appraisal shall be subject to, and must satisfy, all of Lender's requirements, as set forth in the Application/Commitment, or otherwise. (l) Borrower shall have delivered to Lender and Lender shall have approved, the Phase I Environmental Assessment, which Phase I Environmental Assessment shall be subject to, and must satisfy, all of the requirements set forth in the Application/Commitment. Borrower shall have also delivered to Lender a fully-executed Environmental Indemnity Agreement, in form and content identical to that attached hereto as Exhibit "G." (m) Borrower shall have caused an engineering inspection of the Real Property and the Improvements to be completed, and delivered to Lender a summary of the findings of such inspection in form and content satisfactory to Lender. Such inspection shall be subject to, and must satisfy, all of the requirements set forth in the Application/Commitment. (n) Borrower shall have caused a seismic inspection of the Real Property and the Improvements to be completed, and delivered to Lender a summary of the findings of such an inspection in form and content satisfactory to Lender. Such inspection shall be subject to, and must satisfy, all of the requirements set forth in the Application/Commitment. (o) Borrower shall have delivered to Lender true and complete copies of all leases, subleases, option agreements, management agreements and other rental or occupancy agreements relating to the Property and all amendments or modifications thereto. Borrower also shall have provided or delivered to Lender: (i) a copy of Borrower's proposed form lease, which form lease shall have been approved by Lender; (ii) a copy of the most current financial statement for each lessee, along with financial statements for the prior (3) three years (if available) for each lessee; (iii) an estoppel certificate and Subordination Agreement from each lessee; and (iv) at least five (5) Business Days prior to Loan Closing, a certified Rent Roll (as defined below) of the Project for the ten (10) days prior to Closing, evidencing that (a) the tenancies generate monthly rental income of at least Fifty-Five Thousand and No/100 Dollars ($55,000.00) (excluding parking); (b) the current occupancy rate is no less than one hundred percent (100%); and (c) the annualized net operating income for the Project is at least Five Hundred Forty Thousand and No/100 Dollars ($540,000.00). (p) Borrower shall have delivered to Lender true and complete copies of: (i) paid tax receipts for the two (2) years prior to the year in which the Funding occurs covering Taxes, (ii) a copy of the current tax bill covering Taxes (iii) the most recent rendition of personal property filed with the taxing authority; (iv) an inventory of all tangible personal property and equipment owned by Borrower; (v) a valid Certificate of Occupancy for each element of the Improvements; (vi) all Governmental Approvals; (vii) letters from all utility companies serving the Project that utilities are being provided to the Property; (viii) evidence satisfactory to Lender that the Improvements comply with all applicable zoning laws; and (ix) all other documents reasonably requested and required by Lender. (q) Borrower shall have provided Lender with evidence that the annual debt service on the Loan (calculated by multiplying the monthly payment of principal and interest by twelve (12)) does not exceed Three Hundred Nineteen Thousand Fifteen and No/100 Dollars ($319,015.00). (r) No Event of Default (and no event which with the giving of notice, lapse of time or both would constitute an Event of Default) shall have occurred and be continuing on the Closing Date. All the representations and warranties made by Borrower in this Agreement and in the Deed of Trust shall have been true and correct when made and shall be true and correct in all material respects as if made on the Closing Date. All the covenants of Borrower contained herein, in the Deed of Trust or in any one or more of the other Loan Documents shall have been fully satisfied by Borrower or waived in writing by Lender on or prior to the Closing Date. (s) Lender shall have received such other approvals, opinions and documents as it may reasonably request. 5. REGULAR INTEREST; DEFAULT INTEREST. 5.1. Accrual; Payment. Regular Interest on the outstanding principal of the Loan shall accrue from the date of the Funding at the applicable Regular Interest Rate. Payments of Regular Interest shall be made by Borrower on each and every Regular Interest Payment Date during the term of the Loan; provided, however, that if the Closing is on a day other than the first day of a calendar month, the first payment of Regular Interest shall be made in advance on the Closing Date, as described in Section 6.1, below. 5.2. Limitations on Regular Interest Payment Date. 5.2.1. Each Regular Interest Payment Date for the Loan which would otherwise fall on a day which is not a Business Day shall be on the first (1st) Business Day which precedes the first (1st) day of the calendar month. 5.2.2. No Regular Interest Payment Date may extend beyond the Maturity Date. 5.3. Default Interest Rate. After the occurrence of an Event of Default and until such Event of Default has been cured, any and all amounts payable under this Agreement, the Note, the Deed of Trust or the other Loan Documents shall bear interest at the Default Interest Rate ("Default Interest"). 5.4. Computation. All computations of Regular Interest and Default Interest shall be made on the basis of a thirty (30) day month, a three hundred sixty (360) day year and a twenty (20) year amortization. Regular Interest or Default Interest, as the case may be, shall be computed by multiplying the Regular Interest Rate or Default Interest Rate, as applicable, by a fraction, the numerator of which shall be equal to the number of days that have elapsed during the period for which such computation is made (including the first day of such period but excluding the last day of such period) and the denominator of which shall be three hundred sixty (360), unless such computation shall result in a Regular Interest Rate or Default Interest Rate higher than the Highest Lawful Rate (as defined below in Section 17.7), in which event the Regular Interest Rate or Default Interest Rate, as applicable, shall be the Highest Lawful Rate. Regular Interest and Default Interest shall not be compounded. 5.5. Reset of Regular Interest Rate. Commencing on the first (1st) day of the sixth (6th) Loan Year (to wit, September 1, 2003) (the "Reset Date"), Lender shall reset the Regular Interest Rate to a new variable rate (the "Reset Rate"), as set forth below in this Section 5.5. Lender, sometime during the period commencing on January 1, 2003 and ending on March 31, 2003, shall provide Borrower with written notice (the "Reset Notice") specifying the applicable interest rate spread (the "Spread") over the ninety (90) day LIBOR Index, as listed in the "Money Rates" column in the "Money and Investing" section of the Wall Street Journal, as published on the Business Day prior to the applicable Adjustment Date (defined below), or if such Index is then no longer published daily therein, then as available through Bloomberg, L.P. or a similar service designated by Lender in Lender's sole and absolute discretion (the "Index"). The Spread shall be determined by Lender in Lender's sole and absolute discretion. The Reset Rate shall be adjusted as of the last Business Day of each calendar quarter (with each such date herein being referred to as an "Adjustment Date"). Following each Adjustment Date, the monthly payment, as set forth in Section 6, below, shall be adjusted accordingly, with the principal amortization schedule remaining unchanged. As Regular Interest is paid in arrears, the monthly payment will not be adjusted until the first (1st) calendar day of the month following each Adjustment Date. Lender, during the first (1st) two (2) weeks of June, 2003, shall calculate and notify Borrower of the initial Reset Rate which shall apply as of first (1st) day of the sixth (6th) Loan Year (to wit, September 1, 2003). If Borrower elects to accept the Reset Rate, it shall provide written notice to Lender of its acceptance no later than June 30, 2003. If Borrower fails to provide such notice to Lender or elects not to accept the Reset Rate, the Loan shall be due and payable, without any Prepayment Premium (as defined in Section 6.2, below), on or before September 1, 2003. If Borrower elects to accept the Reset Rate, the Reset Rate, as adjusted pursuant to this Section 5.5 and subject to Section 17.7, below, shall become the Regular Interest Rate for the remainder of the Loan commencing on the Reset Date. 5.6. Survival of Note and Other Loan Documents. It is the intention of Lender and Borrower that this Agreement and the Note shall remain in full force and effect and shall continue to be secured by the Loan Documents (except for the Environmental Indemnity Agreement, which shall be unsecured) until all obligations of Borrower to Lender under this Agreement, including, but not limited to this Section 5, have been fully satisfied. Notwithstanding any other provision of any of the Loan Documents, the Loan Documents and any other security for this Agreement and/or the Note shall continue in full force and effect, and Borrower shall have no right to a release of any security for this Agreement and/or the Note until all of Borrower's obligations under the Note, this Agreement (including but not limited to, this Section 5) and the other Loan Documents (other than the Environmental Indemnity Agreement) have been paid and performed in full. Once all of Borrower's obligations under the Note, this Agreement (including but not limited to this Section 5) and the other Loan Documents (other than the Environmental Indemnity Agreement) have been paid and performed in full, Lender shall release all security for this Agreement, including but not limited to having the Trustee (as that term is defined in the Deed of Trust) reconvey the Project to Borrower. 6. PAYMENT. 6.1. Amortized Payments. Borrower shall make monthly payments of principal and Regular Interest, in arrears, on each and every Regular Interest Payment Date during the term of the Loan without set-off, deduction, demand or notice of any kind or nature whatsoever; provided, however, that if the Closing Date falls on any date which is not the first (1st) day of a calendar month, then the first (1st) payment of Regular Interest (which shall be a pro-rated amount of Regular Interest only based on the number of days from and including the date of Funding to the first (1st) Regular Interest Payment Date following the date of Funding), shall be made on the date of Funding (and, at Lender's sole option, deducted from the Loan Amount), and the first amortized payment of principal and Regular Interest shall be due on the second Regular Interest Payment Date following the date of Funding. Borrower's monthly payments of principal and Regular Interest shall be calculated on the basis of a three hundred sixty (360) day year and a twenty (20) year amortization, as described in Section 5.4, above, and, as applicable, shall adjust as the Regular Interest Rate adjusts, as set forth in Section 5.5, above. On the Maturity Date, the entire outstanding principal balance of the Loan, together with any and all accrued and unpaid Regular Interest, and all other amounts, of any kind or nature whatsoever, owing by Borrower to Lender under the Loan Documents shall be fully due and payable to Lender. 6.2. Prepayment. 6.2.1. Prepayment Not Allowed. This Loan may not be prepaid during the first (1st) Loan Year. 6.2.2. Prepayment Allowed. 6.2.2.1. Second (2nd) Through Fifth (5th) Loan Years. During the period commencing on the first (1st) day of the second Loan Year and ending on the last day of the fifth (5th) Loan year, Borrower may prepay the Loan in whole or in part upon payment to Lender of a prepayment premium equal to the greater of (i) one percent (1%) of the prepaid amount, or (ii) an amount calculated at the time of prepayment using a formula designed to compensate Lender for the loss of its performing Loan ("Yield Protection Payment"). This Yield Protection Payment will be calculated by (a) assuming reinvestment of the prepaid amount in U.S. Treasury securities with maturities as close as practicable to the Maturity Date, (b) assuming conversion of the Note to a bond-equivalent, interest- only note without changing its interest rate, and (c) determining the present value of the difference between the two assumed interest-payment streams, using the yield of the assumed reinvestment as the discount rate. Borrower agrees that Lender shall not be obligated to actually reinvest the amount prepaid in any Treasury obligations as a condition precedent to receiving the Prepayment Premium hereunder. 6.2.2.2. Sixth (6th) Loan Year. During the sixth (6th) Loan Year, Borrower may prepay the Loan in whole or in part upon payment to Lender of a prepayment premium equal to two percent (2%) of the prepaid amount. 6.2.2.3. Seventh (7th) Loan Year Through Date Ninety (90) Days Prior to Maturity Date. During the period commencing on the first (1st) day of the seventh (7th) Loan Year and ending on the date which is ninety (90) days prior to the Maturity Date, Borrower may prepay the Loan in whole or in part upon payment to Lender of a prepayment premium equal to one percent (1%) of the prepaid amount. 6.2.2.4. Ninety (90) Day Period Immediately Preceding Maturity Date. During the ninety (90) day period immediately preceding the Maturity Date, Borrower may prepay the Loan in full without any prepayment premium. 6.2.2.5. Partial Prepayment. Notwithstanding the foregoing, during each of the first five (5) Loan Years, Borrower may prepay up to ten percent (10%) of the then outstanding balance of the Loan (on a non-cumulative basis) upon payment of a prepayment premium equal to one percent (1%) of prepaid amount in each such year. Thereafter, during each of the remaining Loan Years, Borrower may prepay up to ten percent (10%) of the then outstanding balance of the Loan (on a non-cumulative basis) without any prepayment premium. Any prepayment premium required to be paid by Borrower pursuant to this Section 6.2.2 shall hereinafter be referred to as a "Prepayment Premium." No Prepayment Premium will be charged on amounts attributable to insurance or condemnation proceeds applied to reduce the principal balance of the Loan. 6.2.3. Prepayment Premium Upon Acceleration. 6.2.3.1. During the First (1st) Loan Year. Following an Event of Default during the first (1st) Loan Year, including but not limited to any transfer or conveyance of any right, title or interest in the Real Property and/or Improvements encumbered by the Deed of Trust, which gives Lender the right to accelerate the maturity of the Note pursuant to the terms of the Deed of Trust, if Lender elects to accelerate the maturity of the Note, Borrower agrees to pay, as an additional amount to be secured by the Deed of Trust, the greater of (i) the Prepayment Premium, and (ii) ten percent (10%) of the principal amount due on the date of the Event of Default (the later being the "Acceleration Prepayment Premium"). 6.2.3.2. After the First (1st) Loan Year. Following an Event of Default after expiration of the first (1st) Loan Year, including but not limited to any transfer or conveyance of any right, title or interest in the Real Property and/or Improvements encumbered by the Deed of Trust, which gives Lender the right to accelerate the maturity of the Note pursuant to the terms of the Deed of Trust, if Lender elects to accelerate the maturity of the Note, Borrower agrees to pay, as an additional amount to be secured by the Deed of Trust, the Prepayment Premium which would be applicable had Borrower elected to prepay the Loan on the date of the Event of Default, as set forth in Section 6.2.2, above. 6.2.4. Waiver. By initialing this subsection below, Borrower expressly waives any right under California Civil Code 2954.10 or otherwise to prepay the Loan, in whole or in part, without paying the applicable Prepayment Premium or Acceleration Prepayment Premium, as hereinabove set forth. Borrower acknowledges that prepayment or acceleration of the Loan may result in Lender incurring additional costs (including lost opportunity costs), expenses or liabilities. Borrower therefore agrees that the Prepayment Premium or, as applicable, the Acceleration Prepayment Premium represents a reasonable estimate of the prepayment costs, expenses or liabilities Lender may suffer on a prepayment or acceleration. Borrower agrees that Lender's willingness to offer the Regular Interest Rate to Borrower is sufficient and independent consideration, given individual weight by Lender, for this waiver. Borrower understands that Lender would not offer the Regular Interest Rate to Borrower absent this waiver. 6.3. Treatment of Payments. All payments of principal, interest, Late Charge (as defined below), Prepayment Premium and Acceleration Prepayment Premium, if any, due under this Agreement or the Note shall be paid to Lender by wire transfer of immediately available funds to such bank or place, or in such other manner, as Lender may from time to time designate. If such payment is received by Lender (or Lender's designee) at or before 2:00 p.m., such payment will be credited to Borrower's account as of the date on which received. If such payment is received by Lender (or Lender's designee) after 2:00 p.m., such payment will be credited to Borrower's account on the business day next following the date on which received. Each installment payment under this Agreement shall be applied in the following order of priority: (i) first, to any costs or expenses for which Borrower is liable hereunder or under the other Loan Documents, including any unpaid Late Charge; (ii) second, to fees dues to Lender, if any; (iii) third, to accrued and unpaid Default Interest, if any; (iv) fourth, to accrued and unpaid Regular Interest; and (v) to unpaid principal. 6.4. No Set-Off. Each payment of principal, Interest or other amount payable by Borrower under this Agreement, the Note or any other Loan Document shall, to the extent permitted by applicable law, be made without set-off or counterclaim and free and clear of, and exempt from, and without deduction or withholding for or on account of, any present or future Taxes levied, imposed, collected, withheld or assessed by any Governmental Authority or any political subdivision or taxing authority thereof. Borrower shall indemnify Lender against any such Taxes (other than Taxes on the overall net income of Lender imposed by any taxing authority) which may be assessed against Lender or claimed or demanded from Lender in respect of any amount payable by Borrower hereunder (including, without limitation, all amounts paid pursuant to this Section 6.4 or in respect of the Funding), and against any costs, charges, expenses or liability arising out of or in respect of any such assessment, claim or demand. 6.5. Late Charges. If any installment payable hereunder shall not be received by Lender within ten (10) calendar days of the date such installment is due, irrespective of whether such failure constitutes an Event of Default under Section 13.1, below, then Lender shall have the option, subject to the provisions of Section 17.7, below, to charge Borrower a late payment charge ("Late Charge") of five percent (5%) of the amount of each installment overdue. The parties hereby recognize that the Late Charge is a reasonable approximation of the additional administrative costs, collection costs and other direct and indirect costs which may be sustained by Lender as a result of the failure of Borrower timely to pay amounts due hereunder. This Section 6.5 and the amount for which it provides, shall not limit Lender's right under this Agreement, the Note, the Deed of Trust or otherwise, to compel prompt performance thereunder. Borrower's failure to collect such Late Charge shall not constitute a waiver of Lender's right to require payment of such Late Charge for past or future defaults. The Late Charge shall be in addition to all other rights and remedies available to Lender upon the occurrence of a default under the Loan Documents. BORROWER ACKNOWLEDGES AND AGREES THAT IT WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO FIX THE ACTUAL DAMAGES RESULTING FROM BORROWER'S FAILURE TO PAY AMOUNTS WHEN DUE AND THEREFORE, SUBJECT TO THE PROVISIONS OF SECTION 17.7, HEREOF, SHALL PAY SUCH LATE CHARGE NOT AS A PENALTY, BUT FOR THE PURPOSE OF DEFRAYING THE EXPENSES INCIDENT TO SERVICING THE LOAN AND HANDLING AMOUNTS PAST DUE. FURTHER, BORROWER AGREES THAT A CHARGE OF FIVE PERCENT (5%) OF EACH DELINQUENT PAYMENT HEREUNDER IS A REASONABLE ESTIMATE OF THE DAMAGES TO LENDER. THE LATE CHARGES SHALL BE PAYABLE BY BORROWER WITHOUT PREJUDICE TO THE RIGHTS OF LENDER TO COLLECT ANY OTHER AMOUNTS TO BE PAID UNDER THIS NOTE OR THE DEED OF TRUST (INCLUDING, WITHOUT LIMITATION, LENDER'S RIGHT TO COLLECT DEFAULT INTEREST). 7. MATURITY DATE. 7.1. Maturity Date. Assuming no acceleration by Lender and no prepayment in full of the Loan, the Maturity Date of the Note is September 1, 2008. On the applicable Maturity Date, Borrower shall pay to Lender the entire outstanding principal, accrued and unpaid Interest and any and all other outstanding charges, fees or amounts owing to Lender by Borrower hereunder, under the Note and any other sums due under any of the other Loan Documents. 7.2. Right to Accelerate Maturity Date. 7.2.1. Lender's Option to Accelerate. Lender shall have the right and option to accelerate the Maturity Date if Borrower commits an Event of Default under this Agreement, or otherwise defaults (after applicable cure periods) in the payment or performance of any of Borrower's obligations under any of the Loan Documents. 7.2.2. Sale or Further Encumbrance. Subject to Section 7.2.3, below, if, during the term of the Loan, Borrower sells, conveys, assigns or otherwise transfers (hereinafter collectively referred to as a "Sale") or further pledges, mortgages or otherwise encumbers (hereinafter collectively referred to as an "Encumbrance") all or any part of the Real Property and/or Improvements, whether any such Sale or Encumbrance occurs directly or indirectly, voluntarily or involuntarily, or by operation of law, without the prior written consent of Lender (which may be withheld in Lender's sole and absolute discretion), an Event of Default shall be deemed to have occurred and Lender may, at its sole option, elect to accelerate all sums due under the Loan. Borrower shall pay Lender's out-of- pocket expenses incurred in connection with the review of any transfer for which Borrower requests consent pursuant to this Section 7.2.2. 7.2.3. Change in Ownership. If, during the term of the Loan, Borrower, or any partner, member or shareholder of Borrower sells, conveys, transfers or otherwise vests any direct or indirect interest in Borrower, without the prior consent of Lender, (which Lender may withhold at its sole discretion), an Event of Default shall be deemed to have occurred and Lender may, at its sole option, elect to accelerate all sums due under the Loan. Borrower shall remain at all times during the term of the Loan a wholly-owned subsidiary of Datron/Transco, Inc. ("DTI"), Datron Systems Incorporated ("DSI") or any other wholly-owned subsidiary of either DTI or DSI. Notwithstanding the foregoing, the ownership interest in Borrower may be sold to any person or entity in connection with a transaction whereby such person or entity acquires all or a substantial part of DTI or DSI ("Pre-approved Transfer"); provided, that, in the event of a Pre-approved Transfer, Borrower shall provide Lender, within fifteen (15) days of such Pre-approved Transfer, copies of any and all documents evidencing the Pre-approved Transfer. Borrower shall pay Lender's out- of-pocket expenses incurred in connection with the review of any sale, conveyance, transfer or other vesting pursuant to this Section 7.2.3. 8. LOAN DOCUMENTS. To evidence and/or secure the payment to Lender of all sums due or to become due under this Agreement and the Note, Borrower shall execute and deliver or cause to be executed and delivered to Lender, among other things, the following documents and instruments: (a) the Note, substantially in the form attached hereto as Exhibit "B;" (b) the Deed of Trust, substantially in the form attached hereto as Exhibit "C;" (c) the Assignment of Leases, substantially in the form attached hereto as Exhibit "D;" (d) the Security Agreement, substantially in the form attached hereto as Exhibit "E;" (e) UCC Financing Statements, each in the form attached hereto as Exhibit "F;" (f) an Environmental Indemnity Agreement, substantially in the form attached hereto as Exhibit "G;" (g) the Subordination Agreement, substantially in the form attached hereto as Exhibit "H;" (h) A Borrower's affidavit containing certain warranties and representations by Borrower; (i) an Estoppel Certificate, substantially in the form attached hereto as Exhibit "I" from each Tenant; (j) A Guaranty, substantially in the form attached hereto as Exhibit "K;" (k) A certificate regarding personal property containing certain warranties and representations by Borrower regarding the personal property included in the Project; and (l) Such other papers and documents as may be required by this Agreement, the Application/Commitment or as Lender may reasonably require. The Loan Documents shall create in favor of Lender a perfected first-lien encumbrance or security interest in the Project and any other collateral covered thereby. 9. LOAN FEE. As consideration to Lender for its commitment to make the Loan, Borrower has heretofore paid to Lender a Loan Fee in the amount of Ninety-Nine Thousand and No/100 U.S. DOLLARS (U.S. $99,000.00) (as described more fully in Section 2.33 above). On the Closing Date, Lender shall refund the entire Loan Fee to Borrower, less all of Lender's out-of-pocket expenses and costs expended in connection with the Loan ("Costs"), which Costs shall include, but not be limited to, fees and expenses for Lender's outside counsel, title insurance charges and premiums, survey costs, transfer or recording taxes and fees; provided, however, Lender may, in its sole discretion, withhold a reasonable portion of the Loan Fee to be refunded so that Lender may pay all invoices in respect of Costs received after the Closing Date. 10. REPRESENTATIONS AND WARRANTIES. To induce Lender to execute this Agreement and perform the obligations of Lender hereunder, Borrower hereby represents and warrants for the benefit of Lender as of the date hereof as follows: 10.1. Title. Borrower has all power, authority and legal right and all necessary Governmental Approvals to own the Project and to create a Lien on and security interest in the Project pursuant to the Loan Documents to be executed and delivered by Borrower, and to execute and deliver to Lender this Agreement, the Note, the other Loan Documents and any other documents or instruments contemplated herein or therein to be executed and delivered by Borrower, and to observe and perform the provisions hereof and thereof. To the best of Borrower's knowledge after due investigation, each of the Tenants have all power, authority and legal right and all Governmental Approvals required to operate the Building in compliance with applicable law. 10.2. No Litigation. Except for claims fully covered by insurance, where the insurance company is defending such claims and such defense is not being provided under a reservation of rights, and except as disclosed in writing to Lender prior to the date hereof, there is no pending litigation or unsatisfied judgment entered of record against the Borrower or the Project. No litigation or proceedings are pending, or to Borrower's knowledge are threatened, against any Affiliated Party which might affect: (i) the validity or priority of the lien of the Deed of Trust; (ii) the ability of Borrower or Guarantor hereof to perform their respective obligations pursuant to and as contemplated by the terms and provisions of this Agreement and the other Loan Documents; or (iii) materially the operations or financial condition of the Project, Borrower, or any Affiliated Party. 10.3. Due Authorization. Borrower is a corporation duly organized under the laws of California and validly existing under the laws of the State of California. The execution and delivery of the Loan Documents and all other documents executed or delivered by or on behalf of Borrower and pertaining to the Loan have been duly authorized or approved by Borrower and, when executed and delivered by Borrower or when caused to be executed and delivered on behalf of Borrower, will constitute the legal, valid and binding obligations of the obligor thereon, enforceable in accordance with their respective terms except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditor's rights, and the payment or performance thereof will be subject to no offsets, claims or defenses of any kind or nature whatsoever. 10.4. Breach of Laws or Agreements. Neither the execution, delivery or performance of this Agreement, the Note, the other Loan Documents, or any other documents or instruments contemplated herein or therein to be executed and delivered by Borrower, the consummation of the transactions contemplated hereby or thereby, nor compliance with the provisions hereof and thereof, will conflict with or result in a breach of (i) any of the provisions of any applicable license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority, (ii) any determination or award of any arbitrator, (iii) any agreement or instrument to which Borrower or any Guarantor is a party or by which it or any of the Project is bound, (iv) any of the provisions of Borrower's bylaws or other governing documents or resolutions, or shareholders' agreements, or constitute a default under any thereof, or (v) result in the creation or imposition of any lien, charge or encumbrance upon the Project, except as permitted by the Loan Documents and the other documents and instruments contemplated herein and therein to be executed and delivered by Borrower. 10.5. Leases. Borrower and its agents have not entered into any leases or other arrangements for the occupancy of all or any portion of the Project other than leases shown on the most recent rent roll furnished to Lender (the "Rent Roll"). All leases disclosed on the Rent Roll are in full force and effect and to Borrower's knowledge, there are no existing defaults thereunder other than as disclosed in writing to Lender. 10.6. Condemnation. (i) No condemnation of any portion of the Project, (ii) no condemnation or relocation of any roadways abutting the Project, and (iii) no denial of access to the Project from any point of access to the Project, has commenced or, to Borrower's knowledge, is contemplated by any Governmental Authority. 10.7. Consents and Taxes. No consent, approval or other authorization of or by any court, administrative agency or other Governmental Authority is required in connection with the execution, delivery, performance, or consummation of the transactions contemplated by this Agreement, or the Loan Documents to be executed and delivered by Borrower. Borrower has filed all tax returns required to be filed by it and is not in default in the payment of any Taxes levied or assessed against it, any of its assets or any of the Project. 10.8. Condition of Improvements. To the best of Borrower's knowledge after diligent investigation and inquiry, the foundations and structure of the Improvements are structurally sound, and the various mechanical systems have adequate capacities for the purposes for which the Improvements are to be used and are in good working condition. To the best of Borrower's knowledge after diligent investigation and inquiry, the Improvements were built in substantial compliance with applicable plans and specifications furnished to the Lender's engineering consultant, and the Improvements are in full compliance with all applicable Building Laws, including without limitation the Americans With Disabilities Act of 1990 and all laws relating to sprinklers. The Building has a clear height of twenty-six (26) feet and contains three (3) grade level doors and one (1) dock high door. To the best of Borrower's knowledge after diligent investigation and inquiry, certificates of occupancy with respect to the Improvements, and any other certificates which may be required to evidence compliance with building codes and permits and approval for full occupancy of the Improvements and all installations therein have been issued by all appropriate authorities. Borrower has no knowledge of required capital expenditures or deferred maintenance other than those that would be normally expected for a building of similar age and type. No notice of violation of any Building Law has been received. No construction or other work has commenced nor shall any construction or other work be commenced on the Real Property and/or Improvements prior to the Closing Date which has resulted or could result in mechanics', materialmen's or laborers' lien claims on the Project prior to the lien of the Deed of Trust. 10.9. Information Correct. All financial statements furnished to Lender by Borrower, Guarantor or any Affiliated Party fairly present the financial condition of such persons or entities and were prepared in accordance with generally accepted accounting principles consistently applied. All other information previously furnished by Borrower, Guarantor or any Affiliated Party to Lender in connection with the Loan is true, complete and correct in all respects except as otherwise disclosed to Lender in writing and does not fail to state any material fact necessary to make the statements made not misleading. Neither Borrower nor Guarantor has misstated or failed to disclose to Lender any material fact relating to: (i) the condition, use or operation of the Project; (ii) the status or any material condition of any tenant or lease at the Project known to it; (iii) Borrower; (iv) Guarantor; or (v) the litigation disclosure provided by Borrower and Guarantor, except as disclosed in writing to Lender prior to the date hereof. 10.10. Material Adverse Change. No material adverse change in the operations or financial condition of Borrower, Guarantor or any Affiliated Party has occurred since the respective effective dates of its/their financial statements previously submitted to Lender, and no material adverse change in the condition (physical or otherwise) of the Project has occurred since the date of the Application/Commitment. 10.11. Solvency. Neither Borrower nor Guarantor is (i) currently insolvent on a balance sheet basis, or (ii) currently unable to pay its debts as they come due; and no bankruptcy or receivership proceedings are contemplated or pending as to any of them. 10.12. Zoning. The use of the Project (including contemplated accessory uses) does not violate (i) any Law (including subdivision, zoning, building, environmental protection and wetlands protection Laws), or (ii) any restrictions of record, or any agreement affecting the Project or any part thereof. Without limiting the generality of the foregoing, Borrower has complied with all Governmental Approvals. The Project includes parking for three hundred twelve (312) vehicles, which parking complies with all applicable zoning ordinances and tenant lease requirements. 10.13. Utilities. The Project has adequate water, gas and electrical supply, storm and sanitary sewerage facilities, other required public utilities, fire and police protection, and means of appropriate access between the Project and public highways. 10.14. Brokerage Fees. No brokerage fees or commissions are payable by or to any person in connection with this Agreement or the Loan to be disbursed hereunder other than fees payable to Sunrise Mortgage and Investment Company, which fees shall be paid by Borrower. 10.15. Encroachments. No building or other Improvement on the Real Property encroaches upon any building line, setback line, side yard line, or any recorded or visible easement (or other easement of which Borrower has knowledge with respect to the Real Property), except as shown on the Survey. 10.16. Separate Parcel. The Project is taxed separately without regard to any other property and for all purposes the Project may be mortgaged, conveyed, and otherwise dealt with as an independent parcel. 10.17. ERISA. The assets of Borrower are not "plan assets" of any employee benefit plan covered by ERISA or 4975 of the Internal Revenue Code. The transactions contemplated by this Agreement by or with Borrower are not in violation of state statutes regulating investments of and fiduciary obligations with respect to "governmental plans," as defined in 3(32) of ERISA. 10.18. No Default. No Event of Default has occurred and is continuing. 10.19. Trade Name; Principal Place of Business. Borrower uses no trade name other than its actual name set forth herein. The principal place of business of Borrower is as stated in Section 17.3, below. 10.20. FIRPTA. Borrower is not a "foreign person" within the meaning of 1445 or 7701 of the Internal Revenue Code. 10.21. RICO. Borrower has not been charged with nor, to its knowledge, is it under investigation for, possible violations of the Racketeer Influenced and Corrupt Organizations Act, the Continuing Criminal Enterprise Act, the Controlled Substance Act of 1978, or similar laws providing for the possible forfeiture of any of its respective assets or properties. 10.22. No Casualty. No part of the Project have been damaged by fire or other casualty except as disclosed in writing to Lender. 10.23. Hazardous Materials. Borrower represents (i) that to the best of its knowledge following inquiry as a duly diligent property owner, (a) the Project has been and is free from contamination by Hazardous Materials and petroleum products (including, without limitation, asbestos in any form, urea formaldehyde, polychlorinated biphenyls, underground storage tanks, atmospheric radon at levels over four (4) picocuries per cubic liter and any other substances exposure to which is prohibited, limited or regulated by any federal, state, county, regional or local authorities or which pose a hazard to public health), and (b) no release of any such Hazardous Materials or petroleum product has occurred on or about the Project, (ii) that the Project currently complies, and will comply based on its anticipated use, with all legal requirements relating to the environment and the Hazardous Materials Laws, (iii) that, in connection with the ownership, operation, and use of the Project, all necessary notices have been filed and all required permits, licenses and other authorizations have been obtained, including, without limitation, those relating to the generation, treatment, storage, disposal or use of the Hazardous Materials and petroleum products, and (iv) that to the best of Borrower's knowledge following inquiry as duly diligent property owner, there is no present, past or threatened investigation, inquiry or proceeding relating to the environmental condition of, or to the events, on or about the Project. 11. BORROWER'S COVENANTS. In addition to the other covenants and undertakings herein contained, Borrower hereby covenants and agrees with Lender from and after the date hereof and during the term of this Agreement, as follows: 11.1. Escrow Deposits. 11.1.1. Unless specifically waived by a separate written agreement, Borrower shall deposit monthly with Lender a sum equal to one twelfth (1/12) of the amount estimated by Lender to be required to pay on an annual basis, at least thirty (30) days prior to their respective due dates, for Taxes, assessments, ground rent and insurance premiums for the Project (the "Escrow Account"). Lender shall not pay interest on or segregate the Escrow Account unless required to do so under applicable law. If applicable law requires Lender to segregate the Escrow Account, Borrower shall execute such documents as Lender, in its sole discretion, deems necessary to perfect its security interest in the Escrow Account. On the Closing Date, Borrower shall make an initial deposit with Lender of a sum equal to one- twelfth (1/12) of the estimated annual property taxes and assessments, a sum equal to one-twelfth (1/12) of the annual ground rent, if applicable, and a sum equal to one-twelfth (1/12) of the estimated annual insurance premiums, multiplied by the number of months elapsed in the respective billing periods. 11.1.2. The Escrow Account is hereby pledged as additional security for the Loan, shall be held to be irrevocably applied for the purposes for which made hereunder and shall not be subject to the direction or control of Borrower; provided, however, that neither Lender nor any depository holding such funds shall be liable for any failure to apply to the payment of taxes, assessments, ground rent or insurance premiums any amount so deposited unless (i) Borrower shall have requested Lender or said depository in writing to make application of such funds to the payment of the particular taxes, assessments, ground rent or insurance premiums as the case may be, accompanied by the bills therefor, (ii) there shall exist no Event of Default hereunder or under any of the Loan Documents, (iii) there are sufficient funds in the Escrow Account to pay the particular taxes, assessments, ground rent or insurance premiums and (iv) following payment of such taxes, assessments, ground rent or insurance premiums, the Escrow Account will be "in balance" in the reasonable opinion of Lender. 11.1.3. Notwithstanding the foregoing, Lender hereby waives the deposit and escrow requirements set forth above in this Section 11.1.1, unless: (i) an Event of Default exists under any of the Loan Documents; (ii) Borrower fails to comply with all of Lender's insurance requirements, as set forth in Section 11.3.1, below; (iii) Borrower fails to pay the required monthly payment of principal and interest as and when due more than three (3) times in any twelve (12) month period; or (iv) Borrower fails to provide evidence to Lender of Borrower's payment, at least ten (10) days prior to their respective due dates, of any such Taxes, assessments, ground rent and insurance premiums for the Project. Without limiting the foregoing, Borrower shall be liable for the payment of all insurance premiums, taxes, assessments, ground rent or any other lienable impositions as required under the Loan Documents, including, without limitation, any such Taxes, assessments, ground rent, insurance premiums or any other lienable impositions which Lender pays prior to taking title to the Project (or any portion thereof) or which remain unpaid after Lender takes title to the Project (or any portion thereof), and Lender shall not be required to establish that it incurred any loss or damage prior to seeking recourse in connection therewith. 11.2. Payment of Taxes. Borrower agrees to pay prior to the date when delinquent all general, special and supplemental Taxes, including, without limitation, all non-governmental levies and assessments such as maintenance charges, owner association dues and charges, and assessments, fees, levies and charges resulting from covenants, conditions and restrictions affecting the Project, which are assessed against or imposed upon the Project, or become due and payable with respect to the Project, or which create or are secured by a lien upon the Project (all of such Taxes, assessments, fees, levies and charges are hereinafter collectively referred to as "Impositions"). For the purposes of this Section 11.2, "Impositions" shall specifically exclude (i) any such Taxes or withholdings imposed on interest income under 871 or 881 of the Internal Revenue Code or any corresponding provisions of succeeding laws or similar state laws, and (ii) any amounts required to be withheld under 1441 or 1442 of the Internal Revenue Code to collect any Taxes described in this Section 11.2. Borrower shall, promptly upon receipt, furnish to Lender all official receipts evidencing payment of any such Impositions (which shall be either originals, duplicate originals or copies duly certified or authenticated). Lender may, but is not required to, pay at any time and from time to time any amount in respect of such Impositions in which event Borrower shall, in each instance, reimburse Lender on demand therefor and pay to Lender the additional amounts specified above. Borrower shall have the right before any delinquency occurs to contest in good faith the amount or validity of any Imposition by appropriate legal proceedings; provided, any such contest by Borrower shall not in any way release, modify or extend Borrower's obligation to pay an Imposition at the time and in the manner provided in this Section 11.2, unless Borrower gives prior written notice to Lender of Borrower's intent to contest the Imposition, and, at Lender's sole option, (i) Borrower demonstrates to Lender's reasonable satisfaction that the contest proceedings shall conclusively operate to prevent the sale of the Project or to stay payment of the Imposition prior to final determination of the proceedings, or (ii) Borrower furnishes a good and sufficient bond or other security for payment as requested by and reasonably satisfactory to Lender and which security is permitted by law to accomplish a stay of payment of the Imposition. At the conclusion of such proceedings, Borrower shall pay the Imposition as determined in such proceedings. If Borrower fails to commence such contest or, having commenced to contest the same, and having deposited such security required by Lender for its full amount, shall thereafter fail to prosecute such contest in good faith or with due diligence, or, upon adverse conclusion of any such contest, shall fail to pay such Imposition, Lender may at its election (but shall not be required to), pay and discharge any such Imposition and any interest or penalty thereon, and any amounts so expended by Lender shall be deemed to constitute disbursements of the Loan proceeds hereunder (even if the total amount of disbursements would exceed the face amount of the Note) and shall bear interest from the date expended at the Default Rate and be payable with such interest upon demand. Lender in making any payment hereby authorized relating to Impositions, may do so according to any bill, statement or estimate procured from the appropriate public office without inquiry into the accuracy of such bill, statement or estimate or into the validity of any Imposition, sale, forfeiture, tax lien or title or claim thereof. 11.3. Maintenance of Insurance. 11.3.1. Borrower and/or Tenants shall at all times during the term of this Loan fully comply with all of Lender's insurance requirements as set forth on that certain PPM Finance, Inc.'s Property and Liability Insurance Requirements for Jackson National Life Insurance Company (the "Insurance Requirements Exhibit"), a copy of which is attached hereto as Exhibit "L," including, without limitation, providing and keeping in force the following types of insurance (as required under the Insurance Requirements Exhibit): (i) property coverage; (ii) personal property contents; (iii) builder's risk; (iv) business income; (v) comprehensive or commercial general liability; (vi) boiler and machinery; (vii) flood insurance; (viii) ordinance or law coverage; (ix) earthquake coverage; (x) dram shop or liquor liability coverage; and (xi) such other policies as Lender may reasonably require from time to time. Without limiting the foregoing, Borrower shall keep in force the earthquake coverage required hereunder until such time that Borrower completes, and Lender receives satisfactory evidence that Borrower completed, all the retrofit work set forth in that certain report prepared by Seismic Design Consultants, Inc., bearing Job Number 29-10-98-56, dated July 15, 1998, including, without limitation, Section 7.3 thereof. 11.3.2. Borrower hereby presently and absolutely assigns, transfers and sets over to Lender all of its right, title and interest in and to any and all insurance proceeds from all insurance policies required hereunder or otherwise obtained by Borrower in any way in connection with the Project or its operation, whether required hereunder or not. Borrower shall furnish Lender with evidence of insurance, as more particularly described in the Insurance Requirements Exhibit, and, upon Lender's written request, Borrower shall promptly furnish Lender with an original of all policies of insurance required by this Agreement. At least ten (10) days prior to the expiration of each insurance policy, Borrower shall furnish Lender with evidence satisfactory to Lender of (i) the payment of the premium or issuance of a binder with respect to each insurance policy, and (ii) arrangements for the reissuance of the policy continuing insurance in force as required by this Agreement. In addition, Borrower shall notify Lender in writing as soon as reasonably practicable of any vacancy, change of title, tenant occupancy or use, physical damage, additional improvements or other factors affecting any insurance contract. Notwithstanding the foregoing, upon the occurrence of an Event of Default, Lender shall have the right (but not the obligation) to place and maintain insurance required to be placed and maintained by Borrower hereunder, and use funds on deposit in the Escrow Account for the payment of insurance to pay for same. Any additional amounts expended therefor shall constitute additional disbursements of Loan proceeds (even if the total amount of disbursements would exceed the face amount of the Note), and shall bear interest from the date expended at the Default Rate and be payable together with such interest upon demand. 11.3.3. Upon foreclosure of the Deed of Trust or other transfer of title or assignment of the Project in extinguishment, in whole or in part, of the amounts due under the Loan, all right, title and interest of Borrower in and to all policies of insurance required by this Agreement shall inure to the benefit of and pass to the successor in interest to Borrower, or the purchaser or grantee of the Project. If prior to any such transfer of title, any claim under any casualty insurance policy has not been paid and distributed in accordance with the terms of this Agreement, but such claim is paid after any such transfer of title, then, to the extent the amounts due hereunder were not fully discharged in conjunction with such transfer of title, the subject insurance proceeds shall belong to and be paid to Lender. Borrower hereby assigns, transfers and sets over to Lender all of its right, title, and interest in and to any such insurance proceeds. The balance of any such insurance proceeds, if any, shall belong to Borrower. 11.4. Mechanics' Liens. 11.4.1. Borrower will not suffer or permit any mechanics' lien claims to be filed or otherwise asserted against the Project and will promptly discharge the same if any claims for lien or any proceedings for the enforcement thereof are filed or commenced; provided, however, that Borrower shall have the right to contest in good faith and with due diligence the validity of any such lien or claim upon furnishing to the Title Company such security or indemnity as it may require to induce the Title Company to insure Lender's first-lien priority against all such claims, liens or proceedings; and provided further that Lender will not be required to make any further disbursements of the Loan proceeds (if any are required) unless (i) any mechanics' lien claims shown by any title insurance commitments or interim binders or certifications have been released or insured against by the Title Company, or (ii) Borrower shall have provided Lender with such other security with respect to such claim as may be acceptable to Lender, in its sole discretion. 11.4.2. If Borrower shall fail promptly to discharge any mechanics' lien claim filed or otherwise asserted or to contest any such claims and give security or indemnity in the manner provided in Section 11.4.1 hereof, or, having commenced to contest the same and having given such security or indemnity, shall thereafter fail to prosecute such contest in good faith or with due diligence, or fail to maintain such indemnity or security so required by the Title Company for its full amount, or, upon adverse conclusion of any such contest, shall fail to cause any judgment or decree to be satisfied and lien to be promptly released, then, and in any such event, Lender may, at its election (but shall not be required to), (i) procure the release and discharge of any such claim and any judgment or decree thereon, without inquiring into or investigating the amount, validity or enforceability of such lien or claim and (ii) effect any settlement or compromise of the same, or may furnish such security or indemnity to the Title Company. Any amounts expended by Lender in doing so, including premiums paid or security furnished in connection with the issuance of any surety company bonds, shall be deemed to constitute disbursements of the Loan proceeds hereunder (even if the total amount of disbursements would exceed the face amount of the Note) and shall bear interest from the date expended at the Default Rate and be payable together with such interest upon demand. 11.5. Maintenance, Repair and Restoration of Improvements. Borrower shall (i) promptly repair, restore or rebuild any Improvements which may become damaged or be destroyed; and (ii) keep the Improvements in good condition and repair, without waste. 11.6. Leases and Lease Reports. (i) Except in the ordinary course of business and in the exercise of sound business judgment, and at market rents, a schedule of which has been approved by Lender and in accordance with the standard form of lease approved by Lender, Borrower shall not enter into, modify, amend, waive any material provision of, terminate or cancel any leases of all or any portion of the Project without the prior written consent of Lender and all lessees shall be required at Lender's election to execute estoppel certificates and subordination, non-disturbance and attornment agreements in form and substance satisfactory to Lender; and (ii) within fifteen (15) days following the end of each calendar month, Borrower shall deliver to Lender a report showing the status of the leasing of the Project certified by Borrower. Such report shall include information on the amount of space covered by any letters of intent, leases out for execution, and fully executed leases; the rental under each lease agreement or proposed lease agreement; the term of each lease agreement; and a summary of any terms which vary from the standard form of lease previously approved by Lender. Any new lease, modification, amendment, waiver of any material provision, termination or cancellation of any lease of space in the Project without the prior written consent of Lender shall be deemed by Lender, in its sole discretion, as an Event of Default. Lender reserves the right to charge an administrative fee for any such modification, amendment, waiver, termination or cancellation of any lease(s) done with or without Lender's consent. 11.7. Compliance With Laws. Borrower shall promptly comply with all applicable Laws of any Governmental Authority having jurisdiction over Borrower or the Project, and shall take all actions necessary to bring the Project into compliance with all applicable Laws, including without limitation all Building Laws (whether now existing or hereafter enacted). 11.8. Alterations. Without the prior written consent of Lender, Borrower shall not make any material alterations to the Project (other than completion of tenant work required pursuant to leases entered into in accordance with the terms of this Agreement). 11.9. Personal Property. (i) All of Borrower's personal property, fixtures, furnishings, furniture, attachments and equipment located on or used in connection with the Project, shall always be located at the Project and shall also be kept free and clear of all chattel mortgages, conditional vendor's liens and all other liens, encumbrances and security interests of any kind whatever, (ii) Borrower will be the absolute owner of said personal property, fixtures, attachments and equipment, and (iii) Borrower shall, from time to time, furnish Lender with evidence of such ownership satisfactory to Lender, including searches of applicable public records. 11.10. Prohibition Against Cash Distributions and Application of Cash Flow. Borrower shall first apply all cash flow from the Project to pay Project expenses, including amounts due to Lender pursuant to the Loan Documents. No cash flow from the Project shall be distributed to any partners, principals, members or shareholders of Borrower or applied to the payment of any obligations, debts or expenses not related to the Project if an Event of Default has occurred or if there is a reasonable likelihood that such money will be necessary for the operation of the Project or the payment of principal and interest due in connection with the Loan within ninety (90) days following any contemplated cash flow distribution. 11.11. Inspection by Lender. Borrower shall allow Lender and Lender's representatives and agents full access to the Project upon reasonable prior notice and at reasonable times and shall provide to Lender such documents relating to the Project as may be requested by Lender or its representatives and agents. Lender may disclose the existence and contents of such documents to anyone it desires. 11.12. Furnishing Information. Borrower shall deliver or cause to be delivered to Lender annual financial statements for Borrower and annual financial statements for Guarantor, and such other financial information as Lender may reasonably require, as soon as available and in all events no later than one hundred twenty (120) days after the close of each fiscal year. The annual statements shall be certified as true and correct by an authorized financial officer of Borrower or Guarantor hereof, as the case may be. If an Event of Default has occurred or Lender reasonably believes that previously provided financial statements are inaccurate, Borrower and Guarantor shall promptly provide Lender with such additional financial reports and/or information as Lender may request in Lender's sole and absolute discretion, and Lender may require that any such financial statements be prepared in accordance with generally accepted accounting principals and certified by an independent certified public accountant. Borrower shall also furnish a current operating statement for the Project (including a rent roll if there are any leases of the Project or any part thereof), at the time it delivers its financial statements. Additionally, Borrower and Guarantor hereof shall: (i) promptly supply Lender with such information concerning its/their respective affairs and property relating to the development and operation of the Project as Lender may hereafter request from time to time; (ii) at any time during regular business hours permit Lender or any of its agents or representatives to have access to and examine all of its books and records regarding the development and operation of the Project; (iii) permit Lender to copy and make abstracts from any and all of such books and records; (iv) immediately notify Lender if Borrower receives any actual notice, action or lien notice or otherwise becomes aware that the Project violates or is alleged to violate any Building Law, or of a condition or situation on the Project which will constitute violation of a Building Law (whether now existing or hereafter enacted), which notice to Lender shall describe with particularity the Building Law violation and Borrower's plan to promptly correct the violation; and (v) if Borrower is a corporation and/or has made filings with the government securities commission or any national securities exchange, promptly furnish to Lender copies of all (a) filings by it with the government securities commission or any national securities exchange, (b) mailings by it to its shareholders, (c) reports furnished by it to rating agencies and relating to its outstanding commercial paper, (d) information generally supplied by it in writing to security analysts, and (e) furnish other information concerning Borrower and Guarantor as is reasonably requested from time to time by Lender. Notwithstanding any of the foregoing, Lender may, at any time during the term of the Loan, require Borrower to provide Lender with quarterly financial statements. 11.13. Documents of Further Assurance. Borrower shall, from time to time, upon Lender's request, execute, deliver, record and furnish such documents as Lender may reasonably deem necessary or desirable to (i) perfect and maintain perfected as valid liens upon the Project, the liens granted by Borrower to Lender under the Deed of Trust and the Assignment of Leases and other security interests under the other Loan Documents as contemplated by this Agreement, (ii) correct any errors of a typographical nature or inconsistencies which may be contained in any of the Loan Documents, and (iii) consummate fully the transaction contemplated under this Agreement. 11.14. Furnishing Reports. Borrower shall provide Lender, promptly after receipt, with copies of all inspections, reports, test results and other information received by Borrower from time to time from its employees, agents, representatives, architects and engineers, which in any way relate to the Project, or any part thereof. 11.15. Operation of Project and Zoning. As long as any portion of the Loan remains outstanding, the Project shall be operated in a first class manner as an industrial and office facility. Borrower shall fully and faithfully perform all of its covenants, agreements and obligations under each of the leases of the Project. Borrower shall not initiate or acquiesce in a zoning variation or reclassification without Lender's written consent. 11.16. Management, Agents' and Brokers' Contracts. Other than in the ordinary course of business, Borrower shall not enter into, modify, amend, waive any material provision of, terminate or cancel any management contracts for the Project or agreements with agents or brokers, without the prior written approval of Lender. If in the ordinary course of business Borrower shall enter into, modify, amend, waive any provision of, terminate or cancel any contracts or agreements (other than management contracts) with agents or brokers, Borrower shall notify Lender within ten (10) days after such action. 11.17. Furnishing Notices. As soon as Borrower becomes aware of the same, Borrower shall promptly notify Lender in writing of any occurrence, event, or condition (including, but not limited to, any pending or threatened suit or proceeding against Borrower, or any of its Affiliated Parties, or the Project, by or before any court, administrative agency or other governmental authority or any arbitrator which is not fully covered by insurance), the enactment of any statute, ordinance or law, or the giving of any notice or other communication by any party pursuant to any of the Permitted Exceptions which, individually or in the aggregate, has resulted or might result in (i) an Event of Default hereunder or under any one or more of the other Loan Documents, (ii) the breach of any of the representations and warranties of Borrower set forth in this Agreement or in any of the other Loan Documents or any other documents or instruments contemplated herein or therein to be executed and delivered by Borrower, or (iii) a default in any obligation of Borrower to any third party. 11.18. Corporate Existence. Borrower shall maintain its existence as a corporation in good standing under the laws of the State of California. 11.19. Articles of Incorporation. Without the prior written consent of Lender, Borrower shall not permit or suffer any amendment or modification of its articles of incorporation, and shall not permit or suffer the admission of any new shareholders, except as permitted pursuant to Section 7.2.3. 11.20. Publicity. During the term of the Loan, Lender may issue or publish releases or announcements stating that the financing for the Project is being provided by Lender to Borrower, and Borrower hereby consents thereto. In addition, Lender may, without the need of additional consents, answer any questions from third parties about Lender's credit experience with Borrower and/or Guarantor. 11.21. No Additional Debt. Other than customary trade payables paid within sixty (60) days after they are incurred, Borrower shall not refinance, incur any liability or indebtedness secured by the Project or any part thereof, or mortgage, hypothecate, assign, pledge, grant security interests in or otherwise encumber or allow any Lien to be placed of record against all or any part of the Project (except in favor of Jackson National Life Insurance Company or its successors or Affiliated Parties, whether or not Jackson National Life Insurance Company is, at that time, the holder of the indebtedness evidenced by the Note, the Deed of Trust and the other Loan Documents), without the prior express written consent of Lender which consent may be given or withheld in Lender's sole discretion. 11.22. Payments. Borrower shall pay all sums due pursuant to this Agreement, the Note, the Deed of Trust and the other Loan Documents to be executed and delivered by Borrower, as and when the same shall be due and payable and shall perform all of its obligations hereunder and thereunder in accordance with the terms hereof and thereof. 12. SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All covenants, agreements, representations and warranties made by Borrower herein, in the Deed of Trust, in the Note, and all other Loan Documents, and in any certificates delivered by Borrower to Lender hereunder, and other instruments described in or delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Loan Closing and shall continue in effect so long as this Agreement or any other Loan Document (other than the Environmental Indemnity Agreement) or any of the instruments described herein or therein are outstanding. All covenants, agreements, representations and warranties in this Agreement and in any other Loan Document shall bind the party making the same and its successors and assigns and shall inure to the benefit of and be enforceable by each party to whom made and by their respective successors and assigns. 13. EVENTS OF DEFAULT. 13.1. Events of Default. The occurrence of any one or more of the following events shall constitute an event of default under this Agreement, the Note, the Deed of Trust and all of the other Loan Documents (each of which is hereafter referred to as an "Event of Default"): (a) If Borrower fails to make when due any payment of any installment of Regular Interest or Default Interest, or any required payment, repayment or prepayment of the principal of the Loan, or fails to make when due any other payment, of any kind or nature whatsoever (including, but not limited to payment of the balloon payment due and owing on the Maturity Date) owed by Borrower under the Note, this Agreement or any of the other Loan Documents, whether owed to Lender or to a third party; (b) If Borrower defaults in the performance of any of its non-monetary covenants, agreements and obligations under this Agreement and fails to cure such default within thirty (30) days after written notice thereof from Lender; provided, however, that if such default is reasonably susceptible of cure, but cannot be cured within such thirty (30) day period, then so long as Borrower promptly commences cure and thereafter diligently pursues such cure to completion, the cure period shall be extended for an additional thirty (30) days, within which Borrower may complete such cure; (c) If at any time or times hereafter any representation or warranty (including the representations and warranties of Borrower set forth in any Loan Document), statement, report or certificate furnished to Lender in connection with the Loan is not true and correct in any material respect; (d) If any petition is filed by or against Borrower or any Affiliated Party under the Federal Bankruptcy Code or any similar state or federal Law, whether now or hereafter existing (and, in the case of involuntary proceedings, failure to cause the same to be vacated, stayed or set aside within thirty (30) days after filing); (e) If any assignment, pledge, encumbrance, transfer, hypothecation or other disposition is made in violation of Sections 7.2.2 or 7.2.3 of this Agreement; (f) If Borrower or Guarantor shall fail to pay any debt owed by it or is in default under any agreement with Lender or any other party (other than a failure or default for which the maximum liability for Borrower or Guarantor does not exceed twenty-five percent (25%) of their respective assets) and such failure or default continues after any applicable grace period specified in the instrument or agreement relating thereto; (g) any Governmental Approval necessary in connection with the execution or performance of any of this Agreement, the Note, the Deed of Trust or the other Loan Documents, or in connection with the operation of the Building, or any other documents required to be delivered by Borrower hereunder or under any other Loan Document is modified, revoked or withdrawn in a way materially prejudicial to the rights of Lender hereunder. (h) Borrower suspends its business operation with respect to the Building other than as a result of a casualty or eminent domain; or Borrower transfers or disposes all of or substantially all of its assets other than in the ordinary course of its business as contemplated by this Agreement; (i) by virtue of the enactment of any federal, state or local law, ordinance or regulation, or as a result of a determination of any court of competent jurisdiction, arbitrator in a binding arbitration or judicial referee, the Deed of Trust or the other Loan Documents cease to constitute the legal, valid and binding obligations of Borrower enforceable in accordance with their terms; (j) the Deed of Trust or the recordation thereof ceases to be in full force and effect and to create a Lien in favor of Lender with the first-lien priority required by this Agreement; or (k) it becomes unlawful for Borrower to perform any of its material obligations under this Agreement, the Note, the Deed of Trust or the other Loan Documents. 13.2. Remedies Conferred Upon Lender. 13.2.1. Lender's Remedies. Upon the occurrence of any Event of Default, Lender shall, have the right (but not the obligation) to pursue any one or more of the following remedies concurrently or successively, it being the intent hereof that all such remedies shall be cumulative and that no such remedy shall be to the exclusion of any other: (i) declare the Note to be immediately due and payable; (ii) use and apply any monies deposited by Borrower with Lender, including amounts in the Escrow Account, regardless of the purpose for which the same was deposited, to cure any such default or to apply on account of any indebtedness under this Agreement which is due and owing to Lender; and (iii) exercise or pursue any other right or remedy permitted under this Agreement or any of the Loan Documents or conferred upon or available to Lender at law, in equity or otherwise. 13.2.2. Non-Waiver of Remedies. No waiver of any breach or Event of Default hereunder shall constitute or be construed as a waiver by Lender of any subsequent breach or Event of Default or of any breach or default of any other provision of this Agreement. 13.2.3. Rents and Profits. Upon the occurrence of an Event of Default, Lender may, but shall not be limited to, enforce Borrower's assignment for security purposes to Lender of the Leases and the Rents and Profits, as set forth herein, in the Assignment of Leases, or otherwise under the Loan Documents, by taking, without limitation, one or more of the following actions: (a) obtaining the appointment of a receiver; (b) obtaining possession of the Leases and/or Rents and Profits; (c) delivery to any one or more of the tenants of a written demand for turnover of the Rents and Profits in accordance with 2938 of the California Civil Code; or (iv) delivery to Borrower of a written demand for the Leases and/or the Rents and Profits in accordance with 2938 of the California Civil Code (collectively, the "Enforcement Actions"). On and after the date Lender takes one or more of the Enforcement Actions (the "Enforcement Date"), Lender shall be entitled to enforce any rights it may have under the Leases and/or collect and receive all Rents and Profits that has accrued but remains unpaid and uncollected by Borrower or its agent, and all Rents and Profits that accrue on or after the Enforcement Date. Notwithstanding whether Lender has taken one or more of the Enforcement Actions, Borrower shall, upon the occurrence of an Event of Default, immediately turnover to Lender all Leases and all Rents and Profits then in its possession, or thereafter collected or received by Borrower or its agent. Lender may, in its sole discretion, unless otherwise required by law, apply all or any portion of the Rents and Profits to: (i) reasonable costs, as described below, of protecting and preserving the Project; (ii) the outstanding balance under the Loan Documents, and/or (iii) otherwise, in accordance with any of the Loan Documents. Neither the taking of an Enforcement Action by Lender, nor the collection, distribution or application of the Rents and Profits by Lender shall do any of the following: (1) make Lender a mortgagee in possession of the Project; (2) constitute an action, render the Loan or any of the Loan Documents unenforceable, violate 726 of the California Code of Civil Procedure or, other than with respect to marshalling requirements, otherwise limit any rights available to Lender with respect to its security; or (3) be deemed to create any bar to a deficiency judgment pursuant to applicable law, notwithstanding that the Enforcement Action may reduce the outstanding balance under the Loan and the Loan Documents. Notwithstanding the foregoing, the remedies set forth herein shall be in addition to any and all other remedies which Lender may have under 2938 of the California Civil Code or other applicable law. For purposes of this Agreement, reasonable costs shall include only the following: (i) expenditures for repairs and maintenance of the Project, but only to the extent that such expenditures are necessary to comply with applicable laws or cure an emergency or life-threatening situation; (ii) expenditures for taxes, but only to the extent that such expenditures are necessary to prevent an imminent tax sale of the Project, or any portion thereof; (iii) and such other expenditures as Lender, in its sole and absolute discretion, deems necessary. 13.2.4. Remedies Cumulative. The remedies provided in this Agreement shall be in addition to, and not in substitution for, the rights and remedies which would otherwise be vested in Lender for the recovery of damages, or otherwise, upon a breach of any of the representations, warranties, covenants, undertakings or agreements of Borrower hereunder. 13.2.5. Indemnification. Without prejudice to any other provisions of this Agreement, Borrower shall indemnify Lender against any and all liabilities, damages, claims, causes of action, losses and/or expenses, which Lender may sustain or incur as a consequence of the occurrence of an Event of Default, including without limitation, reasonable attorneys' fees. 14. EXPENSES, CHARGES AND ATTORNEYS' FEES. 14.1. Expenses. Borrower agrees to pay all expenses of the Loan on the Closing Date and on demand at such subsequent times as Lender may determine, including all recording charges, title insurance charges, costs of surveys, costs for certified copies of instruments, escrow charges, fees, expenses and charges of architectural/engineering consultants of Lender, reasonable fees and expenses of Lender's attorneys, all administrative fees and expenses in connection with any modification of any of the terms of the Loan, and all costs and expenses incurred by Lender in connection with the determination of whether Borrower has performed the obligations undertaken by Borrower under this Agreement or has satisfied any conditions precedent to the obligations of Lender under this Agreement. All such expenses, charges, costs and fees shall be Borrower's obligation regardless of whether the Loan is disbursed in whole or in part, unless such failure to disburse is due to Lender's wrongful failure to disburse hereunder. Any and all advances or payments made by Lender under this Agreement from time to time, or for fees of architectural and engineering consultants and attorneys' fees and expenses, if any, and all other Loan expenses shall, as and when advanced or incurred by Lender, constitute additional indebtedness evidenced by the Note and secured by the Deed of Trust and the other Loan Documents to the same extent and effect as if the terms and provisions of this Agreement were set forth therein, whether or not the aggregate of such indebtedness shall exceed the aggregate face amount of the Note. Without limiting the foregoing, Borrower shall indemnify Lender against any and all liabilities, damages, claims, causes of action, losses and/or expenses, which Lender may sustain or incur as a consequence of Borrower's failure to pay such expenses. 14.2. Attorneys' Fees and Expenses. If at any time hereafter prior to repayment of the Loan in full, Lender employs counsel for advice or other representation (whether or not any suit has been or shall be filed and whether or not other legal proceedings have been or shall be instituted and, if such suit is filed or legal proceedings instituted, through all administrative, trial and appellate levels) with respect to the Loan, the Project or any part thereof, this Agreement or any of the Loan Documents, including, but not limited to any proposed or actual restructuring of the Loan, or to protect, collect, lease, sell, take possession of, or liquidate any of the Project, or to attempt to enforce any security interest or lien on any of the Project, or to enforce any rights of Lender or any of Borrower's obligations hereunder or those of any other person, firm or corporation which may be obligated to Lender by virtue of this Agreement or any other agreement, instrument or document heretofore or hereafter delivered to Lender by or for the benefit of Borrower, or to analyze and respond to any request for consent or approval made by Borrower, then, in any such event, all of the reasonable attorneys' fees and expenses arising from such services, and all expenses, costs and charges relating thereto, shall bear interest from the date expended at the Default Rate and shall be paid by Borrower on demand and if Borrower fails to pay such fees, costs and expenses, payment thereof by Lender shall be deemed to constitute disbursement of the Loan proceeds hereunder (even if the total amount of disbursements would exceed the face amount of the Note) and shall constitute additional indebtedness of Borrower to Lender, payable on demand and secured by the Deed of Trust and other Loan Documents. Notwithstanding the foregoing, Lender's reasonable attorneys' fees and expenses arising from Lender's analysis and response to any request for consent or approval made by Borrower shall not bear interest until ten (10) days after Lender notifies Borrower in writing that such attorneys' fees and expenses are due, and thereafter, any unpaid portion of such attorneys' fees and expenses shall bear interest at the Default Rate. 15. CASUALTY AND CONDEMNATION. 15.1. Lender's Election to Apply Insurance and Condemnation Proceeds to Indebtedness. Upon any loss or damage to any portion of the Improvements due to fire or other casualty, or any taking of any portion of the Project by condemnation or under power of eminent domain, Lender shall have the right, but not the obligation, to settle insurance claims and condemnation claims or awards for more than One Hundred Thousand Dollars ($100,000.00) and if Lender elects not to settle such claim or award, then Borrower shall settle such claim or award and such settlement shall be subject to Lender's prior written approval. Borrower shall have the right to settle claims or awards for less than such amount, provided that Lender shall have the right to settle any claim or award that Borrower has not settled on or before one hundred twenty (120) days after the date of such loss or prior to the date of such taking. If (i) no Event of Default exists; (ii) no Event of Default which constitutes a payment default has occurred during the preceding twelve months; (iii) the proceeds received by Lender, together with any additional funds deposited with Lender by Borrower are sufficient, in Lender's sole and absolute discretion, either to restore the Project to its condition before the casualty or to remedy the condemnation; (iv) local building and zoning laws allow the Improvements to be rebuilt to that which existed prior to the casualty or condemnation; (v) the Loan-to-value ratio of the Improvements on completion of the restoration will be sixty percent (60%) or less, as determined by an Appraisal (unless the amount of proceeds is less than three percent (3%) of the Loan Amount); (vi) a loss of no more than five percent (5%) of the commercial tenant rental income will result through commercial tenants exercising rights to terminate their leases as a result of the casualty or condemnation; and (vii) Borrower complies with all conditions set forth in Section 15.2, below, then Borrower shall be entitled to use the insurance or condemnation proceeds to rebuild the Improvements or to remedy the effect of the condemnation, as the case may be. The Appraisal required pursuant to the foregoing provision shall be at Borrower's expense and Borrower is required to provide proof of such payment to Lender and Lender's Mortgage Correspondent. In all other cases, Lender shall have the right (but not the obligation) to collect, retain and apply to the indebtedness of Borrower under this Agreement and the other Loan Documents all insurance and condemnation proceeds (after deduction of all expenses of collection and settlement, including attorneys' and adjusters' fees and expenses), and if such proceeds are insufficient to pay such amount in full, to declare the balance remaining unpaid on the Note and Deed of Trust to be due and payable forthwith and to avail itself of any of the remedies afforded thereby as in the case of any Event of Default. Any proceeds remaining after application to the indebtedness of Borrower under this Agreement and the other Loan Documents shall be paid by Lender to Borrower or the party then entitled thereto. 15.2. Borrower's Obligation to Rebuild and Use of Proceeds Therefor. If Lender does not elect to or is not entitled to apply fire or casualty insurance proceeds to the indebtedness, as provided under Section 15.1, above, Lender shall have the right (but not the obligation) to settle, collect and retain such proceeds, and after deduction of all expenses of collection and settlement, including attorneys' and adjusters' fees and expenses, to release the same to Borrower periodically, provided that Borrower shall: (i) expeditiously repair and restore all damage to the portion of the Improvements in question resulting from such fire or other casualty, including completion of the construction if such fire or other casualty shall have occurred prior to completion, so that the Improvements will be completed in accordance with the plans and specifications approved by Lender; and (ii) if the proceeds of fire or casualty insurance (and the undisbursed available Loan proceeds for construction) are, in Lender's sole judgment, insufficient to complete the repair and restoration of the buildings, structures and other improvements constituting the Project, then Borrower shall promptly deposit with Lender the amount of such deficiency. Any request by Borrower for a disbursement by Lender of fire or casualty insurance proceeds and funds deposited by Borrower pursuant to this Section 15.2 and the disbursement thereof shall be conditioned upon Borrower's compliance with and satisfaction of the same conditions precedent as would be applicable in connection with construction loans made by institutional lenders for projects similar to the Project, including approval of plans and specifications submittal of evidence of completion, updated title insurance, lien waivers, and other customary safeguards. Borrower's failure to comply with this Section 15.2 shall constitute an Event of Default. 16. ENVIRONMENTAL COVENANTS AND INDEMNITY. 16.1. Compliance With Laws. Borrower shall keep and maintain the Project in compliance with, and shall not cause or permit the Project to be in violation of any federal, state or local laws, ordinances or regulations, now or hereafter in effect, relating to environmental conditions, industrial hygiene, human health or safety or Hazardous Materials (as defined below) on, under or at the Project, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., ("RCRA"), the Clean Air Act, 42 U.S.C. 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. 300f through 300j, and any similar State and local laws and ordinances, including but not limited to Hazardous Waste Control Act, California Health and Safety Code 25100, et seq.; Hazardous Substance Account Act, California Health and Safety Code 25300, et seq.; Hazardous Substance Cleanup Bond Act of 1984, California Health and Safety Code 25385, et seq., and related statutes including 25356.1-25356.4 of the California Health and Safety Code; Porter-Cologne Water Quality Control Act, California Water Code 13000, et seq.; Safe Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"), California Health and Safety Code 25249.5, et seq.; California Health and Safety Code 25220, et seq., 25280, et seq., 25359.7; California Civil Code 3483; and California Code of Civil Procedure 736; and in the regulations now or hereafter adopted and publications now or hereafter promulgated pursuant thereto, or any other federal, state or local governmental law, ordinance, rule or regulation related thereto (collectively, the "Hazardous Materials Laws"). 16.2. Prohibited Acts. Borrower shall not use, generate, manufacture, treat, handle, refine, produce, process, store, discharge, release, dispose of or allow to exist on, under or at the Project any flammable explosives, radioactive materials, asbestos, organic compounds known as polychlorinated biphenyls, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" under the Hazardous Materials Laws (collectively "Hazardous Materials"), except in compliance with all applicable law. Furthermore, Borrower shall not allow to exist on, under or at the Project, any underground storage tanks or underground deposits unless they exist in compliance with applicable Hazardous Materials Laws. 16.3. Notification; Right to Audit. Borrower shall immediately advise Lender in writing of (i) any actual, suspected or threatened release of any Hazardous Materials on all or any part of the Project, or on property immediately adjacent to the Project, (ii) any and all enforcement, clean up, removal, mitigation or other governmental or regulatory actions instituted, contemplated or threatened pursuant to any Hazardous Materials Laws affecting the Project, (iii) all claims made or threatened by any third party against Borrower or the Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (ii) and (iii), above, are hereinafter referred to as "Hazardous Materials Claims"), and (iv) Borrower's discovery of any occurrence or condition on the Project or any real property adjoining or in the vicinity of the Project which could subject Borrower or the Project to any restrictions on ownership, occupancy, transferability or use of the Project under any Hazardous Materials Laws. Without limiting the foregoing, Lender, at Lender's sole expense, shall have the right to perform, or cause to be performed, environmental audits at such times during the Term of the Loan as Lender reasonably believes that such an audit may disclose the presence or release of any Hazardous Materials or petroleum products or if an environmental audit deems further testing necessary; provided, however, that the cost of such audit(s) shall be paid by Borrower if the environmental consultant (the "Consultant") who performed the audit(s) initiates or institutes an Operations and Maintenance Plan to be strictly adhered to by Borrower, Borrower's Project manager or other person or entity employed by Borrower to operate and maintain the Project. Borrower shall have the right to approve the Consultant retained by Lender, which approval shall not be unreasonably withheld or delayed; provided, however, that if the Consultant retained by Lender is the same consultant who prepared the Phase I Environmental Assessment, as set forth in Section 2.39, above, Borrower shall not have any such approval right. 16.4. Hazardous Materials Liabilities. Lender shall have the right to join and participate in, as a party if it so elects, any settlements, remedial actions, legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Borrower. Borrower shall be solely responsible for, and shall indemnify, hold harmless and defend (using counsel of Lender's choosing) Lender, its directors, officers, employees, agents, successors and assigns (hereinafter collectively called the "Indemnitees") from and against, any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, transportation, generation, manufacture, treatment, handling, refining, production, processing, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under or at the Project (the losses, damages, costs, expenses or liabilities against which Borrower is obligated to indemnify and hold harmless the Indemnitees under the provision of this Section are hereinbelow collectively called "Hazardous Materials Liabilities"), which Hazardous Materials Liabilities include, without limitation: (i) all foreseeable and unforeseeable consequential damages; (ii) the costs of any required or necessary repair, cleanup or detoxification of the Project, and the preparation and implementation of any closure, remedial or other required plans; and (iii) all reasonable costs and expenses incurred by Lender in connection with clauses (i) and (ii), including, without limitation, reasonable attorneys' fees. At the Closing, Borrower will execute a separate Environmental Indemnity Agreement in the form attached as Exhibit "G." 16.5. Remedial Work. All monitoring and investigation of site conditions, cleanup, containment, removal, restoration or other remedial work for the Project which is required by the Hazardous Materials Laws or requested by Lender pursuant to this Section 16.5 is hereinafter referred to as the "Remedial Work." All Remedial Work shall be conducted: (i) in a diligent and timely manner by licensed contractors acting under the supervision of a consulting environmental engineer acceptable to Lender; (ii) pursuant to a detailed written plan approved by any public or private agencies or persons with the legal or contractual right to such approval; (iii) with such insurance coverage pertaining to liabilities arising out of the Remedial Work as is customarily maintained with respect to such activities; and (iv) only following receipt of any required permits, licenses, or approvals. The selection of the Remedial Work contractors and consulting environmental engineer, the contracts entered into with such parties, all disclosures to or agreements with any public or private agencies or parties relating to the Remedial Work and the written plan for the Remedial Work shall be subject to Lender's prior written approval. In addition, Borrower shall submit to Lender, promptly upon receipt or preparation, copies of any and all reports, studies, analyses, correspondence, governmental comments or approvals prepared or received by Borrower in connection with any Remedial Work. All costs and expenses of such Remedial Work shall be paid by Borrower, including, without limitation, the cost of the Remedial Work contractors and the consulting and environmental engineers, taxes and penalties assessed in connection with the Remedial Work and Lender's reasonable fees and costs incurred in connection with monitoring and reviewing the Remedial Work. If Borrower shall fail to commence or cause to be commenced in a timely manner or fail diligently to prosecute the completion of such Remedial Work, Lender may, but shall not be required to, cause such Remedial Work to be performed, and all costs incurred by Lender in connection therewith, together with interest thereon at the Default Rate, shall be reimbursed by Borrower upon demand and shall be secured by the Deed of Trust. 16.6. Indemnification. BORROWER WILL INDEMNIFY AND HOLD HARMLESS LENDER, ITS OFFICERS, DIRECTORS, PARTNERS, EMPLOYEES, AGENTS, REPRESENTATIVES AND ATTORNEYS AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, CLAIMS, ACTIONS, SUITS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) OF WHATEVER KIND OR NATURE ("CLAIMS") WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AT ANY TIME AGAINST LENDER AND IN ANY WAY RELATING TO OR ARISING OUT OF OR IN CONNECTION WITH THE ENVIRONMENTAL CONDITION OF THE PROJECT AS A RESULT OF THE CONSTRUCTION OR MAINTENANCE OF THE IMPROVEMENTS THEREON AND/OR THE USE, OCCUPATION OR OPERATION OF THE PROJECT, OR OTHERWISE. 16.7. Survival. The obligations of Borrower set forth in this Section 16 shall survive repayment of the Loan, any judicial or non-judicial foreclosure of the Deed of Trust and any deed in lieu of foreclosure. 17. GENERAL PROVISIONS. 17.1. Captions. The captions and headings of various Articles and Sections of this Agreement and Exhibits pertaining hereto are for convenience only and are not to be considered as defining or limiting in any way, the scope or intent of the provisions hereof. 17.2. Merger. This Agreement, the Note, the Deed of Trust, and all the other Loan Documents referred to herein, constitute the entire agreement of the parties with respect to the Project and the Loan, and all prior discussions, negotiations and document drafts are merged herein and therein. This Agreement may not be changed orally, but only by a written instrument signed by each party hereto. Neither Lender nor any employee of Lender has made or is authorized to make any representation or agreement upon which Borrower may rely unless such matter is made for the benefit of Borrower and is in writing signed by an authorized officer of Lender. Borrower agrees that it has not and will not rely on any custom or practice of Lender, or on any course of dealing with Lender, in connection with the Loan unless such matters are set forth in this Agreement or the Loan Documents or in an instrument made for the benefit of Borrower and in a writing signed by an authorized officer of Lender. 17.3. Notices. All notices, demands, requests or other communications which any party hereto may be required or may desire to give hereunder shall be in writing, addressed as follows and shall be deemed to have been properly given if hand delivered, if sent by reputable overnight courier or if mailed by United States registered or certified mail, postage prepaid, return receipt requested: If to Borrower: Datron Resources Inc. 304 Enterprise Street Escondido, California 92029 Attention: Treasurer If to Lender: Jackson National Life Insurance Company c/o PPM Finance, Inc. 225 West Wacker Drive, Suite 1200 Chicago, Illinois 60606 Attention: Manager of Commercial Mortgage Servicing or at such other address as the party to be served with notice may have furnished in writing to the party seeking or desiring to serve notice as a place for the service of notice. Unless otherwise expressly stipulated in this Agreement, notices shall be deemed to have been given or made, (i) in the case of notice by mail on the earlier of the date reflected on the return receipt or three (3) calendar days after deposit in the U.S. mails, and (ii) in the case of delivery by courier, by the courier's delivery receipt. 17.4. Modification; Waiver. No modification, waiver, amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge or change is sought. Lender reserves the right to charge an administrative fee for any such modification, waiver, amendment, discharge or change of this Agreement. 17.5. Governing Law. THIS AGREEMENT, THE NOTE, THE DEED OF TRUST AND ALL OF THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT RESORT TO CHOICE OF LAW PRINCIPLES. 17.6. Further Assurances. Borrower agrees to execute and deliver such other instruments as may be requested by Lender from time to time to effect and confirm the transactions described herein and contemplated hereby. 17.7. General Provisions Relating to Interest. IT IS THE INTENTION OF THE PARTIES HERETO TO CONFORM STRICTLY TO APPLICABLE USURY LAWS REGARDING THE USE, FORBEARANCE OR DETENTION OF THE INDEBTEDNESS EVIDENCED BY THIS AGREEMENT, THE NOTE, THE DEED OF TRUST AND THE OTHER LOAN DOCUMENTS, WHETHER SUCH LAWS ARE NOW OR HEREAFTER IN EFFECT, INCLUDING THE LAWS OF THE UNITED STATES OF AMERICA, THE LAWS OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION WHOSE LAWS ARE APPLICABLE, AND INCLUDING ANY SUBSEQUENT REVISIONS TO OR JUDICIAL INTERPRETATIONS OF THOSE LAWS, IN EACH CASE TO THE EXTENT THEY ARE APPLICABLE TO THIS AGREEMENT, THE NOTE, THE DEED OF TRUST AND THE OTHER LOAN DOCUMENTS (THE "APPLICABLE USURY LAWS"); PROVIDED, HOWEVER, IF SUCH LAWS SHALL HEREAFTER PERMIT HIGHER RATES OF INTEREST, THEN THE APPLICABLE USURY LAWS SHALL BE THE LAWS ALLOWING THE HIGHER RATES OF INTEREST. BORROWER ACKNOWLEDGES THAT LENDER IS LICENSED AS A COMMERCIAL FINANCE LENDER UNDER CALIFORNIA FINANCIAL CODE 22000, ET SEQ., AND AS SUCH, IS COMPLETELY EXEMPT FROM CALIFORNIA USURY LAWS. NOTWITHSTANDING ANYTHING SET FORTH IN THIS AGREEMENT, THE INTEREST APPLICABLE TO THE NOTE IS AS SPECIFICALLY SET FORTH THEREIN, AND THE INTEREST APPLICABLE TO THE NOTE SHALL NOT BE AGGREGATED, BLENDED OR OTHERWISE CONSIDERED AS ONE INTEREST RATE APPLICABLE TO THE LOAN. NONETHELESS, THE FOLLOWING SHALL APPLY: If, despite Lender's exempt status, it is nonetheless determined that any acceleration of the maturity of the Note or any payment by Borrower or any other person or entity results in Borrower or such other person or entity being deemed to have paid any interest (including fees and any other additional amounts) in excess of the Maximum Amount (as defined below), or if any transaction contemplated hereby would otherwise be usurious under any Applicable Usury Laws, then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document or any other agreement or instrument, it is agreed as follows: (i) the provisions of this Section 17.7 shall govern and control; (ii) the aggregate of all interest under the Applicable Usury Laws that is contracted for, charged, taken, reserved or received under this Agreement, or under any of the other aforesaid agreements or instruments or otherwise shall under no circumstances exceed the Maximum Amount, and any excess shall either be refunded to Borrower or applied in reduction of principal, if permitted by California law, in the sole discretion of Lender; (iii) neither Borrower nor any other person or entity shall be obligated to pay the amount of such interest to the extent that it is in excess of the Maximum Amount; (iv) any Interest contracted for, charged, reserved, taken or received in excess of the Maximum Amount shall be deemed an accidental or bona fide error and cancelled automatically to the extent of such excess; (v) the effective rate of Interest on the Loan shall be ipso facto reduced to the Highest Lawful Rate (defined below); and (vi) the provisions of this Agreement, the Note, the Deed of Trust and the other Loan Documents immediately shall be deemed reformed, without the necessity of the execution of any new document or instrument, so as to comply with all Applicable Usury Laws; provided, however, that to the fullest extent permitted by Applicable Usury Laws, any subsequent reductions in the applicable rate of Interest shall not reduce the Interest to accrue pursuant to this Agreement, the Note, the Deed of Trust and the other Loan Documents below the Highest Lawful Rate until the aggregate amount of Interest actually accrued pursuant to this Agreement, the Note, the Deed of Trust and the other Loan Documents, together with such additional interest, equals the amount of Interest which would have accrued if the Highest Lawful Rate had at all times been in effect and such additional interest, if any, had been paid in full. All sums paid, or agreed to be paid, to Lender for the use, forbearance or detention of the indebtedness of Borrower to Lender evidenced by this Agreement, the Note, the Deed of Trust and the other Loan Documents shall, to the fullest extent permitted by the Applicable Usury Laws, be amortized, pro rated, allocated and spread throughout the full term of the indebtedness evidenced by this Agreement, the Note, the Deed of Trust and the other Loan Documents so that the actual rate of Interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. As used herein, the term "Maximum Amount" means the maximum non-usurious amount of interest which may be lawfully contracted for, charged or received by Lender in connection with the indebtedness evidenced by this Agreement, the Note, the Deed of Trust and other Loan Documents under all Applicable Usury Laws. For purposes of this Agreement, the term "Highest Lawful Rate" means the maximum rate of interest, if any, that may be charged under all Applicable Usury Laws on the principal balance of the Loan from time to time outstanding. 17.8. Estoppel Certificates. Within ten (10) calendar days after written request by Lender, Borrower shall execute and deliver to Lender, in such form as Lender shall reasonably request, a Certificate confirming (i) that, as of the date of such Certificate, this Agreement, the Note, the Deed of Trust and each other Loan Document are in full force and effect and are enforceable against Borrower in accordance with their terms, (ii) the amount of principal outstanding pursuant to the Note as of the date of such Certificate, and (iii) as of the date of such Certificate, there is no uncured Event of Default under this Agreement or any other Loan Document. 17.9. Acquiescence Not to Constitute Waiver of Lender's Requirements. Each and every covenant and condition for the benefit of Lender contained in this Agreement may be waived by Lender. 17.10. Disclaimer by Lender. 17.10.1. This Agreement is made for the sole benefit of Borrower and Lender (and Lender's successors and assigns and participants, if any), and no other person shall have any benefits, rights or remedies under or by reason of this Agreement, or by reason of any actions taken by Lender pursuant to this Agreement. Lender shall not be liable for any debts or claims accruing in favor of any third parties against Borrower or others or against the Project. Borrower is not and shall not be an agent of Lender for any purposes. Except as may be expressly set forth in the Loan Documents, Lender is not and shall not be an agent of Borrower for any purposes. 17.10.2. Any review, investigation or inspection conducted by Lender, any architectural or engineering consultants retained by Lender, any agent or representative of Lender retained to verify independently Borrower's satisfaction of any conditions precedent to the disbursement of the Loan, Borrower's performance of any of the covenants, agreements and obligations of Borrower under this Agreement, or the truth of any representations and warranties made by Borrower hereunder (regardless of whether or not the party conducting such review, investigation or inspection should have discovered that any of such conditions precedent were not satisfied or that any such covenants, agreements or obligations were not performed or that any such representations or warranties were not true), shall not affect or constitute a waiver by Lender of (i) any of Borrower's representations and warranties under this Agreement or Lender's reliance thereon, or (ii) Lender's reliance upon any certifications required under this Agreement or any other facts, information or reports furnished Lender by Borrower hereunder. 17.10.3. By accepting or approving anything required to be observed, performed, fulfilled or given to Lender pursuant to the Loan Documents, including any certificate, statement of profit and loss or other financial statement, survey, appraisal, lease or insurance policy, Lender shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term provision or condition thereof, and such acceptance or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by Lender. 17.11. No Partnership. 17.11.1. Creditor-Debtor Relationship. Lender and Borrower intend that the relationship between them pursuant to this Agreement and each of the other Loan Documents shall be solely that of creditor and debtor. Nothing contained in this Agreement or in any other of the Loan Documents or any other document or instrument made in connection with the Loan, shall be deemed or construed to create, or to constitute, a partnership, tenancy-in-common, joint tenancy, joint venture or co-ownership by and between Lender and Borrower. Lender in no way shall be responsible or liable for the debts, losses, obligations, or duties of Borrower with respect to the Project or otherwise. All obligations to pay real property or other Taxes, assessments, insurance premiums and all other fees and charges arising from the ownership, operation or occupancy of the Project and to perform any agreements and contracts relating to the Project shall be the sole responsibility of Borrower. Borrower, at all times consistent with the terms and provisions of this Agreement and each of the other Loan Documents and any other document or instrument evidencing, securing or otherwise relating to the Loan, shall be free to determine and follow its own policies and practices in the conduct of its business on the Project. 17.11.2. Indemnification. Borrower shall indemnify, defend and hold Lender, and its officers, directors, employees, shareholders, advisers, and agents (collectively, "Indemnified Parties") harmless from and against all claims, injury, damage, loss, costs (including attorneys' fees and costs) and liability of any and every kind incurred by Indemnified Parties by reason of (i) the operation or maintenance of the Project or any construction on the Real Project or Improvements; (ii) the payment of any brokerage commissions or fees of any kind with respect to the Application/Commitment or the Loan, and for any reasonable legal fees or expenses incurred by Lender in connection with any claims for such commissions or fees; (iii) any other action or inaction by, or matter which is the responsibility of, Borrower; and (iv) the breach of any representation or warranty or failure to fulfill any of Borrower's obligations under this Agreement or any other Loan Document. The foregoing indemnity shall include the cost of all alterations, repairs and replacements to the Project (including without limitation architectural, engineering, legal and accounting costs), all fines, fees and penalties, and all legal and other expenses (including reasonable attorneys' fees), incurred in connection with the Project being in violation of the Building Laws and for the cost of collection of the sums due under this indemnity, whether or not Borrower is in possession of the Project. If Lender shall become the owner of or acquire an interest in or rights to the Project by foreclosure (whether such foreclosure is judicial or non- judicial foreclosure) or deed in lieu of foreclosure of the deed of trust securing payment of the Loan, or by other means, the foregoing indemnification obligation shall survive such foreclosure or deed in lieu of foreclosure or other acquisition of the Property, unless Lender's own negligent acts or omissions cause what would otherwise be considered an indemnification obligation by Borrower or Guarantor. 17.12. Right of Lender to Make Advances to Cure Borrower's Defaults. If Borrower shall fail to perform in a timely fashion any of Borrower's covenants, agreements or obligations contained in this Agreement or the Loan Documents, Lender may (but shall not be required to) perform any of such covenants, agreements and obligations. Any funds advanced by Lender in the exercise of its judgment that the same are needed to protect its security for the Loan are deemed to be obligatory advances hereunder and any amounts expended (whether by disbursement of undisbursed Loan proceeds or otherwise) by Lender in so doing, shall constitute additional indebtedness evidenced and secured by the Note, the Deed of Trust and the other Loan Documents, shall bear interest from the date expended at the Default Rate and be payable together with such interest upon demand. 17.13. Definitions Include Amendments. Definitions contained in this Agreement which identify documents, including the Loan Documents, shall be deemed to include all amendments and supplements to such documents from the date hereof, and all future amendments and supplements thereto entered into from time to time to satisfy the requirements of this Agreement or otherwise with the prior written consent of the Lender. Reference to this Agreement contained in any of the foregoing documents shall be deemed to include all amendments and supplements to this Agreement. 17.14. Time Is of the Essence. Time is hereby declared to be of the essence of this Agreement and of every part hereof. 17.15. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 17.16. Waiver of Consequential Damages. In no event shall Lender be liable to Borrower for consequential damages, whatever the nature of a breach by Lender of its obligations under this Loan Agreement, or any of the Loan Documents, and Borrower for itself and all Affiliated Parties hereby waives all claims for consequential damages. 17.17. Jurisdiction and Venue. Any action or proceeding relating to or arising out of this Agreement, the Project, the other Loan Documents or the Loan ("Proceedings") shall be filed, if a State action, in the Superior Court of the State of California for the County of Ventura, or if a Federal action, in the United States District Court for the Central District of California; and Borrower waives any objection which it may have at any time to the laying of venue of any proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. 17.18. Severability. The parties hereto intend and believe that each provision in this Agreement comports with all applicable Laws. However, if any provision or provisions, or if any portion of any provision or provisions, in this Agreement is found by a court of law to be in violation of any applicable Law, and if such court declares such portion, provision, or provisions of this Agreement to be illegal, invalid, unlawful, void or unenforceable as written, then it is the intent of all parties hereto that such portion, provision, or provisions shall be given force to the fullest possible extent that they are legal, valid and enforceable, and that the remainder of this Agreement shall be construed as if such illegal, invalid, unlawful, void, or unenforceable portion, provision, or provisions were not contained herein, and that the rights, obligations, and interests of Borrower and Lender under the remainder of this Agreement shall continue in full force and effect. 17.19. Assignments. 17.19.1. Lender's Right to Assign. Lender shall have the right to assign, transfer, sell, negotiate, pledge or otherwise hypothecate this Agreement and any of its rights and security hereunder, including the Note, Deed of Trust, and any other Loan Documents. Borrower hereby agrees that all of the rights and remedies of Lender in connection with the interest so assigned shall be enforceable against Borrower by such assignee with the same force and effect and to the same extent as the same would have been enforceable by Lender but for such assignment. Borrower agrees that Lender shall have the right to sell participations in the Loan or to include the Note in a securitized pool of indebtedness without the consent of Borrower. 17.19.2. Prohibition of Assignments by Borrower. Borrower shall not assign or attempt to assign its rights under this Agreement. Borrower will not suffer or permit any of its interest or rights in the Project to be assigned, sold, pledged, encumbered, transferred, hypothecated or otherwise disposed of until the provisions of this Agreement have been fully complied with and the Loan and all other sums evidenced by the Note and/or secured by the Deed of Trust and other Loan Documents, have been repaid in full. 17.19.3. Intentionally Omitted. 17.19.4. Successors and Assigns. Subject to the foregoing restrictions on transfer and assignment contained in this Section 17.19, this Agreement shall inure to the benefit of and shall be binding on the parties hereto and their respective successors and assigns. 17.20. Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural forms thereof, as its context shall require. 17.21. Resolution of Drafting Ambiguities. Borrower acknowledges that it was represented by counsel in connection with the preparation, execution and delivery of this Agreement, the Note, the Deed of Trust and the other Loan Documents to be executed and deliv ered by Borrower and that Borrower's counsel reviewed and participated in the revision of all of the Loan Documents and that any rule of construction under any applicable law to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of any of this Agreement or any of the other Loan Documents. Accordingly, the parties hereby waive the provisions of California Civil Code 1654. 17.22. Conflicts. Borrower and Lender hereby acknowledge and agree that concurrently with entering into this Agreement, they have also entered into the other Loan Documents which set forth rights, obligations and remedies of the parties in connection with the Loan, some of which are also addressed in this Agreement. Borrower and Lender hereby further agree that to the extent that the provisions of any of the other Loan Documents constitute an addition to or an enhancement of (without conflicting or being inconsistent with) the provisions of this Agreement, then the provisions of said other Loan Documents and the provisions of this Agreement shall all be and remain in full force and effect, enforceable by Lender in accordance with their respective terms; provided, however, that if and to the extent that there is any direct conflict or inconsistency between the provisions of the other Loan Documents and the provisions of this Agreement, the provisions set forth in the other Loan Documents shall govern and control. 17.23. Attorneys' Fees; Legal Action. 17.23.1. Attorneys' Fees. Borrower shall reimburse Lender for all reasonable attorneys' fees and expenses incurred by Lender in connection with the enforcement of Lender's rights under this Agreement, including, without limitation, reasonable attorneys' fees and disbursements for out-of-court workouts and settlements or for enforcement of rights under any state or federal statute, including, without limitation, attorneys' fees incurred in bankruptcy and insolvency proceedings. Borrower specifically acknowledges that, due to the complexity of the Loan, the real estate development sophistication of Borrower and the difficulties contemplated in enforcement of Lender's remedies, Lender shall be entitled to retain attorneys of Lender's choice, including attorneys in the employ of Lender, to protect its interests properly and completely upon an Event of Default. 17.23.2. Legal Action. Lender shall have the right, at Borrower's expense, to commence, to appear in, or to defend any action or proceeding purporting to affect the rights or duties of the parties to this Agreement, the Note, the Deed of Trust or any of the Loan Documents and in connection therewith shall have the right to pay, at Borrower's expense, all necessary expenses, including reasonable attorney's fees, if Borrower fails upon reasonable notice to so commence, appear in or defend any such action or proceeding with counsel of Lender's choice, except in a suit by Borrower against Lender. 17.24. Exhibits. All Exhibits attached to this Agreement are incorporated herein by this reference as though set forth in full herein. 17.25. Intentionally Omitted. 17.26. Recourse. The Loan is a full recourse loan to Borrower. Notwithstanding anything to the contrary in the Note, this Agreement and each other Loan Document, the liability of Borrower for the payment of principal and Interest, and the observance and performance of all of the terms, covenants, conditions and provisions of the Note, this Agreement and the other Loan Documents is not limited or restricted to the Project, and full recourse may be had for the payment of such indebtedness, or the observance or performance of any of the terms, covenants, conditions or provisions of the Note, this Agreement or any of the other Loan Documents against any property, assets or funds of Borrower other than the Project. Lender may seek payment from Guarantor without first reducing its claim against Borrower to judgment. Guarantor shall be obligated as though it had itself executed this Agreement, the Note and the other Loan Documents. Accordingly, Lender may enforce the terms, covenants, conditions and provisions of the Note, this Agreement and the other Loan Documents against Guarantor notwithstanding Borrower's filing of a petition in bankruptcy and obtaining a discharge. Furthermore, Guarantor shall provide to Lender the same financial information that Borrower is required to provide hereunder. Nothing contained herein shall be construed to prevent Lender from exercising any remedy allowed by Law or by the terms of this Agreement or any other Loan Document. 17.27. WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the day and year first set forth above. BORROWER: DATRON RESOURCES INC. a California corporation By: /s/ WILLIAM L. STEPHAN Its: Treasurer LENDER: JACKSON NATIONAL LIFE INSURANCE COMPANY, a Michigan corporation By: PPM Finance, Inc., a Delaware corporation, Its: Authorized Agent By: /s/ JAMES B. KEARNS Its: Senior Regional Director EX-10.66 3 DATRON SYSTEMS INCORPORATED PROFIT SHARING AND SAVINGS PLAN (Amended and Restated as of April 1, 1998) TABLE OF CONTENTS Page 1. DEFINITIONS 3 2. PARTICIPATION 11 2.1. Service Requirement and Commencement Date. 11 2.2. Period of Participation 12 2.3. Suspended Participation 12 3. DEFERRED PAY CONTRIBUTIONS 12 3.1. General Rules 12 3.2. Limitations on Deferred Pay Contributions 13 3.3. Administrative Committee May Modify or Revoke Deferred Pay Contribution Elections 13 3.4. Distribution of Excess Deferrals and Excess Contributions 14 3.5. Special Employer Contributions 15 4. EMPLOYER MATCHING AND PROFIT SHARING CONTRIBUTIONS 15 4.1. Matching Contributions 15 4.2. Profit Sharing Contributions 15 4.3. Time for Contributions 16 4.4. Limitations on Employer Contributions 16 4.5. Administrative Committee May Reduce or Discontinue Matching Contributions 16 4.6. Distribution of Excess Aggregate Contributions 16 5. ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 17 5.1. Accounts 17 5.2. Valuation of Accounts 17 5.3. Allocation of Employer Contributions and Forfeitures 18 5.4. Limitations on Allocations 19 6. VESTING AND TREATMENT OF FORFEITURES 21 6.1. Vesting 21 6.2. Forfeitures 22 7. INVESTMENT OF PLAN ASSETS 23 7.1. Options Available to Participants 23 7.2. No Investment in Securities of the Company or in Real Estate Leased to the Company 24 7.3. Certain Other Investments 24 8. DISTRIBUTION OF BENEFITS AND WITHDRAWALS 24 8.1. Amount of Plan Benefit 24 8.2. Time of Distribution 25 8.3. Methods of Distribution 26 8.4. Valuation of Accounts for Distribution 26 8.5. Distribution after Total Disability 27 8.6. Distribution Pursuant to a Qualified Domestic Relations Order 27 8.7. Withdrawal After Age 59 1/2 27 8.8. Withdrawals in the Event of Financial Hardship 27 8.9. Loans to Employees 29 8.10. Direct Benefit Transfers 29 9. DEATH BENEFITS AND BENEFICIARIES 30 9.1. Death Benefits 30 9.2. Designation of Beneficiary 31 9.3. Absence of Valid Designation of Beneficiary 31 9.4. Direct Benefit Transfers 31 10. TRUST AND PAYMENT OF BENEFITS AND EXPENSES 31 10.1. Trust 31 10.2. Payment of Benefits 32 10.3. Expenses of Plan Administration 32 11. ADMINISTRATION 32 11.1. Board of Directors 32 11.2. Administrative Committee 32 11.3. Appointment of Investment Managers 35 11.4. Funding Policy 35 11.5. Engagement of Advisors 35 11.6. Service in More than One Fiduciary Capacity 35 11.7. Indemnification 35 12. CLAIMS AND REVIEW PROCEDURES 36 12.1. Claims Procedure 36 12.2. Review Procedure 37 13. AMENDMENT AND TERMINATION 37 13.1. Amendment 37 13.2. Termination, Partial Termination, or Complete Discontinuance of Contributions 38 14. MISCELLANEOUS 38 14.1. No Effect on Employment Relationship 38 14.2. Mergers and Transfer of Assets 38 14.3. Prohibition Against Assignment 39 14.4. Permissible Reversions 39 14.5. Masculine/Feminine; Singular/Plural 40 14.6. Missing Participant or Beneficiary 40 14.7. Notices and Elections 40 14.8. Top Heavy Rules 40 14.9. Rollovers and Direct Transfers from Other Plans 42 14.10. Compliance with Section 401(a)(9) of the Code 43 14.11. Benefits for Certain Reemployed Participants Who Return from Military Service 43 14.12. Applicable Law and Severability 43 DATRON SYSTEMS INCORPORATED PROFIT SHARING AND SAVINGS PLAN (Amended and Restated as of April 1, 1998 INTRODUCTION i. Datron Systems Incorporated (the "Company") originally adopted this Plan effective April 1, 1980, and has amended and restated it from time to time thereafter. ii. Effective as of April 1, 1998, unless otherwise indicated, the Plan was amended and restated to read as set forth herein. The principal changes reflected in this amendment and restatement are designed to reflect the merger of the Datron World Communications Inc. Profit Sharing and Savings Plan (the "Datron World Plan") with and into this Plan effective as of February 1, 1998, but the Company has also adopted additional changes that are deemed necessary or desirable. iii. The primary purpose of the Plan is to provide Eligible Employees with the opportunity to accumulate funds for their retirement through a program of pre-tax savings, which may be supplemented by contributions made by their Participating Employer. In this regard, the Plan and the trust established hereunder are intended to qualify as a "profit sharing plan" under section 401(a) of the Code and as a "qualified cash or deferred arrangement" under section 401(k) of the Code. Another purpose of the Plan is to provide security for Participants and their Beneficiaries through the provision of benefits in the event of a Participant's death or Total Disability. iv. Except as otherwise indicated, the provisions of this amended and restated Plan shall apply only to individuals who are Employees on or after February 1, 1998. The benefits payable under the Plan to (or with respect to) any individual who ceased to be an Employee prior to February 1, 1998, and the rights and obligations of any such individual with respect to such benefits, shall be determined under the terms of the Plan as in effect on (or as of) the date such individual ceased to be an Employee. 1. DEFINITIONS The terms defined in this Section are indicated by capitalized initial letters wherever they appear in the Plan and, whenever used, shall have the following meanings: 1.1 "Administrative Committee" shall mean the committee described in Section 11.2. 1.2 "Beneficiary" shall mean the person or persons entitled to receive any benefits payable hereunder after the death of a Participant (determined under Section 9). 1.3 "Board of Directors" shall mean the board of directors of the Company. 1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.5 "Company" shall mean Datron Systems Incorporated, a Delaware corporation. 1.6 "Compensation" shall mean, with respect to any Employee, the Employee's wages, salaries, fees for professional services, and other amounts received for personal services actually rendered in the course of employment by the Company or any Related Company, plus the amount, if any, of his Deferred Pay Contributions and the amount of any Participating Employer contributions to a "cafeteria plan" governed by section 125 of the Code that are made at the Employee's election, but excluding the following: (a) Contributions to this Plan and any other plan of deferred compensation, to the extent deductible or not includable in gross income by the Employee; (b) Distributions from any plan of deferred compensation other than an unfunded plan that is not qualified under section 401 of the Code; (c) Amounts realized from the exercise of a stock option or the disposition of stock acquired on exercise of a stock option; (d) Amounts realized on the vesting of restricted property; and (e) All other amounts that receive special tax benefits under the Code. 1.7 "Covered Compensation" shall mean an Eligible Employee's Compensation. Notwithstanding the preceding sentence: (i) except as otherwise provided herein, the amount of any Eligible Employee's "Covered Compensation" taken into account under the Plan for any Plan Year shall not exceed $160,000 (or such larger amount as may be prescribed for that Plan Year by the Secretary of the Treasury pursuant to section 401(a)(17) of the Code); and (ii) for purposes of determining the amount of any Participant's Deferred Pay Contributions under Section 3, his "Covered Compensation" shall be limited to amounts payable after the effective date of his election to make such Contributions. 1.8 "Deferred Pay Account" shall mean the account established pursuant to Section 5.1 for each Participant who elects to make Deferred Pay Contributions to the Plan, to which such Contributions are credited. 1.9 "Deferred Pay Contributions" shall mean, with respect to any Participant, the amount of his Compensation that he has elected to contribute to the Plan pursuant to Section 3.1. 1.10 "Eligible Employee" shall mean each Employee of a Participating Employer, except the following: (a) any such person who is a "leased employee" within the meaning of section 414(n) of the Code; (b) any such person who is a member of a collective bargaining unit that has entered into a collective bargaining agreement with his Participating Employer with respect to which there is evidence that retirement benefits were the subject of good faith bargaining, unless participation in this Plan is specifically provided for in such agreement; and (c) any such person who is not classified as an Employee for tax purposes by his Participating Employer. 1.11 "Employee" shall mean any individual employed by the Company or any Related Company any portion of whose compensation is subject to withholding of income tax and/or for whom social security contributions are made by the Company or Related Company that employs him. The term "Employee" shall also include individuals who are "leased employees" within the meaning of section 414(n) of the Code and who are providing services to the Company or any Related Company, other than any such individuals who are described in section 414(n)(5) of the Code. An Employee's employment shall not be considered terminated for purposes of the Plan while he is on an unpaid leave of absence. "Leave of absence" shall mean a leave granted by the Company or any Related Company, in accordance with rules uniformly applied to all of its Employees, for reasons of health or public service, or for other reasons determined by the Company or Related Company to be in its best interests, and shall include periods of military service for which reemployment rights are prescribed by law. Notwithstanding the foregoing provisions of this Section, Employees who do not return to the employ of the Company or any Related Company within 30 days (or such longer period as may be prescribed by law) following the end of their leave of absence, or in the case of military service within the period their reemployment rights are protected by law, shall be deemed to have terminated their employment as of the earlier of (a) the date the leave ended, or (b) the first anniversary of the date the leave began (unless such failure to return was the result of death, Total Disability or Normal Retirement, in which case employment shall be deemed to have terminated on the date of death, Total Disability or Normal Retirement, as applicable). 1.12 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.13 "Highly Compensated Employee" shall mean, with respect to any Plan Year, an Employee who performs services for the Company or any Related Company during such Plan Year and who: (a) Is a 5% owner (within the meaning of section 416(i)(1)(B)(i) of the Code) of the Company or any Related Company during that Plan Year or the preceding Plan Year; or (b) Receives Compensation in excess of $80,000 during the preceding Plan Year and, if elected by the Administrative Committee for such preceding Year, was in the Top-Paid Group for such preceding Year. 1.14 "Hour of Service" shall mean, with respect to any Employee: (a) Each hour for which the Employee is paid or entitled to payment by the Company or any Related Company for the performance of duties. Hours of Service credited under this paragraph shall be credited to the Plan Year or Service Anniversary Year, as appropriate, in which the duties are performed; (b) Each hour for which the Employee is paid or entitled to payment by the Company or any Related Company on account of a period of time during which no duties are performed due to vacation, holiday, sickness, incapacity (including disability), leave of absence, layoff, jury duty and military service; provided that no more than 501 Hours of Service shall be credited under this paragraph on account of any single continuous period during which the Employee performs no duties, and further provided that no Hours of Service shall be credited under this paragraph if the only payments made or due to the Employee with respect to such period arise under a plan maintained solely to comply with applicable worker's compensation, unemployment compensation or disability insurance laws. The number of Hours of Service credited under this paragraph and the Plan Year or Service Anniversary Year, as appropriate, to which they shall be credited shall be determined in accordance with Department of Labor Regulations, section 2530.200b-2(b); (c) Solely for purposes of determining whether the Employee has had a One-Year Break in Service, each hour for which the Employee is absent from work by reason of a Maternity or Paternity Absence; provided that no more than 501 Hours of Service shall be credited to the Employee under this paragraph by reason of any one such Absence. If the Employee needs any of the Hours of Service credited under this paragraph to avoid a One-Year Break in Service in the Plan Year or Service Anniversary Year, as appropriate, in which the Maternity or Paternity Absence begins, such Hours of Service shall only be credited to such Year. If the Employee does not need any of the Hours of Service credited under this paragraph to avoid a One-Year Break in Service in the Plan Year or Service Anniversary Year, as appropriate, in which the Maternity or Paternity Absence begins, such Hours of Service shall be credited to the next such Year. For each day of Maternity or Paternity Absence covered by this paragraph, the Employee shall be credited with the number of Hours of Service with which he would have been credited but for such Absence, based on his normal work schedule for the pay period immediately prior to the commencement of such Absence; (d) Each hour for which the Employee receives (or is entitled to receive) back pay from the Company or any Related Company, irrespective of mitigation of damages; provided that no Hour of Service shall be credited under this paragraph that has previously been credited to the Employee under paragraph (a), (b) or (c) above. The number of Hours of Service credited under this paragraph and the Plan Year or Service Anniversary Year, as appropriate, to which they shall be credited shall be determined in accordance with Department of Labor Regulations, section 2530.200b-2(b); and (e) Each hour during an unpaid leave of absence granted in accordance with Section 1.11 (or during a period of military service described in that Section) for which the Employee would have been paid or entitled to payment had he not been granted such leave of absence (or performed such military service), based on the Employee's normal work schedule for the pay period immediately prior to the commencement of the leave (or military service); provided that no more than 501 Hours of Service shall be credited under this paragraph on account of any one such unpaid leave of absence (or period of military service), and further provided that no Hours of Service shall be credited under this paragraph for any period after the Employee's employment is deemed to have terminated under the rules set forth in Section 1.11. Hours of Service credited under this paragraph shall be credited to the Plan Year(s) or Service Anniversary Year(s), as appropriate, that include the pay periods during which the leave (or military service) occurs. Any Employee with respect to whom an accurate record of Hours of Service is not kept by the Company or any Related Company shall be credited with 10 Hours of Service for each day during which he completes at least one Hour of Service. 1.15 "Limitation Year" shall mean the Plan Year. 1.16 "Matching Contributions" shall mean the amount, if any, contributed to the Plan by the Participating Employers pursuant to Section 4.1 as a function of Participants' Deferred Pay Contributions. 1.17 "Matching Contributions Account" shall mean the account established for each Participant pursuant to Section 5.1, to which his share of any Matching Contributions made by his Participating Employer is credited. 1.18 "Maternity or Paternity Absence" shall mean an Employee's absence from employment with the Company or any Related Company: (a) Because of the pregnancy of the Employee; (b) Because of the birth of a child of the Employee; (c) Because of the placement of a child with the Employee in connection with his adoption of such child; or (d) For purposes of caring for a child described in paragraph (b) or (c) for a period beginning immediately following its birth or placement with the Employee. An Employee shall submit to the Administrative Committee such timely information as the Committee may reasonably require to establish that an absence qualifies as a Maternity or Paternity Absence. 1.19 "Normal Retirement" shall mean ceasing to be an Employee upon or after attaining Normal Retirement Age. 1.20 "Normal Retirement Age" shall mean age 65. 1.21 "One-Year Break in Service" shall mean, with respect to any Employee, a Service Anniversary Year or Plan Year, as appropriate, during which the Employee does not complete more than 500 Hours of Service. 1.22 "Participant" shall mean an Eligible Employee who is participating in the Plan in accordance with Section 2. 1.23 "Participating Employer" shall mean the Company, Datron/Transco Inc., Datron World Communications Inc. and any other Related Company that has been authorized by the Board of Directors to participate in this Plan with respect to all or any portion of its Employees and that has adopted this Plan by appropriate corporate action. 1.24 "Plan" shall mean the Datron Systems Incorporated Profit Sharing and Savings Plan, as set forth herein and as it may be amended from time to time hereafter. 1.25 "Plan Accounts" shall mean a Participant's Deferred Pay Account, Matching Contributions Account, Profit Sharing Account, any Special Contribution Account established for the Participant and any Rollover Account established for the Participant, or any of such Accounts, as applicable. 1.26 "Plan Benefit" shall have the meaning specified in Section 8.1. 1.27 "Plan Year" shall mean each 12-consecutive month period commencing April 1 and ending the next following March 31. 1.28 "Profit Sharing Account" shall mean the account established for each Participant pursuant to Section 5.1, to which his share of any Profit Sharing Contribution made by his Participating Employer is credited. 1.29 "Profit Sharing Contribution" shall mean the amount, if any, contributed to the Plan by the Participating Employers pursuant to Section 4.2. 1.30 "Qualified Domestic Relations Order" shall mean a judgment, decree or order (including approval of a property settlement agreement) issued pursuant to any State domestic relations law (including a community property law) that the Administrative Committee determines is a "qualified domestic relations order" within the meaning of section 414(p) of the Code. Such determination shall be made under reasonable procedures established by the Administrative Committee. 1.31 "Quarter" shall mean a calendar quarter, commencing January 1, April 1, July 1 and October 1. 1.32 "Related Company" shall mean: (i) any corporation that is a member of the same "controlled group of corporations" (as defined in section 414(b) of the Code) as the Company; (ii) a trade or business (whether or not incorporated) that is under "common control" (as defined in section 414(c) of the Code) with the Company; (iii) a trade or business (whether or not incorporated) that is a member of the same "affiliated service group" (as defined in section 414(m) of the Code) as the Company; and (iv) any other entity that must be combined with the Company and treated as a single employer under regulations issued under section 414(o) of the Code; provided that, except as provided in the following sentence, status as a Related Company shall be limited to periods after the date of the affiliation with the Company described in this Section. With respect to individuals who are (or were) employed by Transco Communications, Inc., the term "Related Company" shall include any predecessor of that company. 1.33 "Rollover Account" shall mean the account established pursuant to Section 5.1 for each Eligible Employee who elects to roll over a distribution from another tax-qualified retirement plan into this Plan or who arranges to have an amount transferred directly from another tax-qualified retirement plan into this Plan, in either case in accordance with Section 14.9. 1.34 "Service Anniversary Year" shall mean, with respect to any Employee, each 12-consecutive month period commencing on the date the Employee first performs an Hour of Service and anniversaries of such date. 1.35 "Special Contribution Account" shall mean the account established pursuant to Section 5.1 for each Eligible Employee who receives an allocation of any special contribution to the Plan made pursuant to Section 3.5. 1.36 "Top-Heavy Plan" shall have the meaning specified in Section 14.8(b). 1.37 "Top-Paid Group" shall mean, with respect to any Plan Year, the top 20% of all Employees who perform services for the Company or any Related Company during such Plan Year, ranked on the basis of their Compensation for such Plan Year. In determining the number of Employees in the Top-Paid Group for any Plan Year: (a) All Employees described in section 414(q)(5) of the Code (and the regulations promulgated thereunder) shall be included; and (b) Nonresident aliens who receive no earned income (within the meaning of section 911(d)(2) of the Code) that constitutes income from sources within the United States (within the meaning of section 861(a)(3) of the Code) from the Company or any Related Company during such Plan Year shall be excluded. An individual described in paragraph (b) of this Section shall also be excluded in determining the members of the Top-Paid Group for any Plan Year. 1.38 "Total Disability" or "Totally Disabled" shall mean a physical or mental incapacity that prevents a Participant from performing his normal job and that a medical examiner satisfactory to the Administrative Committee certifies is likely to be permanent. 1.39 "Trust" shall mean the trust described in Section 10. 1.40 "Trustee" shall mean the trustee(s) of the Trust established pursuant to the Plan. 1.41 "Year of Service" shall mean, with respect to any Employee: (a) for purposes of determining vesting with respect to periods prior to April 1, 1991, a Service Anniversary Year during which the Employee completes at least 1,000 Hours of Service; and (b) for purposes of determining vesting with respect to periods after March 31, 1991, a Plan Year during which the Employee completes at least 1,000 Hours of Service, provided, however, that, if an Employee completes at least 1,000 Hours of Service in his Service Anniversary Year that ends on or after April 1, 1991 and also completes at least 1,000 Hours of Service in the Plan Year that commences on such date, he shall be credited with two Years of Service for purposes of vesting at the end of such Plan Year (or on an earlier date in such Plan Year on which he ceases to be an Employee). Notwithstanding the foregoing provisions of this Section, an Employee's Years of Service shall not include the following: (i) any Years of Service completed before the Employee has five consecutive One-Year Breaks in Service, if the Employee had not completed at least three Years of Service before the first of such One-Year Breaks in Service; or (ii) any Years of Service completed prior to April 1, 1980. 2. PARTICIPATION 2.1 Service Requirement and Commencement Date. (a) Current Participants. Each Employee who was a Participant on February 1, 1998 shall continue to participate on and after February 1, 1998 under and in accordance with the terms of this Plan. (b) Future Participants. Any Employee not described in paragraph (a) of this Section shall automatically commence participating in the Plan on the first day of the first pay period next following the date he has been an Employee for six months and has completed 500 Hours of Service, provided he is an Eligible Employee on such day. If 500 Hours of Service are not completed during the first six months of employment, participation in the Plan shall commence on the first day of the first pay period next following the expiration of any succeeding six-month period of employment during which 500 Hours of Service are completed, provided the Employee is an Eligible Employee on such day. If an Employee is not an Eligible Employee on such day, he shall automatically commence participating in the Plan on the day he becomes an Eligible Employee. (c) Special Rule for Rollover Accounts. Notwithstanding the foregoing provisions of this Section, an Eligible Employee who makes a rollover contribution to this Plan (in accordance with Section 14.9) or who arranges for a direct transfer of funds into this Plan (in accordance with Section 14.9) shall automatically commence participating in the Plan with respect to his Rollover Account (but not for purposes of Sections 3 and 4) on the date such rollover or transfer is made. 2.2 Period of Participation. A Participant's participation in the Plan shall continue until the date he has received the entire amount to which he is entitled under the Plan or, if earlier, the date of his death. 2.3 Suspended Participation. A Participant who ceases to be an Eligible Employee but continues to be an Employee shall become a suspended Participant. No amounts shall be credited to a suspended Participant's Plan accounts that are based on his Covered Compensation for the period of his suspension. However, a suspended Participant shall continue to vest and shall be entitled to benefits in accordance with the other provisions of the Plan throughout the period he is on suspended status. 3. DEFERRED PAY CONTRIBUTIONS 3.1 General Rules. (a) Written Election. Each Participant may elect to make Deferred Pay Contributions to the Plan. Such an election must be filed at least 10 days prior to the desired commencement date. (b) Amount of Deferred Pay Contributions. Subject to any limitations imposed by the Administrative Committee and to the contribution limitations set forth in Section 3.2 below, the amount of a Participant's Deferred Pay Contributions may be any specified percentage, in 1% increments, from 1% to 25% of his Covered Compensation. (c) Deemed Employer Contributions. For federal income tax purposes, Deferred Pay Contributions shall be deemed to be Participating Employer contributions to the Plan, and a Participant's election to make Deferred Pay Contributions shall constitute an election to have the amount that would otherwise constitute his Compensation reduced by the amount of his Deferred Pay Contributions. (d) Change in Amount of Deferred Pay Contributions. Subject to any limitations imposed by the Administrative Committee and to the contribution limitations set forth in Section 3.2 below, a Participant may change the percentage of his Deferred Pay Contributions to any percentage allowed under paragraph (b) of this Section, effective on the first day of the first pay period in any month, by giving written notice to his Participating Employer at least 10 days prior to the last day of the month preceding the month the change is to become effective. (e) Stopping and Resuming Deferred Pay Contributions. A Participant may elect to discontinue future Deferred Pay Contributions at any time, and any such election shall be effective as soon as reasonably practicable after its receipt by the appropriate Participating Employer. Following a discontinuance, a Participant may resume making Deferred Pay Contributions, effective on the first day of the first pay period in any Quarter, by giving written notice to his Participating Employer at least 10 days prior to the last day of the month preceding the month contributions are to resume. (f) Payment to Trust. A Participant's Deferred Pay Contributions shall be paid to the Trust by his Participating Employer as soon as reasonably practicable, and no later than 15 days, after the amount otherwise would have been paid to the Participant. 3.2 Limitations on Deferred Pay Contributions. Notwithstanding any other provision of the Plan: (a) Deferred Pay Contributions for any Plan Year shall not exceed the amount the Administrative Committee estimates will be deductible by the Participating Employers for such Plan Year under section 404 of the Code; (b) No Participant shall be permitted to make Deferred Pay Contributions for any calendar year in excess of the maximum amount allowed under section 402(g)(1) of the Code, as such amount is adjusted for increases in the cost-of-living pursuant to section 402(g)(5) of the Code; (c) The "actual deferral percentage" (as defined in section 401(k)(3) of the Code) for any Plan Year of those Participants who are Highly Compensated Employees shall not exceed the percentage allowed under section 401(k)(3) of the Code; and (d) No Participant shall be permitted to make Deferred Pay Contributions that would cause the annual additions to his Plan Accounts to exceed the limitations set forth in paragraphs (a)-(c) of Section 5.4. 3.3 Administrative Committee May Modify or Revoke Deferred Pay Contribution Elections. (a) General Rule. Notwithstanding any other provision of the Plan, the Administrative Committee may modify or revoke the Deferred Pay Contribution election of any Participant at any time, if it determines that such modification or revocation is necessary to ensure that his Deferred Pay Contributions for any Plan Year will not exceed any of the limitations set forth in Section 3.2. If Deferred Pay Contributions would have been made under a Participant's election but for the application of Section 2.3 (dealing with suspension), such election shall be deemed modified so as not to require Deferred Pay Contributions of an amount greater than the maximum amount allowed under the terms of the Plan. (b) Modification Priorities. Any modification of a Participant's Deferred Pay Contribution election that is required to satisfy section 402(g)(1) of the Code shall be made before any modification is made to satisfy section 401(k)(3) of the Code. 3.4 Distribution of Excess Deferrals and Excess Contributions. (a) Deferred Pay Contributions in Excess of Annual Limitation. If any Participant's Deferred Pay Contributions for any calendar year exceed the annual limitation set forth in Section 3.2(b), the excess amount, adjusted for income (or loss) attributable thereto, shall be distributed to the Participant from the Trust. Such distribution shall be made no later than the April 15 following the close of the calendar year with respect to which the excess Deferred Pay Contributions were made. (b) Deferred Pay Contributions of Highly Compensated Employees in Excess of Nondiscrimination Limitation. If the actual deferral percentage limitation for Highly Compensated Employees set forth in Section 3.2(c) is exceeded with respect to any Plan Year, the amount that constitutes "excess contributions" (as defined in section 401(k)(8)(B) of the Code) for such Plan Year, adjusted for income (or loss) attributable thereto, shall be distributed from the Trust to the appropriate Participants who are Highly Compensated Employees on the basis of the amount of each such Participant's excess Deferred Pay Contributions determined in accordance with section 401(k)(8)(C) of the Code, and shall be completed by the last day of the Plan Year following the Plan Year with respect to which such excess contributions were made. (c) Computation of Income (Loss) for Distributions. The income (or loss) attributable to excess Deferred Pay Contributions under paragraphs (a) and (b) of this Section shall only include income (or loss) for the Plan Year with respect to which the excess Deferred Pay Contributions were made (and shall exclude any income or loss for the period from the end of such Plan Year to the date the excess amount is distributed). The amount of such income (or loss) shall be computed in accordance with regulations promulgated under section 401(k)(8)(A) of the Code.. (d) Choice of Investment Funds for Distributions. In accordance with equitable and nondiscriminatory rules established by the Administrative Committee, each Participant shall have the right to specify the investment funds from which any distribution under paragraph (a) or (b) of this Section shall be made. If no such election is made in a timely manner, any such distribution shall be made ratably from each investment fund in which the Participant's Deferred Pay Account is invested. 3.5 Special Employer Contributions. (a) General Rule. In order to ensure that the nondiscrimination tests imposed under section 401(k) of the Code are met for any Plan Year, the Company may determine that the Participating Employers will make a special contribution to the Plan for such Plan Year. (b) Contribution and Allocation. Any special contribution to the Plan made pursuant to paragraph (a) of this Section shall be contributed to the Trust no later than the date prescribed for filing the Company's federal income tax return for the Plan Year for which such contribution is made (including extensions thereof). Any such special contribution to the Plan shall be allocated, as of the last day of the relevant Plan Year, among the Deferred Pay Accounts of Participants who are not Highly Compensated Employees during such Plan Year (without regard to whether they made Deferred Pay Contributions with respect to such Plan Year). Such allocation shall be made in whatever manner may be directed by the Administrative Committee to enable the Plan to meet the nondiscrimination tests of section 401(k) of the Code for the relevant Plan Year. (c) Treatment of Special Contributions. The Company intends that any special contribution made pursuant to paragraph (a) of this Section shall generally be treated as Deferred Pay Contributions made pursuant to Participants' Deferred Pay Contribution elections under Section 3.1, except that such contribution: (1) shall not be subject to the annual limit on Deferred Pay Contributions set forth in Section 3.2(b); (2) may not be withdrawn under the financial hardship withdrawal provisions of Section 8.8; and (3) shall not affect Participants' Compensation. 4. EMPLOYER MATCHING AND PROFIT SHARING CONTRIBUTIONS 4.1 Matching Contributions. For each Plan Year, the Company shall determine whether any or all of the Participating Employers will make Matching Contributions to the Plan and, if so, the amount or percentage thereof. Each Participating Employer's Matching Contributions for any Plan Year shall be a uniform percentage of the Deferred Pay Contributions made by each Participant employed by such Participating Employer, subject to whatever maximum dollar amount or percentage limitation the Company may choose to impose. 4.2 Profit Sharing Contributions. Without regard to whether a Participating Employer makes Matching Contributions to the Plan for a given Plan Year, the Company may determine that any or all of the Participating Employers will make a Profit Sharing Contribution to the Plan for such Plan Year. The amount of any Profit Sharing Contribution by any Participating Employer shall be in the sole and absolute discretion of the Company. 4.3 Time for Contributions. Any Matching and/or Profit Sharing Contribution to the Plan for a given Plan Year shall be contributed to the Trust no later than the date prescribed for filing the Company's federal income tax return for such Plan Year (including extensions thereof). 4.4 Limitations on Employer Contributions. Notwithstanding any other provision of the Plan: (a) Matching and Profit Sharing Contributions for any Plan Year shall not exceed the amount the Administrative Committee estimates will be deductible by the Participating Employers for such Plan Year under section 404 of the Code; and (b) With respect to Matching Contributions for any Plan Year, the "contribution percentage" (as defined in section 401(m)(3) of the Code) of those Participants who are Highly Compensated Employees shall not exceed the percentage allowed under section 401(m)(2) of the Code. 4.5 Administrative Committee May Reduce or Discontinue Matching Contributions. Notwithstanding any other provision of the Plan, the Administrative Committee may reduce or discontinue Matching Contributions on behalf of any Participant who is a Highly Compensated Employee, if it determines that such reduction or discontinuance is necessary to satisfy the limitations imposed under section 415 or 401(m)(2) of the Code. 4.6 Distribution of Excess Aggregate Contributions. (a) General Rule. Notwithstanding any other provision of the Plan, any Matching Contributions that constitute "excess aggregate contributions" (as defined in section 401(m)(6)(B) of the Code) for any Plan Year, adjusted for income (or loss) attributable thereto, shall be distributed from the Trust to the appropriate Participants who are Highly Compensated Employees. Such distribution shall be made in accordance with section 401(m)(6)(C) of the Code, and shall be completed by the last day of the Plan Year following the Plan Year with respect to which such excess aggregate contributions were made. (b) Determination of Excess Aggregate Contributions. The amount of excess aggregate contributions for any Plan Year, and the amount of income (or loss) attributable thereto, shall be determined in accordance with section 401(m)(6)(B) of the Code, by applying (with appropriate modifications) the rules for "excess contributions" set forth in paragraphs (b) and (c) of Section 3.4. (c) Choice of Investment Funds for Distributions. In accordance with equitable and nondiscriminatory rules established by the Administrative Committee, each Participant shall have the right to specify the investment funds from which any distribution under paragraph (a) of this Section will be made. If no such election is made in a timely manner, any such distribution shall be made ratably from each investment fund in which the Participant's Matching Contributions Account is invested. 5. ALLOCATIONS TO PARTICIPANTS' ACCOUNTS 5.1 Accounts. The Administrative Committee shall establish and maintain any or all of the following Plan Accounts, as appropriate, for each Participant: (a) A Deferred Pay Account, which will be credited with the Participant's Deferred Pay Contributions; (b) A Matching Contributions Account, which will be credited with the Participant's share of any Matching Contributions made by his Participating Employer; (c) A Profit Sharing Account, which will be credited with the Participant's share of any Profit Sharing Contributions made by his Participating Employer; (d) A Special Contribution Account, which will be credited with the Participant's share of any special contribution to the Plan made pursuant to Section 3.5; and (e) A Rollover Account, which will be credited with any amount that the Participant receives from another tax- qualified retirement plan and rolls over into this Plan in accordance with Section 14.9, and any amount that the Participant arranges to have transferred from another tax-qualified retirement plan into this Plan in accordance with Section 14.9. 5.2 Valuation of Accounts. Within 90 days after the end of each Plan Year and within 90 days after the removal or resignation of the Trustee, the Administrative Committee shall direct the valuation of the assets of the Plan based on fair market values as of the close of the Plan Year (or the close of the shorter period ending with such removal or resignation). The Administrative Committee in its sole discretion may direct a valuation of the Plan's assets as of any other date, if such valuation is considered to be in the interest of equitable administration of the Plan, and any such other date shall also constitute a valuation date hereunder. As of any valuation date and prior to the allocation of Deferred Pay Contributions, Matching Contributions, Profit Sharing Contributions and forfeitures for the period covered by the valuation, the Administrative Committee shall allocate the increment or profits to, and charge any losses against, the appropriate Plan Accounts of Participants, in proportion to the balances of such Accounts as of the last preceding valuation date. 5.3 Allocation of Employer Contributions and Forfeitures. (a) Matching Contributions. Any Matching Contributions to the Plan by any Participating Employer for any Plan Year shall be allocated to the Matching Contribution Accounts of those Participants who were employed by such Participating Employer during some or all of the period they made Deferred Pay Contributions to the Plan during such Plan Year, and who: (1) completed at least 500 Hours of Service during such Plan Year and are Employees on the last day of such Plan Year, or (2) ceased to be Employees during such Plan Year because of Normal Retirement, Total Disability, or death (without regard to the number of Hours of Service they completed during such Plan Year). Such allocation shall be made as of the last day of the Plan Year for which the Matching Contribution is made, or as of such other date(s) in such Plan Year as the Administrative Committee may direct, as a uniform percentage of the Deferred Pay Contributions made by each such Participant during the period he was so employed, subject to whatever maximum dollar amount or percentage limitation the Company may choose to impose. (b) Profit Sharing Contributions and Forfeitures. Any Profit Sharing Contribution to the Plan by any Participating Employer for any Plan Year and, except as provided in the last two sentences of Section 6.2(b), any forfeitures attributable to Employees of such Participating Employer for such Plan Year, shall be allocated to the Profit Sharing Accounts of: (1) those Participants who are Employees on the first and last day of such Plan Year, who were employed by the Participating Employer that makes the contribution for all or a portion of the relevant Plan Year, and who completed at least 1,000 Hours of Service during such Plan Year; and (2) those Participants or Employees who were Employees on the first day of such Plan Year and who were employed by the Participating Employer that makes the contribution for all or a portion of the relevant Plan Year, but ceased to be Employees during such Plan Year because of Normal Retirement, Total Disability, or death (without regard to the number of Hours of Service they completed during such Plan Year). Such allocation shall be made as of the last day of the Plan Year for which the Profit Sharing Contribution is made, in the ratio that each such Participant's or Employee's Covered Compensation for the portion of the relevant Plan Year that he was both employed by the Participating Employer that makes the contribution and was an Eligible Employee bears to the total Covered Compensation of all such Participants or Employees who were employed by the Participating Employer that makes the contribution for the portion of such Plan Year that they were Eligible Employees. 5.4 Limitations on Allocations. (a) General Limitation. Notwithstanding any other provision of the Plan, the total annual additions to a Participant's Plan Accounts for any Limitation Year shall not exceed the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation on benefits payable under a defined benefit plan set forth in section 415(b)(1)(A) of the Code); or (2) 25% of the Participant's Compensation for such Limitation Year. (b) Aggregation of Other Plans. If any Participant in this Plan is also a participant in another "defined contribution plan" (as defined in section 414(i) of the Code) maintained by the Company or any Related Company, such Participant's annual additions under such other plan(s) shall be aggregated with the Participant's annual additions under this Plan for purposes of the limitation set forth in paragraph (a) of this Section. If such aggregate annual additions would exceed such limitation, the limitation shall first be applied to limit the Participant's annual additions under the other plan(s). (c) Combined Plan Limitation. If any Participant in this Plan is also a participant in a "defined benefit plan" (as defined in section 414(j) of the Code) maintained by the Company or any Related Company, the sum of the "defined benefit plan fraction" and the "defined contribution plan fraction" (as defined in section 415(e) of the Code) for such Participant for any Limitation Year shall not exceed the combined plan limitation set forth in section 415(e) of the Code. If a restriction on benefits and annual additions for any such Participant is required to comply with such combined plan limitation, the restriction shall first be applied to reduce the Participant's benefit under the defined benefit plan. (d) Treatment of Excess Annual Additions. If the annual additions to a Participant's Plan Accounts for any Limitation Year would exceed any of the limitations described in paragraphs (a) - (c) of this Section for such Limitation Year, and if the excess is a result of the allocation of forfeitures pursuant to Section 5.3(b), a reasonable error in estimating the Participant's Taxable Compensation for such Limitation Year, a reasonable error in determining the amount of Deferred Pay Contributions that the Participant may make for such Limitation Year under section 415 of the Code, or such other limited facts and circumstances as may be permitted by the Commissioner of Internal Revenue, the excess amount shall be reduced as follows: (1) Excess amounts that are attributable to Deferred Pay Contributions shall be returned to the Participant as a cash bonus, and such amounts shall not thereafter constitute annual additions for the relevant Limitation Year; (2) Excess amounts that are attributable to Matching Contributions shall be held unallocated in a suspense account, and shall be treated and allocated (in the following Limitation Year(s)) as provided in the third sentence of subparagraph (4) of this paragraph; (3) Excess amounts remaining after the application of subparagraphs (1) and (2) of this paragraph shall be allocated and reallocated to the appropriate Plan Accounts of all other Participants, in accordance with Section 5.3(b), to the extent that such allocations would not cause the annual additions to each other Participant's Plan Accounts to exceed any of the limitations provided in the Plan; and (4) To the extent that the excess amounts described in subparagraph (3) of this paragraph cannot be allocated to other Participants' Plan Accounts, such amounts shall be held unallocated in a suspense account. No investment gains or losses shall be allocated to the suspense account. All amounts held in the suspense account shall be allocated and reallocated to Participants' Profit Sharing Accounts in the following Limitation Year (or Years, if necessary), in proportion to their estimated Covered Compensation for such Limitation Year(s). Such allocation shall be made before any other amount that would constitute an annual addition for such Limitation Year(s) (including Deferred Pay Contributions) may be contributed to the Plan. (e) Special Definitions. (1) For purposes of this Section, the term "annual additions" shall mean the aggregate amount credited to a Participant's Plan Accounts from: (i) Deferred Pay Contributions, Matching Contributions, any special contribution to the Plan made pursuant to Section 3.5, Profit Sharing Contributions and forfeitures; (ii) amounts allocated under paragraph (d) of this Section (dealing with excess annual additions); (iii) amounts allocated under Section 14.6 (dealing with Missing Participants and Beneficiaries); and (iv) employer contributions made under Section 14.8 (dealing with Top-Heavy Plans). (2) For purposes of this Section, the term "employer" shall include all corporations that are members of the same "controlled group" as the Company, determined under section 1563(a) of the Code (without regard to sections 1563(a)(4) and 1563(e)(3)(C)), except that the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" wherever the latter phrase appears in section 1563(a). 6. VESTING AND TREATMENT OF FORFEITURES 6.1 Vesting. (a) Deferred Pay, Special Contribution and Rollover Accounts. All amounts credited to a Participant's Deferred Pay Account, Special Contribution Account (if any) and Rollover Account (if any) shall be fully (100%) vested and nonforfeitable at all times. (b) Matching Contributions and Profit Sharing Accounts (Effective February 1, 1998). (1) All amounts credited to a Participant's Matching Contributions and Profit Sharing Accounts shall become fully (100%) vested and nonforfeitable when the Participant attains Normal Retirement Age while he is still an Employee, or when he becomes Totally Disabled or dies. (2) With respect to a Participant who was a participant in the Datron World Plan on February 1, 1998, the effective date of that plan's merger into the Plan, all amounts attributable to employer matching contributions on behalf of the Participant for periods ending on or before March 31, 1998 will remain fully (100%) vested and nonforfeitable. If such a Participant would have been credited with at least "three years of service under the terms of the Datron World Plan by April 1, 1998, the Participant's entire Matching Contributions Account balance shall at all times be fully (100%) vested and nonforfeitable. (3) Subject to subparagraph (2) above, if a Participant ceases to be an Employee prior to attaining Normal Retirement Age for any reason other than death or Total Disability, the Participant's vested interest in his Matching Contributions and Profit Sharing Accounts shall be determined under the following schedule: YEARS OF SERVICE VESTED PERCENTAGE 1 0% 2 0% 3 20% 4 40% 5 60% 6 80% 7 100% 6.2 Forfeitures. (a) Forfeiture on Termination. When a Participant ceases to be an Employee, the non-vested portion of his Matching Contributions and Profit Sharing Accounts shall be forfeited. Such forfeited portion shall be valued as of the valuation date coinciding with or immediately preceding the date the Participant ceases to be an Employee. If the Participant is not re-employed by the last day of the Plan Year in which he ceased to be an Employee, the forfeited portion of such Accounts shall be allocated as of such day in accordance with Section 5.3(b). (b) Reemployment Before Five One-Year Breaks in Service. The following rules, as applicable, shall be applied to any Participant who ceases to be an Employee when he is not fully (100%) vested in his Matching Contributions and Profit Sharing Accounts and who is re- employed before he has five consecutive One-Year Breaks in Service: (1) If the Participant is re-employed by the last day of the Plan Year in which he ceased to be an Employee, the amount forfeited as a result of the termination of his employment (and any earnings thereon) shall be restored to the appropriate Plan Accounts maintained for the Participant, and shall not thereafter constitute a forfeiture. (2) If the Participant is re-employed after the last day of the Plan Year in which he ceased to be an Employee, an amount equal to the amount forfeited as a result of the termination of his employment (determined as of the date thereof) shall be credited to the appropriate Plan Accounts maintained for the Participant. (3) Except in the case of a Participant described in subparagraph (4) below, the Participant's vested interest in his Matching Contributions and Profit Sharing Accounts at the time he subsequently ceases to be an Employee shall be determined under Section 6.1(b), on the basis of his total Years of Service before and after reemployment. (4) If the Participant had received a distribution of any of the vested portion of his Matching Contributions and Profit Sharing Accounts by the date he was re- employed, his vested interest in such Accounts at the time he subsequently ceases to be an Employee shall be determined in accordance with paragraph (d) of this Section. The amount credited to a Participant's Plan Accounts pursuant to subparagraph (2) of this paragraph shall, to the maximum extent possible, consist of a special allocation of the forfeitures attributable to the Plan Year in which the Participant is re-employed (and shall correspondingly reduce the amount of forfeitures otherwise available for allocation to other Participants for such Plan Year). If the amount to be so credited is greater than the forfeitures attributable to the Plan Year in which the Participant is re-employed, his Participating Employer shall make a special contribution to the Plan equal to the difference between such amounts, which shall be credited to the appropriate Plan Accounts maintained for the Participant. (c) Reemployment After Five One-Year Breaks in Service. If a Participant is not fully (100%) vested in his Matching Contributions and Profit Sharing Accounts when he ceases to be an Employee and he is not re-employed until after he has five consecutive One-Year Breaks in Service, his reemployment and subsequent Years of Service shall have no effect on, and shall not provide the Participant with any interest in or right to, the amount that was forfeited as a result of his previous termination of employment. (d) Subsequent Termination Before Becoming Fully Vested. Notwithstanding any other provision of the Plan, if a re-employed Participant described in subparagraph (b)(4) of this Section subsequently ceases to be an Employee before he is fully (100%) vested in his Matching Contributions and Profit Sharing Accounts (based on his total Years of Service before and after reemployment), his vested interest in such Accounts shall be an amount "X", determined under the following formula: X = P (AB + D) - D. For purposes of applying this formula: P is the Participant's vested percentage at the time he subsequently ceases to be an Employee (determined under Section 6.1(b) on the basis of his total Years of Service before and after reemployment); AB is the balance in the Participant's Matching Contributions and Profit Sharing Accounts at the time he subsequently ceases to be an Employee; and D is the amount that was distributed to the Participant from his Matching Contributions and Profit Sharing Accounts as a result of his previous termination of employment. (e) Suspension of Payment Upon Reemployment. Notwithstanding any other provision of the Plan, if a Participant is re-employed before he has received a distribution of the portion of his Plan Accounts that was vested at the time he ceased to be an Employee, the amount that was distributable as a result of his termination of employment shall not be distributed and shall remain in the Participant's Plan Accounts until he subsequently ceases to be an Employee. (f) Special Definitions. For purposes of this Section, the terms "employment", "reemployed" and "reemployment" shall only refer to employment by the Company or any Related Company. 7. INVESTMENT OF PLAN ASSETS 7.1 Options Available to Participants. Each Participant shall have the authority and the responsibility to exercise investment management and control over his Plan Accounts. By issuing written investment directions to the Administrative Committee on the forms prescribed for such purpose, each Participant shall direct the investment of his Plan Accounts among those investment vehicles that the Administrative Committee makes available to Participants under the Plan. The Administrative Committee shall establish and communicate in writing to Participants equitable and nondiscriminatory rules governing the time, method, effective date and other items it deems necessary for making or modifying investment directions; provided that Participants shall be allowed to modify their investment directions at least once during each Quarter. Any Participant's change of investment directions shall apply to his existing account balances, and/or to his future Deferred Pay Contributions and any future Matching and Profit Sharing Contributions and forfeitures allocated to his Plan Accounts, as the Participant may elect. 7.2 No Investment in Securities of the Company or in Real Estate Leased to the Company. The assets of the Plan shall not be invested in any security issued by the Company or any Related Company, or in any real property (and related personal property) which is leased to the Company, any Related Company, or any other "disqualified person" with respect to the Plan, as that term is defined in section 4975(e)(2) of the Code. 7.3 Certain Other Investments. Assets of the Plan may be invested in deposits that bear a reasonable rate of interest in a bank or similar financial institution supervised by the United States or any state thereof, without regard to whether such bank or financial institution is the Trustee or another fiduciary with respect to the Plan. Cash temporarily awaiting investment or payment of benefits or expenses of the Plan may be retained in non-interest bearing deposits or cash balances in a bank or similar financial institution supervised by the United States or any state thereof, without regard to whether such bank or financial institution is the Trustee or another fiduciary with respect to the Plan. 8. DISTRIBUTION OF BENEFITS AND WITHDRAWALS 8.1 Amount of Plan Benefit. (a) Normal Retirement Age, Total Disability or Death. If a Participant ceases to be an Employee upon or after attaining Normal Retirement Age, or as a result of Total Disability or death at any age, the Participant (or, in the case of his death, his Beneficiary) shall be entitled to a Plan Benefit equal to 100% of the balance of each of the Participant's Plan Accounts. (b) Other Terminations. If a Participant ceases to be an Employee before he has attained Normal Retirement Age for any reason other than death or Total Disability, he shall be entitled to a Plan Benefit equal to the sum of: (1) 100% of the balance of his Deferred Pay Account, Special Contribution Account (if any) and Rollover Account (if any); plus (2) The vested portion of the balance of his Matching Contributions and Profit Sharing Accounts, determined under Section 6.1(b)(2) and (3). 8.2 Time of Distribution. (a) General Rules. Subject to paragraph (b) below and to Section 8.6: (1) If a Participant ceases to be an Employee after attaining Normal Retirement Age, distribution of his Plan Benefit shall automatically be made in the form of a single lump sum distribution of cash as soon as practicable following his termination of employment, unless the Participant properly elects a different form of distribution within 10 days after he ceases to be an Employee, or properly elects, in accordance with subparagraph (3) below, to defer the distribution or commencement to a later date; (2) If a Participant has not attained Normal Retirement Age when he ceases to be an Employee, distribution of his Plan Benefit shall be made or commenced as soon as practicable following the date he files a written election for distribution. If no such election is made before the Participant attains Normal Retirement Age, distribution of his Plan Benefit shall automatically be made in the form of a single lump sum distribution of cash as soon as practicable after the date the Participant attains such Age, unless the Participant properly elects a different form of distribution within 10 days after he attains such Age, or properly elects, in accordance with subparagraph (3) below, to defer the distribution or commencement to a later date; and (3) Any Participant who ceases to be an Employee may elect to have the distribution of his Plan Benefit made or commenced on a deferred date specified in such election. To be effective, any such election must be filed within 10 days after the Participant ceases to be an Employee. (b) Special Provisions. Notwithstanding any other provision of the Plan: (1) If the total value of a Participant's Plan Accounts does not exceed $5,000 on the valuation date coinciding with or immediately preceding the date he ceases to be an Employee (and never exceeded $5,000 at the time of any prior distribution), his Plan Benefit shall be distributed in a single lump sum distribution of cash as soon as practicable after the date he ceases to be an Employee; and (2) A Participant's Plan Benefit shall be distributed (or distribution thereof shall commence) by April 1 of the calendar year following the calendar year in which he attains age 70-1/2 if the Participant is a "5% owner" (as defined in section 416(i)(1)(B)(i) of the Code). 8.3 Methods of Distribution. Except as otherwise provided in Section 8.2, each Participant may elect to have his Plan Benefit distributed in either, or a combination, of a single lump sum distribution of cash, or monthly, Quarterly, semiannual or annual cash installments of a fraction of his Plan Benefit, over a period of years that does not exceed the lesser of 15 or the life expectancy of the Participant at the time payments are to commence. Such fraction shall be 1/x, with x being, in the case of the first installment, the total number of payments to be made, and thereafter declining by one for each successive payment. Each Participant who was a participant in the Datron World Plan on or before February 1, 1998 may also elect to have his Plan Benefit distributed in in either, or a combination, of the following additional methods of distribution: (a) Payments in monthly, Quarterly, semiannual or annual installments of a fraction of his Plan Benefit, over a period of years certain, as elected by the Participant. Such fraction shall be 1/x, with x being, in the case of the first installment, the total number of payments to be made, and thereafter declining by one for each successive payment. Such period shall be determined by the Participant, provided that the period shall not exceed the life expectancy of the Participant or the joint life expectancy of the Participant and his Beneficiary, such life expectancy to be determined as of the time payments begin; and further provided that the present value of any such periodic installment payments expected to be made to the Participant shall be more than 50 percent of the present value of the total of such installments expected to be made to the Participant and a Beneficiary who is not his spouse determined as of the date such payments commence. (b) A nontransferable annuity contract purchased from an insurance company at a cost equal to his Plan Benefit payable for his life with, if he is married on the annuity starting date, a survivor's annuity for the life of his spouse that is 50 percent of the amount of the annuity payable during the joint lives of the Participant and his spouse (unless he elects a higher percentage not to exceed 100 percent). 8.4 Valuation of Accounts for Distribution. When a Participant's Plan Benefit is to be distributed, his Plan Accounts shall be valued as of the valuation date coinciding with or immediately preceding the date of distribution. 8.5 Distribution after Total Disability. A Participant who is Totally Disabled may elect to receive a distribution of all or any portion of the balance of his Plan Accounts, whether or not he has ceased to be an Employee. Any such distribution shall be made as soon as practicable after the election is filed. 8.6 Distribution Pursuant to a Qualified Domestic Relations Order. Notwithstanding any other provision of the Plan, any or all of the vested portion of a Participant's Plan Accounts may be distributed to a spouse, former spouse, child or other dependent of the Participant pursuant to the terms of a Qualified Domestic Relations Order, without regard to the Participant's age or the fact that he has not ceased to be an Employee. 8.7 Withdrawal After Age 59 1/2. At any time after a Participant has attained age 59 1/2, he may elect to withdraw all or any portion of the vested portion of his Plan Accounts, even though he has not ceased to be an Employee. A withdrawal under this Section shall be paid only in a single lump sum distribution of cash, and shall be paid as soon as practicable after the Participant's election is filed. A withdrawal under this Section shall not prevent the Participant from continuing to participate in the Plan; provided that the Participant may make no more than one additional withdrawal under this Section in each Plan Year after the Plan Year in which the first such withdrawal is made. 8.8 Withdrawals in the Event of Financial Hardship. (a) General Rules. Upon written application to the Administrative Committee and subject to its consent, any Participant, without regard to his age, may withdraw funds from the vested portion of his Plan Accounts to satisfy an immediate and heavy financial need arising solely from one or more of the following: (1) Expenses for medical care described in section 213(d) of the Code previously incurred by the Participant, his spouse, or any of his dependents (as defined in section 152 of the Code), or necessary for any such person to obtain such medical care; (2) Costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (3) Payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, or his spouse, children or dependents (as defined in section 152 of the Code); (4) Payments that are necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on that residence; or (5) Any other expense that automatically qualifies as an immediate and heavy financial need under regulations, rulings or notices of general applicability issued under section 401(k) of the Code. The amount of any hardship withdrawal under this Section may not exceed the lesser of: (i) the amount of the expense(s) described in subparagraphs (1)-(5) of this paragraph, plus any amounts necessary to pay federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal; or (ii) the value of the vested portion of the Participant's Plan Accounts (determined as of the valuation date coinciding with or immediately preceding the date of the withdrawal), minus the amount of any earnings in his Deferred Pay Account that accrue after March 31, 1989. A Participant may not make a withdrawal under this Section unless he has first obtained all withdrawals (other than hardship withdrawals) and all nontaxable loans available under any tax-qualified retirement plan maintained by the Company or any Related Company. (b) Consequences of Hardship Withdrawal. If a Participant makes a hardship withdrawal under this Section, he shall be suspended from participation in this Plan, and in any other plan maintained by the Company or any Related Company that requires or allows employee contributions (other than a plan that is a welfare benefit plan under ERISA), for a period of 12 months following his receipt of the withdrawal. In addition, such a Participant shall not be permitted to make Deferred Pay Contributions for the Plan Year immediately following the Plan Year in which the withdrawal was made in excess of the difference between: (1) the applicable limit under section 402(g) of the Code for the Plan Year following the Plan Year in which the withdrawal was made; and (2) the amount of the Participant's Deferred Pay Contributions during the Plan Year the withdrawal was made. A Participant who is suspended under this paragraph shall automatically resume making Deferred Pay Contributions, at the rate that was in effect when his suspension began, as of the first day of the first pay period in the Quarter that begins 12 months after the commencement of his suspension (unless the Participant makes an election to stop making Deferred Pay Contributions under Section 3.1(e)). (c) Effect on Future Distributions. If a Participant who is not fully (100%) vested in his Matching Contributions and Profit Sharing Accounts makes a hardship withdrawal from either of such Accounts under this Section and subsequently ceases to be an Employee before he has become fully (100%) vested in such Accounts, such Participant's vested interest in such Accounts at the time he ceases to be an Employee shall be determined under the formula set forth in Section 6.2(d). 8.9 Loans to Employees. Subject to such uniform and nondiscriminatory rules as the Administrative Committee may adopt and upon written application to the Administrative Committee, an Employee may borrow from his vested Plan Accounts the amount necessary to satisfy an immediate and heavy financial need described in Section 8.8. The minimum amount of any loan shall be $1,000. The maximum aggregate amount of any loans shall be the lesser of: (a) $50,000, reduced by the highest outstanding balance of all of the Employee's loans from all qualified retirement plans maintained by the Company or any Related Company during the 12-month period ending on the day before the loan is made; or (b) 50% of the value of the Employee's vested interest in his Plan Accounts (determined at the time of the loan). All loans granted under this Section: (a) Shall be available to all Employees on a reasonably equivalent basis; (b) Shall be secured by 50% of the value of the Employee's vested interest in his Plan Accounts at the time of the loan; (c) Shall be for a fixed term of no more than five years; (d) Shall bear interest at a rate comparable to the rate then being charged by institutional lenders for loans made under similar circumstances, but in no event shall the rate of interest exceed the maximum allowed under applicable law; (e) Shall require substantially equal periodic payments of principal and interest, with all such payments to be made at least quarterly and collected through payroll withholding if possible; (f) Shall be payable in advance without penalty; (g) Shall be evidenced by the Employee's promissory note, which shall be in such form as required by the Administrative Committee; (h) Shall be treated as a segregated investment allocable solely to the borrowing Employee's Plan Accounts; and (i) Shall be due and payable on the date the Employee ceases to be an Employee, and the Administrative Committee shall direct foreclosure on the security for the repayment of the loan if the loan is not paid in full within 60 days following such date. 8.10 Direct Benefit Transfers. (a) General Rule. In addition to the distribution rules and options set forth in the preceding provisions of this Section 8, any Participant who is entitled to receive an "eligible rollover distribution" shall be permitted to elect to have such distribution made in the form of a direct transfer from the Trustee of this Plan to the trustee or custodian of any other "eligible retirement plan." Any such election shall be made in such form and at such time as the Plan Administrator may prescribe in accordance with section 401(a)(31) of the Code and the regulations promulgated thereunder. (b) Special Definitions. For purposes of this Section: (1) An "eligible rollover distribution" means any distribution to a Participant of all or any portion of the balance to the credit of the Participant under the Plan, other than: (i) any distribution that is one of a series of substantially equal periodic payments made (not less frequently than annually) for the life (or life expectancy) of the Participant, for the joint lives (or joint life expectancy) of the Participant and his Beneficiary, or for a specified period of 10 years or more; (ii) any distribution (or portion of a distribution) that is required to be made under section 401(a)(9) of the Code; or (iii) any distribution (or portion of a distribution) that would not be includible in the Participant's gross income (determined without regard to the exclusion for net unrealized appreciation in employer securities provided under section 402 of the Code); and (2) An "eligible retirement plan" means: (i) an individual retirement account described in section 408(a) of the Code; (ii) an individual retirement annuity described in section 408(b) of the Code (other than an endowment contract); (iii) an annuity plan described in section 403(a) of the Code; or (iv) a qualified trust described in section 401(a) of the Code that provides for the acceptance of eligible rollover distributions. 9. DEATH BENEFITS AND BENEFICIARIES 9.1 Death Benefits. If a Participant dies before his entire vested interest in the Plan has been distributed, the undistributed portion of such interest shall be distributed to the Participant's Beneficiary. The Beneficiary may elect to receive the distribution in a single lump sum distribution of cash or in cash installments. Such distribution shall be made or commenced as soon as practicable following the Participant's death and shall be completed within five years following the Participant's death; provided, however, that, if installment payments to the Participant had begun prior to his death, the Beneficiary may elect to receive such payments over a period not longer than the period previously selected by the Participant. 9.2 Designation of Beneficiary. Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive any amount payable under the Plan in the event of his death, and shall have the right at any time to revoke such designation or to substitute another such Beneficiary or Beneficiaries. No designation made pursuant to this Section shall be effective unless the Participant's spouse consents to such designation in a writing that acknowledges the effects of the designation and that is witnessed by a representative of the Administrative Committee or by a notary public. Such consent shall not be required if the Beneficiary is the Participant's spouse, or if the Administrative Committee is satisfied that it cannot be obtained because there is no spouse, because the spouse cannot be located, or for such other reasons as may be authorized under applicable regulations issued by the Secretary of the Treasury. 9.3 Absence of Valid Designation of Beneficiary. If there is no valid designation of a Beneficiary on file with the Administrative Committee upon the death of a Participant, such Participant's Beneficiary shall be deemed to be his surviving spouse, or if there is no surviving spouse, his estate. 9.4 Direct Benefit Transfers. (a) General Rule. In addition to the distribution rules and options set forth in the preceding provisions of this Section 9, any Beneficiary who is entitled to receive an "eligible rollover distribution" shall be permitted to elect to have such distribution made in the form of a direct transfer from the Trustee of this Plan to the trustee or custodian of any other "eligible retirement plan." Any such election shall be made in such form and at such time as the Plan Administrator may prescribe in accordance with section 401(a)(31) of the Code and the regulations promulgated thereunder. (b) Special Definitions. For purposes of this Section: (1) An "eligible rollover distribution" means a distribution described in Section 8.10(b)(1) when the word "Beneficiary" is substituted for the word "Participant" each place it appears in such Section; and (2) An "eligible retirement plan" means: (i) an individual retirement account described in section 408(a) of the Code; or (ii) an individual retirement annuity described in section 408(b) of the Code (other than an endowment contract). 10. TRUST AND PAYMENT OF BENEFITS AND EXPENSES 10.1 Trust. All contributions to the Plan and all other assets of the Plan shall be held in trust under one or more trust agreements entered into between the Company and a named trustee or, at the direction of the Company, under an annuity contract that meets the requirements of section 401(f) of the Code. Custody of Plan assets shall at all times be retained by the Trustee or a custodian appointed by the Trustee in its discretion. 10.2 Payment of Benefits. All Plan Benefits shall be paid from the Trust upon the direction of the Administrative Committee, in accordance with the Plan and the Trust Agreement. 10.3 Expenses of Plan Administration. All expenses of administering the Plan, including the fees of the Trustee (if any), shall be paid from the Trust, unless the Company chooses to pay such expenses. Although the members of the Administrative Committee shall receive no compensation for serving on such Committee, they shall be reimbursed from the Trust for all necessary and proper expenses incurred in carrying out the duties of the Administrative Committee under the Plan, unless the Company chooses to pay such expenses. 11. ADMINISTRATION 11.1 Board of Directors. (a) Powers, Duties and Responsibilities. The Board of Directors shall have the following powers, duties and responsibilities in connection with the administration of the Plan: (1) Amending or terminating the Plan; (2) Appointing and removing the Trustee; (3) Appointing and removing the members of the Administrative Committee; and (4) Periodically reviewing the performance of the Trustee, the Administrative Committee, persons to whom any of its duties and responsibilities have been allocated or delegated pursuant to paragraph (b) of this Section, and any advisers engaged pursuant to Section 11.5. (b) Allocation and Delegation of Responsibilities. The Board of Directors may, by written resolution, allocate or delegate its powers, duties and responsibilities to any other person or persons; provided, however, that any such allocation or delegation shall be terminable upon such notice as the Board of Directors deems reasonable and prudent under the circumstances. 11.2 Administrative Committee. (a) Designation of Administrative Committee. The Administrative Committee shall administer the Plan and shall be the Plan "administrator" as such term is defined in ERISA. The Administrative Committee shall be comprised of three or more persons who shall be appointed by the Board of Directors and who may be removed by the Board of Directors at any time, with or without cause. All members of the Administrative Committee are designated as agents of the Plan for the service of legal process. The Company shall certify to the Trustee the names and specimen signatures of the members of the Administrative Committee. Any member of the Administrative Committee may resign at any time by submitting an appropriate written instrument to the Company, and while any vacancy exists, the remaining member(s) may perform any act which the Administrative Committee is authorized to perform. All decisions required to be made by the Administrative Committee involving the interpretation, application and administration of the Plan shall be resolved by majority vote either at a meeting or in writing without a meeting. (b) Administrative Powers, Duties and Responsibilities. The Administrative Committee shall have the following powers, duties and responsibilities in connection with the administration of the Plan: (1) Determining the eligibility of Employees for participation in the Plan; (2) Exercising its duties and responsibilities under Section 3 with respect to Deferred Pay Contributions; (3) Determining the eligibility of Employees for benefits provided by the Plan and the amount of the benefit to which any Employee is entitled hereunder, including such powers, duties and responsibilities as are necessary and appropriate under the Plan's claims and review procedures; (4) Maintaining Plan Accounts and such other records as it may determine are necessary or appropriate in connection with the operation and administration of the Plan; (5) Communicating with Participants and other persons with respect to the Plan; (6) Complying with the reporting and disclosure requirements imposed under ERISA; (7) Authorizing, allocating and reviewing expenses incurred by the Plan; (8) Assuring that the bonding requirements imposed under ERISA are satisfied; (9) Establishing and carrying out a funding policy as described in Section 11.4; (10) Establishing appropriate procedures to prevent the Plan from engaging in transactions described in sections 406 and 407 of ERISA or section 4975(c) of the Code; (11) Periodically reviewing any allocation or delegation of duties and responsibilities made pursuant to paragraph (d) of this Section and the performance of any advisers engaged pursuant to Section 11.5; and (12) Making recommendations to the Board of Directors with respect to amendment or termination of the Plan. The Administrative Committee shall establish such rules and regulations, and shall take such other actions as it deems necessary or appropriate to carry out its duties and responsibilities. (c) Investment Powers, Duties and Responsibilities. The Administrative Committee shall have the following powers, duties and responsibilities in connection with the investment of the assets of the Plan: (1) Making decisions with respect to the investment options that are made available to Participants under the Plan and communicating such options to the Participants; (2) Formulating rules governing the investment directions of Participants; (3) Selecting and removing investment managers appointed pursuant to Section 11.3; (4) Selecting and removing any insurance company or companies that issue any life insurance policies or annuity contracts that are made available for the investment of Plan assets or the distribution of Plan Benefits; and (5) Periodically reviewing the performance of the Trustee, any investment manager that has been appointed under Section 11.3 and any insurance company appointed under subparagraph (4) above. Based on its review under subparagraph (5) above, the Administrative Committee shall determine the desirability of appointing, retaining or removing investment managers or insurance companies described therein, and shall advise the Board of Directors of any matters that the Administrative Committee deems relevant to the decision as to whether to retain the Trustee. (d) Allocation and Delegation of Responsibilities. The Administrative Committee may, by written resolution, allocate any of its powers, duties and responsibilities to one or more of its members, or delegate any of its powers, duties and responsibilities to any other person or persons; provided, however, that any such allocation or delegation shall be terminable upon such notice as the Administrative Committee deems reasonable and prudent under the circumstances. 11.3 Appointment of Investment Managers. The Administrative Committee may transfer the actual investment management and control of all or any portion of the assets of the Trust from the Trustee to one or more investment managers. Any investment manager appointed hereunder shall have the power to manage, acquire or dispose of assets of the Plan, and shall be an investment adviser registered under the Investment Advisers Act of 1940, a bank, as defined in that Act, or an insurance company empowered under the laws of more than one State to manage, acquire or dispose of assets of the Plan. 11.4 Funding Policy. At reasonable intervals, the Administrative Committee shall make (or cause to be made) an analysis of the future cash requirements of the Plan for payment of benefits and expenses, and shall include (or have included) in the analysis such information as may be appropriate to enable the Trustee and any investment manager that has been appointed under Section 11.3 to design an investment policy that will satisfy such requirements. Each such analysis shall be communicated to, and discussed with, the Trustee and each such investment manager. 11.5 Engagement of Advisors. The Board of Directors, the Company, the Administrative Committee, or any person to whom duties and responsibilities hereunder have been allocated or delegated, may engage other persons to render advice in connection with their respective duties and responsibilities, including plan consultants, investment advisers, accountants, and attorneys (who may be counsel to the Company). 11.6 Service in More than One Fiduciary Capacity. Any person may serve in more than one fiduciary or other capacity with respect to the Plan. 11.7 Indemnification. The Company shall indemnify and hold harmless the members of the Administrative Committee from and against any and all liabilities, claims, demands, costs and expenses, including attorney's fees, arising out of an alleged breach in the performance of its fiduciary duties under the Plan and under ERISA, other than such liabilities, claims, demands, costs and expenses as may result from willful misconduct. The Company shall have the right, but not the obligation, to conduct the defense of any member of the Administrative Committee in any proceeding to which this Section applies. In lieu of the foregoing, the Company may satisfy its obligations under this Section through the purchase of a policy or policies of insurance providing equivalent protection. 12. CLAIMS AND REVIEW PROCEDURES 12.1 Claims Procedure. (a) General Rule. The Administrative Committee shall determine Participants' and Beneficiaries' rights to benefits under the Plan. If a Participant or Beneficiary disagrees with the Administrative Committee's determination, he may file a written claim for benefits with the Administrative Committee, provided the claim is filed within 60 days of the date the Participant or Beneficiary receives notification of the determination. (b) Notice if Claim is Denied. If any claim for benefits is wholly or partially denied, the Administrative Committee shall provide the claimant with a notice of denial, written in a manner calculated to be understood by the claimant and setting forth: (1) The specific reason(s) for the denial; (2) Specific references to the Plan provisions on which the denial is based; (3) A description of any additional material or information necessary for the claimant to perfect the claim, with an explanation of why the material or information is necessary; and (4) An explanation of the steps to be taken if the claimant wishes to submit the claim for review. A notice of denial shall be provided within 90 days after the claim is filed, unless special circumstances require an extension of time for processing the claim. If an extension is required, written notice shall be furnished to the claimant within 90 days of the date the claim was filed, stating the special circumstances requiring the extension and the date by which a decision on the claim can be expected, which shall be no more than 180 days from the date the claim was filed. If no notice of denial or of the fact that an extension of time is necessary for processing a claim is provided within the time prescribed in this paragraph, the claim shall be deemed to have been denied as of the last day of the applicable period, and the claimant may appeal such denial in accordance with the procedure for review of denied claims set forth in Section 12.2 below. 12.2 Review Procedure. (a) Request for Review. Any person whose claim for benefits is denied (or deemed denied), in whole or in part, or such person's duly authorized representative, may appeal from such denial by submitting a written request for a review of the claim to the Administrative Committee within 60 days after receiving written notice of the denial (or, in the case of a deemed denial, within 60 days after the claim is deemed denied). The Administrative Committee shall give the claimant or representative an opportunity to review pertinent Plan documents in preparing a request for review. A request for review shall set forth all of the grounds on which it is based, all facts in support of the request and any other matters the claimant deems pertinent. The Administrative Committee may require the claimant to submit such additional facts, documents or other material as it may deem necessary or appropriate in making its review. (b) Time for Response. The Administrative Committee shall act on each request for review within 60 days after receipt thereof, unless special circumstances require an extension of time, up to an additional 60 days, for processing the request. If such an extension is required, written notice of the extension shall be furnished to the claimant within the initial 60-day period. (c) Notice of Decision on Review. The Administrative Committee shall give prompt, written notice of its decision to the claimant. In the event the Administrative Committee affirms the denial of the claim for benefits, in whole or in part, such notice shall set forth, in a manner calculated to be understood by the claimant, specific reasons for the denial and specific references to the Plan provisions on which the decision is based. 13. AMENDMENT AND TERMINATION 13.1 Amendment. The Board of Directors reserves the right to amend the Plan at any time and for any reason, in whole or in part, including without limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust under the provisions of section 401(a) and 401(k) of the Code. However, no such amendment shall: (a) cause any part of the assets of the Plan to revert to or be recoverable by the Company or any Related Company or be used for or diverted to purposes other than the exclusive purposes of providing benefits to Participants and Beneficiaries and paying the reasonable expenses of administering the Plan; (b) deprive any Participant or Beneficiary of any benefit already vested; (c) alter, change or modify the duties, powers or liabilities of the Trustee hereunder without its written consent; (d) permit any part of the assets of the Plan to be used to pay premiums or contributions of the Company or any Related Company under any other plan maintained by the Company or any Related Company for the benefit of its Employees; or (e) eliminate an optional form of distribution with respect to benefits accrued before the amendment. No amendment to the vesting schedule of the Plan shall provide that the vesting percentage of the Plan Benefit of an Employee who is a Participant in the Plan on the date the amendment is adopted or effective, whichever is later, shall be less than the vesting percentage of such Participant's Plan Benefit (determined as of such date) computed without regard to such amendment. Further, no amendment to the vesting schedule of the Plan shall reduce the rate of vesting with respect to future vesting of any such Participant with at least three Years of Service. 13.2 Termination, Partial Termination, or Complete Discontinuance of Contributions. The Company has established the Plan with the bona fide intention and expectation that it will be continued indefinitely. However, the Company shall not be under any obligation or liability to continue its contributions to the Plan, or to otherwise maintain the Plan, for any given length of time, and the Board of Directors may terminate the Plan at any time and for any reason, in its sole and absolute discretion, without any liability for such termination. The board of directors of any other Participating Employer may, in its sole and absolute discretion, terminate the Plan with respect to its Employees at any time and for any reason, without any liability for such termination. If the Plan shall be terminated or partially terminated, or if contributions to the Plan are completely discontinued, the Plan Accounts of all affected Participants shall become fully (100%) vested and nonforfeitable, and the Trust shall continue until all affected Participants' accounts have been completely distributed to or for the benefit of the Participants in accordance with the Plan. 14. MISCELLANEOUS 14.1 No Effect on Employment Relationship. Neither the establishment of the Plan and the Trust nor any modification thereof, nor the creation of any investment fund or Plan Account, nor the payment of any benefits hereunder, shall be construed as modifying or affecting in any way the terms of employment of any Employee, and shall not affect any Participating Employer's right to terminate the employment of any of its Employees, with or without cause. 14.2 Mergers and Transfer of Assets. (a) Merger of the Company. If the Company merges or consolidates with or into another corporation, or if substantially all of the assets of the Company shall be transferred to another corporation, the Plan shall terminate on the effective date of such merger, consolidation or transfer; provided, however, that, if the surviving corporation resulting from such merger or consolidation, or the corporation to which the assets have been transferred, adopts this Plan, the Plan shall continue and said corporation shall succeed to all rights, powers and duties of the Company hereunder. The employment of any Employee who is continued in the employ of such successor corporation shall not be deemed to have been terminated for any purpose hereunder. (b) Merger of the Plan or Transfer of Assets. In no event shall this Plan be merged or consolidated with any other employee benefit plan, nor shall there be any transfer of assets or liabilities from this Plan to any other such plan, unless immediately after such merger, consolidation or transfer, each Participant's benefits, if such other plan were then to terminate, would be at least equal to the benefits to which the Participant would have been entitled had this Plan been terminated immediately before such merger, consolidation, or transfer. 14.3 Prohibition Against Assignment. Except in accordance with the terms of a Qualified Domestic Relations Order and with respect to loans to Employees under Section 8.9: (a) The benefits provided by this Plan shall not be assigned, transferred, mortgaged, pledged, hypothecated or otherwise alienated by any Participant or Beneficiary, and neither the Company nor the Trustee shall recognize any attempted assignment, transfer, mortgage, pledge, hypothecation or other alienation by any Participant or Beneficiary of all or any part of his interest hereunder; and (b) The interest of any Participant or Beneficiary in any benefits provided hereunder shall not be subject in any manner to transfer by operation of law and shall be exempt from the claims of creditors or other claimants under any order, decree, levy, garnishment, execution or other legal or equitable process or proceeding, to the fullest extent permitted by law. 14.4 Permissible Reversions. (a) General Rules. Notwithstanding any other provision of the Plan: (1) To the extent any contribution to the Plan is made by reason of a mistake of fact, it may be returned to the appropriate Participating Employer within one year from the date of the contribution; (2) All contributions to the Plan are hereby conditioned on their deductibility under section 404 of the Code, and to the extent such deduction is disallowed, any contribution may be returned to the appropriate Participating Employer within one year from the date of the disallowance; and (3) Upon termination of the Plan, any amount held in a suspense account established under Section 5.4(d) may be returned to the appropriate Participating Employer to the extent such amount may not then be allocated to any Participant's Plan Accounts. (b) Treatment of Earnings/Losses. The amounts which may be returned to a Participating Employer pursuant to paragraph (a) of this Section shall be the excess of the amounts contributed over the amounts that would have been contributed had there not been a mistake of fact or disallowance of deduction, as applicable. No earnings on the mistaken or non-deductible contributions may be returned to a Participating Employer, and losses sustained by the Trust after the date of contribution shall proportionately reduce the amount that may be returned to a Participating Employer hereunder. 14.5 Masculine/Feminine; Singular/Plural. Wherever used herein, the masculine gender shall include the feminine, and the singular number or tense shall include the plural. 14.6 Missing Participant or Beneficiary. If, after reasonable efforts to do so, the Administrative Committee is unable to locate any person to whom a benefit is payable hereunder, the benefit payable to such person shall be forfeited. If such person has not been located by the last day of the Plan Year in which such forfeiture occurs, the amount forfeited shall be allocated as of such day in accordance with Section 5.3(b). Any benefit that has been forfeited pursuant to this Section shall be restored and distributed if such person provides the Administrative Committee with his current address and any other information such Committee determines is necessary or desirable in connection with the restoration and distribution of the forfeited amount. Any restoration of benefits required under this Section shall be made in the manner described in the last two sentences of Section 6.2(b). 14.7 Notices and Elections. Any notice, election or designation required or permitted by Participants shall be made on the form prescribed for such purpose by the Administrative Committee. Except as otherwise provided in the Plan, any notice, election or designation by a Participant must be filed with the Administrative Committee. 14.8 Top Heavy Rules. (a) When Applicable. For any Plan Year the Plan is a Top-Heavy Plan, the provisions of this Section shall supersede any conflicting provisions in the Plan. (b) Definition of Top-Heavy Plan. The Plan is a "Top- Heavy Plan" for any Plan Year if, as of the Determination Date for such Plan Year, the Top-Heavy Ratio for the Aggregation Group exceeds 60%. (c) Minimum Allocation. Except as provided in paragraph (d) of this Section, for each Plan Year the Plan is a Top-Heavy Plan, the Matching Contributions, Profit Sharing Contributions, forfeitures and any special contribution made pursuant to Section 3.5 allocated on behalf of each Participant who is not a Key Employee and who is employed by the Company or any Related Company on the last day of the Plan Year shall not be less than the lesser of: (1) 3% of such Participant's Covered Compensation; or (2) the highest percentage of any Key Employee's Covered Compensation that is provided by Deferred Pay Contributions, Matching Contributions, Profit Sharing Contributions and forfeitures allocated to such Key Employee under the Plan for that Plan Year, unless the Participant is also a participant in a "defined benefit plan" (as defined in section 414(j) of the Code) to which contributions have been made by the Company or any Related Company, in which case the minimum allocation shall not be less than 5% of such Participant's Covered Compensation. (d) Minimum Benefit Under Other Plan. Paragraph (c) of this Section shall not apply to any Participant who participates in any other plan maintained by the Company or any Related Company that is qualified under section 401(a) of the Code and provides that the minimum allocation and vesting requirements of section 416 of the Code shall be met therein. (e) Effect on Combined Plan Limitation. For any Plan Year the Plan is a Top-Heavy Plan, the "defined benefit plan fraction" and the "defined contribution plan fraction" (as defined in section 415(e) of the Code) shall be computed, for purposes of Section 5.4(c), by substituting "1.0" for "1.25" each place it appears in section 415(e) of the Code; provided that such substitution shall not have the effect of reducing any Participant's accrued benefit under the Plan, determined as of the last day of the Plan Year immediately preceding the first Plan Year the Plan is a Top-Heavy Plan. (f) Special Definitions. The following terms are defined for purposes of this Section: (1) "Aggregation Group" shall mean the following group of plans that are maintained by the Company or any Related Company and are qualified under section 401(a) of the Code: (i) Each plan in which at least one Key Employee participates (a "Key Plan"), plus each other plan that enables a Key Plan to meet the requirements of section 401(a)(4) or 410 of the Code; or (ii) At the Administrative Committee's election, all plans described in (i) above, plus any other plan or plans that meet the requirements of sections 401(a)(4) and 410 of the Code when considered together with the plans described in (i) above. (2) "Determination Date" shall mean, for any Plan Year, the last day of the preceding Plan Year. (3) "Key Employee" shall mean a "key employee" as defined in section 416(i) of the Code and the regulations promulgated thereunder. (4) "Top-Heavy Ratio" shall mean the "top-heavy ratio" of the Aggregation Group, computed in accordance with section 416(g) of the Code and the regulations promulgated thereunder. Notwithstanding the foregoing: (i) the accrued benefit of any Employee who has not performed any services for the Company or any Related Company during the five-year period ending on the Determination Date shall be included in the determination of the Top-Heavy Ratio in accordance with section 416(g)(4)(E) of the Code; (ii) rollover contributions shall be taken into account in accordance with section 416(g)(4)(A) of the Code; (iii) distributions from terminated plans shall be included in accordance with section 416(g)(3) of the Code; and (iv) the accrued benefit of any Employee who is not a Key Employee for the current Plan Year, but was a Key Employee for any prior Plan Year, shall be treated in accordance with section 416(g)(4)(B) of the Code. 14.9 Rollovers and Direct Transfers from Other Plans. (a) In General. Notwithstanding any other provision of the Plan, the Trustee is authorized to accept a rollover contribution from any Participant, if such contribution is described in section 402(c)(1), 403(a)(4) or 408(d)(3) of the Code, or a direct transfer of an eligible rollover distribution described in section 401(a)(31) of the Code. The receipt of a rollover contribution or a direct transfer of assets under this Section shall be subject to the following conditions: (1) No rollover or direct transfer may be in an amount less than $500; (2) All rollovers and direct transfers must be made in cash or other property approved by the Administrative Committee; and (3) No amount may be rolled over or transferred directly to the Plan without the prior written consent of the Administrative Committee. (b) Credited to Rollover Account. Any amount rolled over or transferred directly to this Plan pursuant to paragraph (a) of this Section shall be credited to a Rollover Account established for the Participant who made the rollover contribution or directed the transfer to be made. (c) Investment of Rollover Accounts. Amounts credited to a Participant's Rollover Account pursuant to paragraph (b) of this Section shall be invested in accordance with his investment directions given pursuant to Section 7. (d) Distribution of Rollover Accounts. A Participant's Rollover Account shall be distributed at the same time, in the same manner and to the same persons as the rest of his Plan Accounts. 14.10 Compliance with Section 401(a)(9) of the Code. Notwithstanding any other provision of the Plan to the contrary, all distributions from the Plan shall be made in accordance with section 401(a)(9) of the Code and the regulations promulgated thereunder, including the minimum distribution incidental death benefit requirements of such regulations. 14.11 Benefits for Certain Reemployed Participants Who Return from Military Service. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with section 414(u) of the Code. 14.12 Applicable Law and Severability. (a) Applicable Law. The Plan shall be construed, administered and governed in all respects in accordance with ERISA, and, to the extent not preempted by ERISA, the laws of the State of California; provided, however, that if any provision is susceptible of more than one interpretation, the interpretation given thereto shall be consistent with the Plan being a "qualified" plan within the meaning of sections 401(a) and 401(k) of the Code. (b) Severability. If any provision of the Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. TO RECORD THE ADOPTION OF THIS AMENDMENT AND RESTATEMENT OF THE PLAN, the Company has caused this document to be executed by its duly authorized officer this 28th day of September, 1998. DATRON SYSTEMS INCORPORATED By: /s/ WILLIAM L. STEPHAN EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1999 SEP-30-1998 845 0 14,570 311 13,421 32,860 26,043 16,280 48,648 13,329 0 0 0 31 30,162 48,648 29,018 29,064 20,872 20,872 7,065 0 212 915 373 542 0 0 0 542 0.20 0.20
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