-----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, PakvuLey/OuWzEi3YS+PO+pUudnH3zLjJfFNq26GRepEGvWmQ0UyFhr203eY0rML My7Sk8qD4/2hMdhfbIsLQg== 0000727010-96-000006.txt : 19960523 0000727010-96-000006.hdr.sgml : 19960523 ACCESSION NUMBER: 0000727010-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 DATE AS OF CHANGE: 19960522 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELEXSYS INTERNATIONAL INC CENTRAL INDEX KEY: 0000727010 STANDARD INDUSTRIAL CLASSIFICATION: 3672 IRS NUMBER: 953534864 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11691 FILM NUMBER: 96564589 BUSINESS ADDRESS: STREET 1: 18522 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92715 BUSINESS PHONE: 7148330870 MAIL ADDRESS: STREET 1: 18522 VON KARMAN AVENUE CITY: IRVINE STATE: CA ZIP: 92715 FORMER COMPANY: FORMER CONFORMED NAME: DICEON ELECTRONICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 SECOND QUARTER REPORT OF FISCAL YEAR 1996 SECURITIES AND EXCHANGE COMMISSION Washington, DC. 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 March 30, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________to________________ Commission file number 0-11691 ELEXSYS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 95-3534864 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1188 Bordeaux Drive, Sunnyvale, California 94089 (Address of principal executive offices) (Zip Code) (408) 743-5400 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ At April 10, 1996, there were 9,152,800 outstanding shares of common stock. This report consists of 11 pages ELEXSYS INTERNATIONAL, INC. FORM 10-Q INDEX
Page Part I. Financial Information: Item 1. Consolidated Balance Sheets as of March 30, 1996 and September 30, 1995.......... 2 Consolidated Statements of Operations for the Three and Six Months Ended March 30, 1996 and April 1, 1995........................................... 3 Consolidated Statements of Cash Flows for the Three and Six Months Ended March 30, 1996 and April 1, 1995........................................... 4 Notes to the Consolidated Financial Statements................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 7 Part II. Other Information: Item 4. Submission of Matters to Vote of Security Holders............................... 9 Item 6. Exhibits........................................................................ 10
ELEXSYS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
March 30, September 30, 1996 1995 ---------------- ---------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $285 $903 Accounts receivable, net 16,800 15,653 Inventories 8,648 7,860 Prepaid expenses and other current assets 1,025 709 ------- ------- Total current assets 26,758 25,125 ------- ------- Property, plant and equipment, net 21,096 18,980 Other assets 988 1,034 ------- ------- Total assets $48,842 $45,139 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $11,785 $9,854 Accrued payroll and related costs 2,409 2,521 Other current liabilities 1,205 1,965 Short-term borrowings 1,178 3,248 Current portion of long-term debt 220 363 ------- ------- Total current liabilities 16,797 17,951 ------- ------- Long-term debt 1,468 1,280 Convertible subordinated debentures 12,000 12,000 Stockholders' equity: Common stock, $1.00 par value, 20,000,000 shares authorized, 9,148,460 shares issued and outstanding at March 30, 1996 and 8,960,560 shares issued and outstanding at September 30, 1995 9,149 8,961 Additional paid-in capital 5,743 5,460 Retained earnings (deficit) 3,748 (491) Cumulative foreign currency translation adjustment (63) (22) ------- ------- Net stockholders' equity 18,577 13,908 ------- ------- Total liabilities and stockholders' equity $48,842 $45,139 ======= ======= The accompanying notes are an integral part of these consolidated financial statements.
ELEXSYS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended March 30, April 1, March 30, April 1, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- Net sales $30,388 $23,407 $59,299 $46,160 Cost of sales 24,682 21,541 48,215 41,424 ------------- ------------- ------------- ------------- Gross profit 5,706 1,866 11,084 4,736 Operating expenses: Selling, general and administrative 3,133 2,200 6,074 4,266 Research and development 97 126 140 249 ------------- ------------- ------------- ------------- Total operating expenses 3,230 2,326 6,214 4,515 ------------- ------------- ------------- ------------- Income (loss) from operations 2,476 (460) 4,870 221 Interest expense, net 263 410 628 841 ------------- ------------- ------------- ------------- Income (loss) before income taxes 2,213 (870) 4,242 (620) Provision for (benefit from) income taxes (16) - 3 - ------------- ------------- ------------- ------------- Income (loss) before extraordinary item 2,229 (870) 4,239 (620) Extraordinary item: Gain from exchange of 5 1/2 percent Convertible Subordinated Debentures due 2012 for common stock, net of expenses - 1,833 - 1,833 ------------- ------------- ------------- ------------- Net income $ 2,229 $ 963 $ 4,239 $ 1,213 ============= ============= ============= ============= Earnings per share: Primary $0.23 $0.11 $0.44 $0.14 Fully diluted $0.23 $0.10 $0.44 $0.13 ------------- ------------- ------------- ------------- Weighted average common shares and common equivalent shares outstanding: Primary 9,552 8,751 9,513 8,751 Fully diluted 9,552 9,278 9,513 9,278 ============= ============= ============= ============= The accompanying notes are an integral part of these consolidated financial statements.
ELEXSYS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended March 30, April 1, 1996 1995 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $4,239 $1,213 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary gain - (1,833) Depreciation and amortization 2,374 2,780 Increase in accounts receivable (1,144) (2,494) (Increase) decrease in inventories (843) 556 Increase in prepaid expenses and other current assets (405) (321) Increase in accounts payable 2,020 722 Increase (decrease) in accrued payroll and related taxes (112) 180 Decrease in restructuring reserve (79) - Increase (decrease) in other current liabilities (702) (543) Other (54) (207) ---------------- ---------------- Net cash provided by operating activities 5,294 53 ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (4,358) (1,666) ---------------- ---------------- Net cash used by investing activities (4,358) (1,666) ---------------- ---------------- CASH FLOWS USED BY FINANCING ACTIVITIES Net change in short-term borrowings (2,129) 180 Payments on long-term debt (184) (25) Increase of long-term debt 288 - Proceeds from exercise of stock options 471 221 ---------------- ---------------- Net cash provided (used) by financing activities (1,554) 376 ---------------- ---------------- Net decrease in cash and cash equivalents (618) (1,237) Cash and cash equivalents, beginning of period 903 1,562 ================ ================ Cash and cash equivalents, end of period $285 $325 ================ ================ SUPPLEMENTAL CASH FLOW INFORMATION: Interest payments $421 $471 ================ ================ Income tax payments $206 $24 ================ ================ The accompanying notes are an integral part of these consolidated financial statements.
ELEXSYS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements of Elexsys International, Inc. and its subsidiaries (the "Company") contain all adjustments, consisting of only normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the financial position of the Company as of March 30, 1996 and September 30, 1995, the results of its operations for the three and six months ended March 30, 1996 and April 1, 1995 and its cash flows for the six months ended March 30, 1996 and April 1, 1995. Certain information and footnote disclosures normally included in the financial statements have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures in the consolidated financial statements are adequate to make the information presented not misleading. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements of the Company for the year ended September 30, 1995, included in the Company's Annual Report on Form 10-K for that fiscal year. Note 2 - Inventories Inventories consist of the following (in thousands): March 30, September 30, 1996 1995 -------------- -------------- (Unaudited) Raw materials $3,474 $2,843 Work in progress 5,174 5,017 -------------- -------------- Totals $8,648 $7,860 ============== ============== Note 3 - Earnings Per Share Primary and fully diluted earnings per common share for the three and six months ended March 30, 1996 and April 1, 1995 have been computed based on weighted average common shares outstanding and common stock equivalents (stock options) as of the above dates and do not include the assumed conversion of the 5 1/2 percent Convertible Subordinated Debentures due 2012 into common stock as such effect would have been antidilutive. Note 4 - Income Taxes In the first six months of 1996, the Company recorded a provision of $3,000 for income taxes. This related to a provision for federal alternative minimum taxes of $139,000 partially offset by a foreign income tax benefit of $136,000 based on the Company's United Kingdom subsidiary net operating loss for the first six months of 1996. The remaining carryforwards, for which future benefit is not assured, expire in various amounts through 2008. ELEXSYS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Translation of Foreign Currencies Assets and liabilities of the Company's United Kingdom subsidiary are translated into US dollars at the exchange rates in effect at the end of the period. Revenue and expense accounts are translated at a weighted average of exchange rates which were in effect during the year. Translation adjustments that arise from translating the Company's United Kingdom subsidiary's financial statements from pound sterling to US dollars are accumulated in a separate component of stockholders' equity. Transaction gains and losses that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in results of operations as incurred. For the six months ended March 30, 1996, there were no material transaction gains or losses. Note 6 - Purchase of the assets of Anetec Technologies, Inc. The Company entered into an Asset Purchase Agreement dated as of May 3, 1996 to acquire the assets on Anetec Technologies, Inc., a company serving the small prototype and engineering marketplace located in Fremont, California for $1 million in cash, a promissory note in the principal amount of $1 million and 100,000 shares of the Company's common stock. As of May 14, 1996, the transaction had not closed. ELEXSYS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained elsewhere within this Report on Form 10-Q. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The actual future results of the Company could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the Company's Form 10-K for the year ended September 30, 1995. Results of Operations Net sales Net sales increased 30 percent for the three months ended March 30, 1996 compared to the second quarter of fiscal 1995. For the six months ended March 30, 1996, net sales increased 29 percent over net sales for the comparable period in fiscal 1995. The increase in net sales resulted from an increased demand for printed circuit boards from the Company's existing customer base, new customers, and the April 1995 acquisition in the United Kingdom. Cost of sales Cost of sales as a percentage of net sales improved from 92 percent in the second quarter of fiscal 1995 to 81 percent for the second quarter of fiscal 1996. For the six months ended March 30, 1996, cost of sales as a percentage of net sales improved from 90 percent for the first six months of fiscal 1995 to 81 percent for the six month period ended March 30, 1996. The improvement in cost of sales for the three and six months ended March 30, 1996 was attributable to improved operating efficiencies, cost reductions and a one-time worker's compensation dividend payment of approximately $560,000 partially offset by start-up costs associated with the Company's new plants in the United Kingdom and Plano, Texas. Selling, General and Administrative Selling, general and administrative (SG&A) expense for the three and six months ended March 30, 1996 increased 42 percent as compared to the similar fiscal 1995 periods. As a percentage of net sales, SG&A increased from 9.4 percent for the second quarter of fiscal 1995 to 10.3 percent for the second quarter of fiscal 1996. SG&A as a percentage of net sales increased from 9.2 percent for the first six months of fiscal 1995 to 10.2 percent for the six months ended March 30, 1996. The increase in SG&A was due to the inclusion of the SG&A expense of the Company's new United Kingdom subsidiary, and an increase in employee costs, resulting primarily from the replacement of manufacturing representatives with direct sales employees. Research and development Research and development expenditures for the three months ended March 30, 1996 decreased 23 percent compared to the second quarter of fiscal 1995. For the six months ended March 30, 1996, research and development expenditures decreased 44 percent from the comparable six month period of fiscal 1995. The decrease was due to reduced engineering labor and benefit costs as a consequence of past restructurings by the Company. Interest expense, net Interest expense, net of interest income, decreased 35 percent for the three months ended March 30, 1996 from the comparable quarter in fiscal 1995. For the six months ended March 30, 1996, interest expense, net of interest income, decreased 25 percent from the comparable six month period of fiscal 1995. The decrease is mainly attributable to a decrease in borrowings from an asset-based lender in the second quarter of 1996 and a reduction in the number of outstanding convertible subordinated debentures due to the March 1995 exchange of debentures for the Company's common stock, partially offset by an increase in interest expense incurred by the Company's subsidiary in the United Kingdom. Factors that may affect future results The Company's future operating results may be adversely affected by a number of factors, including general economic conditions, foreign competition, industry consolidation, the Company's ability to develop, manufacture, and sell its products profitably, and the cyclical nature of the business of some of the Company's customers. The Company participates in a highly competitive industry. The printed circuit board industry has been characterized by stringent customer demands for timely deliveries, service and quality of products and by aggressive pricing practices. The Company's operating results could be materially adversely affected should the Company be unable to meet any one of these customer demands. Liquidity and Capital Resources The Company recorded cash flows from operating activities of $5.3 million during the first six months of fiscal 1996 compared to $53,000 during the same period of the previous year. Higher positive cash flow provided by operating activities during the first six months of fiscal 1996 was primarily due to improved profitability, partially offset by an increase in the use of working capital. The cash provided by operating activities was offset by cash used by investing activities of $4,358,000 (used for the purchase of capital equipment) and cash used by financing activities of $1,554,000 (used primarily for the repayment of short-term borrowings and long-term debt, less amounts received from the exercise of stock options by certain employees and additions to long-term debt). Capital equipment was purchased for normal replacement, for processes that the Company had previously outsourced, and for the enhancement of manufacturing capabilities. As of March 30, 1996, the Company had short-term borrowings with an asset-based lender, net of cash collections held by the lender, of $1,178,000 under a $15 million line of credit agreement that was established on December 17, 1993 and amended on January 30, 1996. Under the terms of the agreement, the Company's cash collections are applied to any outstanding borrowings upon the receipts clearing the bank. At March 30, 1996, the asset-based lender was in possession of $436,000 of the Company's cash collections. Accordingly, such funds are owed to the Company upon clearing the bank. The line of credit is collateralized by substantially all of the Company's assets and its will remain in effect until December 17, 1997. The Company was in compliance with all of the covenants as defined within the agreement. At March 30, 1996 the Company had outstanding commitments to purchase the remaining $1.3 million balance of a $1.6 million order for electrical test equipment to support expanded capacity. On April 11, 1996, the Company entered into an equipment lease agreement for approximately $1.5 million to finance such equipment. During the six month period, the Company's ratio of current assets to current liabilities improved from 1.4 to 1 to 1.6 to 1. Management believes that the Company's existing working capital, its remaining borrowing capacity and funds generated from operations will be sufficient to meet projected working capital requirements and other cash requirements through fiscal 1996. Part II. OTHER INFORMATION Item 4 Submission of Matters to Vote of Security Holders The Company held an Annual Meeting of Stockholders on January 30, 1996. The Stockholders elected the Board's nominees as directors by the votes indicated:
Nominee Votes in Favor Votes Against Abstentions Non-votes Roland G. Matthews 5,713,422 0 32,704 0 Peter S. Jonas 5,713,322 0 32,804 0 C. Bradford Jeffries 5,716,072 0 30,054 0
The terms of two directors, Milan Mandaric and Alan C. Mendelson, continued after the Annual Meeting. Adoption of the Company's 1996 Employee Stock Purchase Plan, under which 250,000 shares of common stock are reserved for issuance, was approved with 5,736,326 votes in favor, 3,700 against 3,600 abstentions, and 2,500 non-votes. Adoption of the Company's 1995 Stock Option Plan, as amended and restated, under which 1,000,000 shares of common stock are reserved for issuance, was approved with 5,555,984 votes in favor, 183,038 against 4,604 abstentions, and 2,500 non-votes. Adoption of the Company's 1996 Non-Employee Directors' Stock Option Plan, under which 200,000 shares of common stock are reserved for issuance, was approved with 5,488,249 votes in favor, 229,838 against 25,539 abstentions, and 2,500 non-votes. Item 6 a. Exhibits 10.1 Equipment Lease Agreement dated April 11, 1996 between Elexsys International, Inc. and Matrix Funding Corporation. 10.2 Lease for 4405 Fortran Drive, San Jose, California dated March 11, 1996 between Elexsys International, Inc. and South Bay/Fortran. 10.3 Asset Purchase Agreement dated as of May 3, 1996 among Anetec Technologies, Inc., Helen Kwong, Elxi Acquisition, Inc., and Elexsys International, Inc. to purchase the assets of Anetec Technologies, Inc. (with certain schedules and attachments omitted pursuant to Item 601(b)(2) of Regulation S-K). The Company undertakes to furnish supplemental copies of any of the omitted schedules and other attachments upon request by the Securities and Exchange Commission. b. Current reports on Form 8-K None 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. ELEXSYS INTERNATIONAL, INC. --------------------------- (Registrant) Date: May 14, 1996 By: /s/ Michael S. Shimada - - ------------------- --------------------------- Michael S. Shimada Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) EX-10.1 2 MATRIX LEASE M A T R I X F U N D I N G C O R P O R A T I O N 6925 Union Park Center, Suite 250 Midvale, Utah 84047 LEASE NO. R0546 MASTER LEASE AGREEMENT This agreement (the "Agreement") is made this 11th day of April, 1996 between MATRIX FUNDING CORPORATION, with its principal office at 6925 Union Park Center, Suite 250, Midvale, Utah 84047, (the "Lessor"), and ELEXSYS INTERNATIONAL, INC., with its principal office at 1188 Bordeaux Drive, Sunnyvale, California 94089, (the "Lessee"). 1. LEASE: Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment and property (collectively, "Equipment") described in any Equipment Schedule executed and delivered by Lessor and Lessee in connection with this Agreement. Each Equipment Schedule shall incorporate the terms and conditions of this Agreement and constitute a separate lease. In the event of conflict between the provisions of this Agreement and any Equipment Schedule, the provisions of the Equipment Schedule shall govern. Each Equipment Schedule shall constitute a separate lease. 2. ADDITIONAL DEFINITIONS: (a) "Acceptance Date" means, as to the Equipment designated on any Equipment Schedule, the earliest to occur of (i) the date Lessee accepts the Equipment as set forth in any certificate of acceptance or delivery signed by the Lessee (the "Acceptance Certificate"), or (ii) the date which is determined by the manufacturer or vendor of the Equipment to be the date of installation of such Equipment. (b) "Commencement Date" means, as to the Equipment designated on any Equipment Schedule, where the Acceptance Date for such Equipment Schedule falls on the first day of a calendar quarter, that date, and, in any other case, the first day of the calendar quarter following the calendar quarter in which such Acceptance Date falls. 3. TERM OF LEASE: The term of this Agreement, as to all Equipment designated on any Equipment Schedule, shall commence on the Acceptance Date for such Equipment, and shall continue for an "Initial Period" ending that number of months from the applicable Commencement Date as specified in such Equipment Schedule. Thereafter, Lessee shall have options to purchase or return the Equipment or to extend the Lease as provided in Section 19.(k) of this Agreement. 4. RENT AND PAYMENT: As to any Equipment leased hereunder, the "Monthly Rental" payable by Lessee to Lessor shall be as set forth in the applicable Equipment Schedule. The Monthly Rental shall begin on the Commencement Date and shall be due and payable by Lessee in advance on the first day of each month throughout the Initial Period. If the Acceptance Date does not fall on the first day of a calendar quarter, then the first rental payment shall be calculated by multiplying the number of days from and including the Acceptance Date to the Commencement Date by a daily rental equal to one thirtieth (1/30) of the Monthly Rental, and shall be due and payable on the Acceptance Date. Lessee shall pay all rentals hereunder to Lessor, its successors or assigns, at Lessor's address set forth above (or as otherwise directed in writing by Lessor, its successors or assigns), whether or not Lessee has received any notice that such payment is due. LESSEE SHALL NOT ABATE, SET OFF, OR DEDUCT ANY AMOUNT OR DAMAGES FROM OR REDUCE ANY RENTAL FOR ANY REASON WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, ITS SUCCESSORS OR ASSIGNS. Late charges on any past due payments, taxes or other charges hereunder shall accrue at the rate of 1 1/2% per month (or if such rate shall exceed the maximum rate allowed by law, then at the highest rate that is permitted to be charged on liquidated amounts after judgment) beginning with the date that such amount was due and continuing until the amount is paid. If late charges are assessed by a lending institution due to any late payment, Lessee agrees to pay such late charges or to reimburse Lessor for their payment. Lessee agrees to make payment for any late charges promptly upon demand by Lessor. 5. TAXES: Lessee shall pay to Lessor an amount equal to all taxes paid, payable or required to be collected by Lessor, however designated, which are levied or based on the Monthly Rental or on the possession, use, operation, lease, rental, sale, purchase, control or value of the Equipment, including, without limitation, registration and license fees and assessments, state and local privilege or excise taxes, sales and use taxes, personal and other property taxes, and taxes or charges based on gross revenue, but excluding taxes based on Lessor's net income. Lessor shall invoice Lessee for all such taxes in advance of their payment due date, and Lessee shall promptly remit to Lessor all such taxes and charges upon receipt of such invoice from Lessor. Lessee shall pay all penalties and interest resulting from its failure to timely remit such taxes to Lessor when invoiced by Lessor. Lessor shall file all required sales and use tax and personal property tax returns and reports concerning the Equipment with all applicable governmental agencies. 6. USE; ALTERATIONS AND ATTACHMENTS: (a) After Lessee receives and inspects any Equipment and is satisfied that the Equipment is satisfactory, Lessee shall execute and deliver to Lessor an Acceptance Certificate in a form provided by Lessor; provided, however, that Lessee's failure to execute and deliver an Acceptance Certificate for any Equipment shall not affect the validity of this Agreement with respect to the Equipment. (b) Lessee shall be entitled to unlimited usage of the Equipment during the Initial Period or any renewal periods approved by Lessor in writing. (c) Lessee shall at all times keep the Equipment in its sole possession and control. The Equipment shall not be moved from the location stated in the Equipment Schedule without the prior written consent of Lessor. (d) Lessee shall cause the Equipment to be installed, used, operated and, at the termination of this Agreement as to each Equipment Schedule, removed (i) in accordance with any applicable manufacturer's manuals or instructions; (ii) by competent and duly qualified personnel only; and (iii) in accordance with applicable governmental regulations, if any. (e) Lessee may not make alterations in or add attachments to the Equipment without first obtaining the written consent of Lessor. Any such alterations or attachments shall be made at Lessee's expense and shall not interfere with the normal and satisfactory operation or maintenance of the Equipment. The manufacturer may incorporate engineering changes or make temporary alterations to the Equipment upon request of Lessee. Unless Lessor shall otherwise agree in writing, all such alterations and attachments shall be and become the property of Lessor or, at the option of Lessor, shall be removed by Lessee at the termination of this Agreement as to such Equipment and the Equipment restored at Lessee's expense to its original condition, reasonable wear and tear only excepted. (f) Lessee acknowledges that the Equipment is and shall remain personal property during the term of this Agreement. Lessee shall not permit the Equipment to become an accession to other goods or a fixture to, or part of, any real property. If the Equipment becomes an accession to other goods, Lessee shall provide to Lessor signed waivers in form acceptable to Lessor. (g) In the event the Equipment includes software (including all documentation, later versions, updates, modifications; herein "Software"), the following shall apply: (i) Lessee shall possess and use the Software in accordance with the terms and conditions of any license agreement ("License") entered into with the owner/vendor of such Software (at Lessor's request, Lessee shall provide a complete copy of the License to Lessor); (ii) as due consideration for Lessor's payment of the Software price and for providing the Software to Lessee at a lease rate (as opposed to a debt rate), Lessee agrees that Lessor is leasing (and not financing) the Software to Lessee; (iii) except as otherwise specifically provided herein, the Software shall be deemed Equipment for all purposes under this Agreement. (h) Lessee shall comply with all applicable laws, regulations and orders relating to the Equipment and this Agreement. (i) The Equipment is leased solely for commercial or business purposes. 7. MAINTENANCE AND REPAIRS; RETURN OF EQUIPMENT: (a) During the continuance of this Agreement, at its expense, and in accordance with all manufacturer maintenance specifications, Lessee (i) shall keep the Equipment in good repair, working order and condition; (ii) shall make all necessary adjustments, repairs and replacements; (iii) shall furnish all required parts, mechanisms, devices and servicing; and (iv) shall not use or permit the Equipment to be used for any purpose for which, in the opinion of the manufacturer, the Equipment is not designed or reasonably suitable. Such parts, mechanisms and devices shall immediately become a part of the Equipment for all purposes hereunder. If the manufacturer does not provide maintenance specifications, Lessee shall perform all maintenance in accordance with industry standards for like equipment. (b) During the continuance of this Agreement and at its own expense, Lessee shall enter into and maintain in force a contract with the manufacturer or other qualified maintenance organization for maintenance of each item of Equipment. Such contract as to each item shall commence upon the Acceptance Date. Lessee shall furnish Lessor with a copy of such contract upon demand. (c) At the termination of this Agreement and at its expense, Lessee shall return the Equipment to Lessor at the location within the Continental United States designated by Lessor. Upon such return, the Equipment shall be in the same operating order, repair, condition and appearance as on the Acceptance Date, excepting reasonable wear and tear from proper use thereof including all engineering changes theretofore prescribed by the manufacturer. Lessee shall provide maintenance qualification letters and/or arrange for and pay all costs which are necessary for the manufacturer to accept the Equipment under contract maintenance at its then standard rates. (d) At the termination of any Schedule, Lessee shall, at its expense, return the Software to Lessor at the location within the Continental United States designated by the Lessor. Upon such return, Lessee shall also (i) delete from its systems all Software then installed, (ii) destroy all copies or duplicates of the Software which were not returned to Lessor, and (iii) cease using the Software altogether. Upon its receipt from Lessee, Lessor shall be responsible to return the Software to the owner/vendor or destroy the Software so that Lessee shall not be in breach of any software license. 8. OWNERSHIP AND INSPECTION: (a) The Equipment shall at all times remain the property of Lessor or its assigns. By this Agreement, Lessee acquires no ownership rights in the Equipment. Lessor may affix (or require Lessee to affix) tags, decals or plates to the Equipment indicating Lessor's ownership, and Lessee shall not permit their removal or concealment. (b) LESSEE SHALL KEEP THE EQUIPMENT AND LESSEE'S INTEREST UNDER THIS AGREEMENT FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES, EXCEPT THOSE PERMITTED IN WRITING BY LESSOR OR ITS ASSIGNS. (c) Lessor, its assigns and their agents shall have free access to the Equipment at all reasonable times during normal business hours for the purpose of inspecting the Equipment and for any other purpose contemplated in this Agreement. (d) Lessee shall immediately notify Lessor in writing of all details concerning any damage or loss to the Equipment arising from the alleged or apparent improper manufacture, functioning or operation of the Equipment. 9. WARRANTIES: (a) LESSEE ACKNOWLEDGES THAT LESSOR HAS NOT MADE ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, WARRANTIES RELATING TO ANY OF THE FOLLOWING: (i) THE DESCRIPTION, CONDITION, DESIGN, QUALITY OR PERFORMANCE OF THE EQUIPMENT; (ii) ITS MERCHANTABILITY OR FITNESS OR SUITABILITY FOR A PARTICULAR PURPOSE WHETHER OR NOT DISCLOSED TO LESSOR; AND (iii) DELIVERY OF THE EQUIPMENT FREE OF THE RIGHTFUL CLAIM OF ANY PERSON BY WAY OF INFRINGEMENT OR THE LIKE. LESSOR EXPRESSLY DISCLAIMS ALL SUCH WARRANTIES. LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS OR DAMAGE OF ANY KIND OR NATURE WHATSOEVER, INCLUDING SPECIAL OR CONSEQUENTIAL DAMAGES. (b) Lessor assigns to Lessee all assignable warranties on the Equipment, as described in Lessor's purchase contract, which assignment shall be effective only (i) during the Initial Period and any renewal periods approved by Lessor in writing, and (ii) so long as no uncured Event of Default exists. 10. NET LEASE; LESSEE'S OBLIGATIONS ABSOLUTE AND UNCONDITIONAL: This Agreement is a "net lease" and, as between Lessor and Lessee, Lessee shall be responsible for all costs, expenses and claims of every nature whatsoever arising out of or in connection with or related to this Agreement or the Equipment (such as, but not limited to, transportation in and out, packing, installation and deinstallation, shipping and other such charges). Lessee agrees that its Monthly Rental and other obligations hereunder shall be irrevocable, independent, absolute and unconditional and shall not be subject to any abatement, reduction, recoupment, defense, offset or counterclaim otherwise available to Lessee against Lessor; nor, except as otherwise expressly provided herein or as agreed to by Lessor in writing, shall this Agreement terminate for any reason whatsoever prior to the end of the Initial Period. 11. ASSIGNMENT: (a) LESSEE MAY NOT ASSIGN THIS AGREEMENT OR ANY OF ITS RIGHTS HEREUNDER OR SUBLEASE THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, except that Lessee may assign this Agreement or sublease the Equipment to any parent or subsidiary corporation, or to a corporation which shall have acquired all or substantially all of the property of Lessee by merger, consolidation or purchase. NO PERMITTED ASSIGNMENT OR SUBLEASE SHALL RELIEVE LESSEE OF ANY OF ITS OBLIGATIONS HEREUNDER. (b) Lessor may sell and assign its rights and interests in any Equipment and in any Equipment Schedule hereunder, to another party ("Lessor's Assignee") either outright or as collateral security for loans. Upon notice of any such assignment and instructions from Lessor, Lessee shall pay its Monthly Rental and perform its other obligations hereunder to the Lessor's Assignee (or to another party designated by Lessor's Assignee). Upon any such sale or assignment, LESSEE'S OBLIGATIONS TO LESSOR'S ASSIGNEE UNDER THE ASSIGNED EQUIPMENT SCHEDULE SHALL BE ABSOLUTE AND UNCONDITIONAL AND LESSEE WILL NOT ASSERT AGAINST LESSOR'S ASSIGNEE ANY CLAIM, DEFENSE OR COUNTERCLAIMS WHICH LESSEE MIGHT HAVE AGAINST LESSOR. Lessor's Assignee shall have all of the rights but none of the obligations of Lessor under this Agreement. Notwithstanding any assignment by Lessor, Lessor's Assignee shall not be deemed to have assumed or to be obligated to perform any of the obligations of Lessor. In connection with any assignment by Lessor of its interest in the Equipment or this Agreement, Lessee acknowledges that the assignment will not materially change the duty of or materially increase the burden or risk imposed on Lessee; and Lessee waives its right, if any, to demand Lessor's Assignee to comply with the provisions of Utah Uniform Commercial code - Leases, Section 70A-2a-303 (2) (as it now exists or hereafter modified) dealing with adequate assurance and assumption requirements, among other things. Upon any such assignment, Lessee agrees to execute (i) any document reasonably requested by Lessor acknowledging such assignment and affirming to Lessor's Assignee basic provisions of this Agreement and the Equipment Schedule, and (ii) UCC-1 precautionary filings reasonably requested. Only one executed counterpart of any Equipment Schedule shall be marked "Original"; any other executed counterparts shall be marked "Duplicate Original" or "Counterpart". No security interest in any Equipment Schedule may be created through the transfer and possession of any counterpart other than the "Original". 12. RISK OF LOSS ON LESSEE: From and after the date that the Equipment is delivered to Lessee and until the Equipment is returned to Lessor as provided in this Agreement, Lessee shall bear all risk of loss, damage, theft or destruction to the Equipment, howsoever caused. If any item of Equipment is rendered unusable as a result of any physical damage to or destruction of the Equipment or if any item of Equipment is lost or stolen, then: (a) Lessee shall give Lessor immediate notice thereof, and this Agreement as to such item shall continue in full force and effect without any abatement of any Monthly Rental. Lessee shall determine and notify Lessor, within fifteen (15) days after the date of occurrence of such damage or destruction, whether such item of Equipment can be repaired. (b) If Lessee determines that such item of Equipment can be repaired, Lessee shall cause such item of Equipment to be promptly repaired. (c) If Lessee determines that the item of Equipment cannot be repaired or if the item of Equipment is lost or stolen, then at Lessor's option, Lessee shall either (i) at its expense promptly replace such item of Equipment with like equipment having a comparable or greater value and convey title to such replacement to Lessor free and clear of all liens and encumbrances, whereupon this Lease shall continue in full force and effect as though such loss, damage, theft or destruction had not occurred; or (ii) pay Lessor an amount equal to the Casualty Loss Value of the item of Equipment determined under any Casualty Loss Schedule attached to the Equipment Schedule, or if none is attached, then an amount equal to the replacement cost of such item of Equipment. All proceeds of insurance received by Lessor or Lessee under any insurance policy shall be applied toward the cost of any such repair or replacement. 13. INSURANCE: During the continuance of this Agreement as to each Equipment Schedule, Lessee, at its expense, shall keep in effect (a) an all risk casualty insurance policy covering the Equipment designated in such Equipment Schedule that includes, without limitation, coverage against extended coverage risks, vandalism, theft and malicious mischief, for amounts not less than the Casualty Loss Value of the item of Equipment determined under any Casualty Loss Schedule attached to the Equipment Schedule, or if none is attached, then for amounts not less than the replacement cost of each item of Equipment, with Lessor and its assigns designated as insureds and loss payees under such policy; and (b) a comprehensive general liability policy in amounts acceptable to Lessor and that designates Lessor and its assigns as co-insureds. All such insurance policies shall be with licensed insurance companies acceptable to Lessor; shall prohibit cancellation or modification thereof without at least thirty (30) days prior written notice to Lessor; and shall provide that as to Lessor, its successors and assigns, the insurance shall not be invalidated by any act, omission or neglect of Lessee. Lessee shall be responsible for paying any deductibles on such policies. Lessee shall furnish to Lessor a certificate of insurance or other evidence satisfactory to Lessor that insurance coverage is in effect; provided, however, that Lessor shall be under no duty either to ascertain the existence of or to examine such insurance policy or to advise Lessee in the event such insurance coverage shall not comply with the requirements hereof. Lessee shall give Lessor prompt notice of any damage to, or loss of, any of the Equipment, or any part thereof, or any personal injury or property damage occasioned by the use of the Equipment. 14. INDEMNIFICATION: Except for the gross negligence or willful misconduct of Lessor or as otherwise provided herein, Lessee shall indemnify Lessor against and hold Lessor harmless of and from any and all claims, (including without limitation, claims involving strict or absolute liability), actions, suits, proceedings, costs, expenses (including a reasonable attorney's fee incurred by Lessor either in enforcing this indemnity or in defending against such claims), damages and liabilities at law or in equity, arising out of, connected with or resulting from this Agreement or the Equipment, including, without limitation the delivery, possession, use, operation, condition, lease, return, storage or disposition thereof. For purposes of this paragraph, the term "Lessor" shall include Lessor, its successors and assigns, shareholders, directors, officers, representatives and agents, and the provisions of this paragraph shall survive expiration of this Agreement with respect to events occurring prior thereto. 15. EVENTS OF DEFAULT: The occurrence of any one or more of the following events (each an "Event of Default") shall constitute a default under this Agreement: (a) Lessee fails to pay any Monthly Rental when the same becomes due and such failure shall continue uncured for ten (10) days after written notice thereof is given to Lessee; (b) Except as expressly provided herein, Lessee attempts to, or does, remove, sell, assign, transfer, encumber, sublet or part with possession of any one or more items of the Equipment, or any interest under this Agreement, except as expressly permitted herein. (c) Through the act or omission of Lessee, any item of Equipment is subject to any levy, seizure, attachment, assignment or execution; or Lessee abandons any item of Equipment; (d) Lessee fails to observe or perform any of the other obligations required to be observed or performed by Lessee hereunder and such failure shall continue uncured for ten (10) days after written notice thereof is given to Lessee. (e) Lessee's representations and warranties made in this Agreement or in connection herewith shall be false or misleading in any material respect. (f) Lessee ceases doing business as a going concern, makes an assignment for the benefit of creditors, is insolvent, admits in writing its inability to pay its financial obligations as they become due, files a voluntary petition in bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting the material allegations of a petition filed against it in any such proceeding, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of it or of all or any substantial part of its assets or properties, or if it or its shareholders shall take any action looking to its dissolution or liquidation. (g) Within thirty (30) days after the commencement of any proceedings against Lessee seeking reorganization, arrangement, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment without Lessee's consent or acquiescence of any trustee, receiver or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated. 16. REMEDIES: Upon the occurrence of any Event of Default, Lessor shall have the option, with or without giving notice to Lessee, to do any one or more of the following: (a) Lessor may enforce this Agreement according to its terms; (b) Lessor may advance funds on Lessee's behalf to cure the Event of Default, whereupon Lessee shall immediately reimburse Lessor therefor, together with late charges accrued thereon; (c) Lessor may refuse to deliver the Equipment to Lessee; (d) By notice to Lessee, Lessor may terminate this Agreement as to any or all Equipment Schedules; (e) Lessee shall remain fully liable for and shall pay Lessor for (i) all sums due and payable under the Equipment Schedule for all periods up to and including the date on which Lessor has declared this Agreement to be in default; (ii) all costs and expenses incurred by Lessor on account of such default, including, but not limited to, all court costs and reasonable attorneys' fees; and (iii) all reasonable damages as provided by law (collectively "Lessor's Damages"). (f) Whether or not this Lease is terminated as to any or all Equipment Schedules, Lessor may (i) take possession of any or all of the Equipment listed on any or all Equipment Schedules, wherever situated, and for such purpose, Lessor may enter upon any Lessee's premises without any court order and without liability for so doing (Lessee hereby waives any action for trespass or damages by reason of such entry or taking possession); (ii) without removal, render the Equipment unusable and dispose of the same on Lessee's premises; or (iii) cause Lessee (and Lessee hereby agrees) to assemble the Equipment and either make it available to Lessor at a place designated by Lessor or return it to Lessor as provided in this Agreement. (g) Lessor may sue for and recover all rents and other payments that accrue after the occurrence of the Event of Default, as the same become due; or Lessor may recover from Lessee, as liquidated damages ("Liquidated Damages") for loss of a bargain and not as a penalty, an amount equal to the present value of all unpaid Rentals required to be paid by Lessee during the Initial Period or any renewal period then in effect, discounted at the rate of five percent (5%) per annum, which payment shall become immediately due and payable; (h) If Lessee breaches any of its obligations under Section 7(d) of this Agreement, Lessee shall be liable to Lessor for additional damages in an amount not less than the original cost paid by Lessor for the Software, and at Lessor's option, Lessor shall be entitled to injunctive relief. (i) Lessor may sell, dispose of, hold, use or lease any Equipment as Lessor in its sole discretion may determine without any duty, except as provided below, to account to Lessee. Lessor may purchase at any such sale, and Lessor shall not be obligated to give preference to the sale, lease or other disposition of the Equipment over the sale, lease or other disposition of similar equipment owned or leased by or through Lessor. If Lessee shall have paid to Lessor all of the Liquidated Damages, then Lessor shall pay to Lessee, promptly after receipt thereof, all rentals or proceeds received from (a) the reletting of the Equipment during the remainder of the Initial Period or any renewal periods then in effect (after deduction of an amount equal to all Lessor's Damages); or (b) any sale of the Equipment occurring during the remainder of the Initial Period or any renewal periods then in effect less an amount equal to the estimated fair market value of the Equipment at the end of the Initial Period or renewal period then in effect (after deduction of an amount equal to all Lessor's Damages), said amount never to exceed the amount of the Liquidated Damages paid by Lessee. Any remaining amounts from reletting or sale shall be retained by Lessor. Lessor may exercise any and all rights and remedies available at law or in equity, including those available under the Uniform Commercial Code (including the section thereof dealing with Leases) as enacted in Utah or in any state in which the Equipment is located or other applicable law. The rights and remedies afforded Lessor hereunder shall not be deemed to be exclusive, but shall be in addition to any rights or remedies provided by law. Lessor's failure promptly to enforce any right hereunder shall not operate as a waiver of such right, and Lessor's waiver of any default shall not constitute a waiver of any subsequent or other default. Lessor may accept late payments or partial payments of amounts due under this Agreement and may delay enforcing any of Lessor's rights hereunder without losing or waiving any of Lessor's rights under this Agreement. 17. TAX INDEMNITY: This Agreement is entered into on the basis that Lessor shall be the owner of the Equipment for federal and state income tax purposes and entitled to such deductions, credits and other benefits as are provided an owner of personal property, including but not limited to (i) the maximum Modified Accelerated Cost Recovery System deductions ("depreciation") for the MACRS Property Class life under the Internal Revenue Code of 1986 ("Code"); and (ii) interest deductions in the full amount of any interest paid or accrued with respect to any loan made to or assumed by Lessor or its assigns to finance the purchase of the Equipment (collectively referred to herein as the "Tax Benefits"). If, with respect to any item of Equipment, Lessor or its assigns shall not have or shall lose the right to claim all or any portion of the Tax Benefits or if all or any portion of the Tax Benefits shall be disallowed or recaptured (hereinafter referred to as "Tax Benefit Loss") due to the acts or omission of Lessee, then the following provisions shall be applicable: (a) Subject to the exceptions set forth below, Lessee shall, within thirty (30) days after written notice from Lessor that a Tax Benefit Loss has occurred, pay to Lessor at Lessor's option, either a lump-sum payment or an increase to the remaining monthly payments due under the Equipment Schedule in an amount which, after taking into account the effects of interest, penalties and additional taxes payable by Lessor as a result of the Tax Benefit Loss and the receipt of payment hereunder, will cause Lessor's net effective after-tax return over the term of the Equipment Schedule to equal the net effective after-tax return which would have been available if Lessor had been entitled to the utilization of all the Tax Benefits. (b) For purposes hereof a Tax Benefit Loss shall occur upon the earliest of (i) the payment by Lessor to the Internal Revenue Service or the applicable state revenue office of the tax increase resulting from such Tax Benefit Loss, or (ii) the adjustment of the tax return of Lessor to reflect such Tax Benefit Loss. (c) Notwithstanding the foregoing, Lessor shall not be entitled to a payment hereunder on account of any Tax Benefit Loss directly attributable to any of the following: (i) any act on the part of Lessor which causes a Tax Benefit Loss; (ii) the failure of Lessor to have sufficient taxable income or tax liability to utilize such Tax Benefits; or (iii) the happening of any other event with respect to Lessor (such as disqualifying change in Lessor's business or characterization of Lessor as a personal holding company) which causes a Tax Benefit Loss. (d) This Section is expressly made for the benefit of, and shall be enforceable, by Lessor, any person, firm, corporation or other entity to which Lessor transfers title to all or a portion of the Equipment and their successors and assigns (collectively, the "Owner"). For purposes hereof, the term "Owner" shall include an affiliated group (within the meaning of the Code) of which a person or entity is a member for any year in which a consolidated income tax return is filed for such affiliated group. Lessee shall indemnify and hold harmless any such Owner from any Tax Benefit Loss on the same terms and to the same extent as it would have indemnified Lessor and held Lessor harmless as if said Owner were the Lessor hereunder. All of Lessor's rights and privileges arising from the indemnities contained herein shall survive the expiration or other termination of this Lease. 18. COVENANT OF QUIET POSSESSION: Lessor agrees that so long as no Event of Default has occurred and is continuing, Lessee shall be entitled to quietly possess the Equipment subject to and in accordance with the terms and conditions of this Agreement. 19. GENERAL: (a) Integration. All schedules or riders to this Agreement; Equipment Schedules executed hereunder; schedules or riders attached to Equipment Schedules; other documents referred to in Equipment Schedules and Acceptance Certificates, whether they are signed before, on or after the date of this Agreement, are incorporated into this Agreement by this reference. Such documents appertaining to any Equipment Schedule and this Agreement constitute the entire agreement between the parties with respect to the items of Equipment listed on such Equipment Schedule. (b) Modification. This Agreement may not be amended or modified except by a writing signed by a duly authorized representative of each party, but no such amendment or modification needs further consideration to be binding. Notwithstanding the foregoing, Lessee authorizes Lessor to amend any Equipment Schedule to identify more accurately the Equipment (including, without limitation, supplying serial numbers or other identifying data), and such amendment shall be binding on Lessor and Lessee unless Lessee objects thereto within 15 days after receiving notice of the amendment from Lessor. (c) Interpretation. The provisions of this Agreement shall be deemed to be independent and severable. The invalidity or partial invalidity of any one provision or portion of this Agreement under the laws of any jurisdiction shall not affect the validity or enforceability of any other provisions of this Agreement. The captions and headings set forth herein are for convenience of reference only and shall not define or limit any of the terms hereof. (d) Notices. Notices hereunder shall be in writing and addressed to the other party at the address herein or such other address provided by notice hereunder and shall be effective (i) upon the next business day, if sent by guaranteed overnight express service (such as federal express); (ii) on the same day, if personally delivered; or (iii) three days after mailing, if sent by certified or registered U.S. mail, postage prepaid and addressed to the other party. (e) Governing Law. This Lease shall be governed by and shall be interpreted pursuant to the laws of the State of Utah. (f) Binding Effect. The provisions of this Agreement shall inure to the benefit of and shall bind Lessor and Lessee and their respective permitted successors and assigns. (g) Financing Statements. Lessee shall sign and deliver to Lessor one or more financing statements, supplements thereto and other instruments in order to establish, perfect, extend and/or enforce the parties' interests in the Equipment and under this Agreement. Lessee shall pay all costs of filing such statements. A photocopy of this Agreement shall be sufficient as, and may be filed as, an original financing statement. If Lessee defaults hereunder, then Lessor shall automatically be constituted as Lessee's attorney-in-fact for the purpose of carrying out the provisions of this paragraph. (h) Opinion of Counsel. Upon request, Lessee shall provide to Lessor an opinion of its counsel as to Lessee's legal standing, the authorization and execution of this Agreement and other documents, the enforceability of this Agreement against Lessee, and other matters reasonably requested. (i) Audited Financial Statements. Upon request, Lessee shall provide to Lessor a copy of its annual audited financial statements. (j) Provisional Security Interest. In the event a court of competent jurisdiction or other governing authority shall determine that this Agreement is not a "true lease" or that Lessor (or its assigns) does not hold legal title to or is not the owner of the Equipment, then this Agreement shall be deemed to be a security agreement with Lessee, as debtor, having granted to Lessor, as secured party, a security interest in the Equipment effective the date of this Agreement; and Lessor shall have all of the rights, privileges and remedies of a secured party under the Utah Uniform Commercial Code. (k) Lessee's Options at End of Initial Period. At the end of the Initial Period of any Equipment Schedule, or upon any expiration of any renewal or extension thereof as provided for in option (2) herein or otherwise, Lessee shall, provided at least one hundred eighty (180) days prior written notice is received by Lessor from Lessee via certified mail, do one of the following: (1) purchase the Equipment for a mutually agreeable price, (2) extend the Lease for twelve (12) additional months at the rate specified on the respective Equipment Schedule, or (3) return the Equipment to Lessor at Lessee's expense to a destination within the continental United States specified by Lessor and terminate the Equipment Schedule; provided, however, that for option (3) to apply, all accrued but unpaid late charges, interest, taxes, penalties, and any and all other sums due and owing under the Equipment Schedule must first be paid in full, the provisions of Sections 6(d) and (e) and 7(c) and (d) hereof must be specifically complied with, and Lessee must enter into a new Equipment Schedule with Lessor to lease Equipment which replaces the Equipment listed on the old Equipment Schedule. With respect to options (1) and (3), each party shall have the right in its absolute and sole discretion to accept or reject any terms of purchase or of any new Equipment Schedule, as applicable. In the event Lessor and Lessee have not agreed to either option (1) or (3) by the end of the Initial Period or any renewal or extension period then effect, or if Lessee fails to give written notice of its option via certified mail at least one hundred eighty (180) days prior to the termination of the Initial Period or any renewal or extension period then in effect, then option (2) shall apply at the end of the Initial Period or any renewal or extension period then in effect. IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement on the day and year first above written. LESSOR: MATRIX FUNDING CORPORATION BY: ________________________________ TITLE: _____________________________ LESSEE: ELEXSYS INTERNATIONAL, INC. BY: ________________________________ TITLE: _____________________________ EX-10.2 3 FORTRAN LEASE LEASE AGREEMENT 1. Parties. This Lease, dated for reference purposes only, March 11, 1996, is made by and between South Bay/Fortran, a California limited partnership, ("Landlord"), and Elexsys International, Inc., a California corporation ("Tenant"). 2. Premises. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, upon the terms and conditions hereinafter set forth, those certain premises (the "Premises") presently known, as of the date of this Lease, as 4405 Fortran Court, situated in the City of San Jose, County of Santa Clara, State of California, described as follows: for purposes of this Lease, the rentable square footage area of the Building shall be deemed to be approximately sixty-six thousand three hundred sixty-eight (66,368) square feet (the "Building"), as shown cross-hatched on the site plan (the "Site Plan") attached hereto as Exhibit A. The Building is located on a larger parcel (the "Parcel") containing other buildings (the "Buildings") as shown on the Site Plan, which Parcel is described in Exhibit B attached hereto. In the event Landlord subdivides the Parcel in the future into two (2) or more legal parcels, the term "Parcel" shall thereafter refer to the legal parcel on which the Premises are located. Except as provided in Exhibit C, Landlord shall not be required to make any alterations, additions or improvements to the Premises and the Premises shall be leased to Tenant in an "as-is" condition; provided, however, the Premises will be delivered to Tenant in good condition and repair, including the roof and structural integrity of the Building, and the Premises as they exist on the date of execution of this Lease (exclusive of any Tenant Improvements constructed pursuant to Exhibit C), will be in compliance with all governmental codes, ordinances and statutes, including Americans With Disabilities Act (ADA) 3. Term. The term of this Lease ("Lease Term") shall be for seven (7) years, commencing on July 1, 1996, (the "Commencement Date") and ending on June 30, 2003, unless sooner terminated pursuant to any provision hereof. Notwithstanding said scheduled Commencement Date, if for any reason Landlord cannot deliver possession of the Premises to Tenant on said date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder, but in such case Tenant shall not be obligated to pay rent until possession of the Premises is tendered to Tenant and the commencement and termination dates of this Lease shall be revised to conform to the date of Landlord's delivery of possession. In the event Landlord shall permit Tenant to occupy the Premises prior to the Commencement Date, such occupancy shall be subject to all the provisions of this Lease, including the obligation to pay the Monthly Installment of rent, and Common Area Charges. 4. Rent. A. Time of Payment. Tenant shall pay to Landlord as rent for the Premises the sum specified in Paragraph 4.B below (the "Monthly Installment") each month in advance on the first day of each calendar month, without deduction or offset, prior notice or demand, commencing on the Commencement Date and continuing through the term of this Lease, together with such additional rents as are payable by Tenant to Landlord under the terms of this Lease. The Monthly Installment for any period during the Lease Term which period is less than one (1) full month shall be a prorata portion of the Monthly Installment based upon a thirty (30) day month. B. Monthly Installment (1) Initial Monthly Installment. The initial Monthly Installment of rent payable each month during the first (1st) through the twenty-fourth (24th) month of the Lease Term shall be the sum of Forty-six Thousand Four Hundred Fifty-eight and no/100ths Dollars per month ($46,458.00). (2) Rent Adjustments. (a) Commencing with the twenty-fifty (25th) month of the Lease Term, the Monthly Installment of rent shall be increased to Forty-nine Thousand Seven Hundred Seventy-six and no/100ths Dollars ($49,776.00); (b) commencing with the forty-ninth (49th) month of the Lease Term, the Monthly Installment of rent shall be increased to Fifty-three Thousand Ninety-four and no/100ths Dollars ($53,094.00); and, (c) commencing with the seventy-third (73rd) month of the Lease Term, the Monthly Installment of rent shall be increased to Fifty-six Thousand Four Hundred Thirteen and no/100ths Dollars ($56,413.00). C. Late Charge. Tenant acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or deed of trust covering the Premises. Accordingly, if any installment of rent or any other sum due from Tenant shall not be received by Landlord within ten (10) days after such amount shall be due, Tenant shall pay to Landlord, as additional rent, a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of its other rights and remedies granted hereunder. D. Additional Rent. All taxes, insurance premiums, Common Area Charges, late charges, costs and expenses which Tenant is required to pay hereunder, together with all interest and penalties that may accrue thereon in the event of Tenant's failure to pay such amounts, and all reasonable damages, costs and attorneys' fees and expenses which Landlord may incur by reason of any default of Tenant or failure on Tenant's part to comply with the terms of this Lease, shall be deemed to be additional rent ("Additional Rent") and shall be paid in addition to the Monthly Installment of rent, and, in the event of nonpayment of the Monthly Installment of rent. E. Place of Payment. Rent shall be payable in lawful money of the United States of America to Landlord at 511 Division Street, Campbell CA, or to such other person (s) or at such other place (s) as Landlord may designate in writing. F. Advance Payment. Concurrently with the execution of this Lease, Tenant shall pay to Landlord the sum of Forty-six Thousand Four Hundred Fifty-eight and no/100ths Dollars ($46,458.00) to be applied to the Monthly Installment of rent first accruing under this Lease. 5. Security Deposit. Tenant shall deposit the sum of Fifty-six Thousand Four Hundred Thirteen and no/100ths Dollars ($56,413.00) (the "Security Deposit") upon execution of this Lease, to secure the faithful performance by Tenant of each term, covenant and condition of this Lease. If Tenant shall at any time fail to make any payment or fail to keep or perform any term, covenant or condition on its part to be made or performed or kept under this Lease, Landlord may, but shall not be obligated to and without waiving or releasing Tenant from any obligation under this Lease, use, apply or retain the whole or any part of the Security Deposit (A) to the extent of any sum due to Landlord; (B) to make any required payment on Tenant's behalf; or (C) to compensate Landlord for any loss, damages, attorneys' fees or expense sustained by Landlord due to Tenant's default. In such event, Tenant shall, within five (5) days of written demand by Landlord, remit to Landlord sufficient funds to restore the Security Deposit to its original sum. No interest shall accrue on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its general funds. Should Tenant comply with all the terms, covenants, and conditions of this Lease and at the end of the term of this Lease leave the Premises in the condition required by this Lease, then said Security Deposit, less any sums owing to Landlord, shall be returned to Tenant within thirty (30) days after the termination of this Lease and vacancy of the Premises by Tenant. 6. Use of Premises. Tenant shall use the Premises only in conformance with applicable governmental laws, regulations, rules and ordinances for the purpose of general office, research and development, light manufacturing, assembly, warehousing and distribution of electronic products, and for no other purpose. Tenant shall indemnify, protect, defend, and hold Landlord harmless against any loss, expense, damage, attorneys' fees or liability arising out of the failure of Tenant to comply with any applicable law. Tenant shall not commit or suffer to be committed, any waste upon the Premises, or any nuisance, or other acts or things which may disturb the quiet enjoyment of any other tenant in the buildings adjacent to the Premises, or allow any sale by auction upon the Premises, or allow the Premises to be used for any unlawful purpose, or place any loads upon the floor, walls or ceiling which endanger the structure, or place any harmful liquids in the drainage system of the Building. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises outside of the Building proper, except in trash containers placed inside exterior enclosures designated for that purpose by Landlord. No materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain on any portion of the Premises outside of the Building proper. Tenant shall strictly comply with the provisions of Paragraph 39 below. 7. Taxes and Assessments. A. Tenant's Property. Tenant shall pay before delinquency any and all taxes and assessments, license fees and public charges levied, assessed or imposed upon or against Tenant's fixtures, equipment, furnishings, furniture, appliances and personal property installed or located on or within the Premises. Tenant shall cause said fixtures, equipment, furnishings, furniture, appliances and personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written statement from Landlord setting forth the taxes applicable to Tenant's property. B. Property Taxes. Tenant shall pay, as additional rent, its Pro Rata Share (as defined below) of all Property Taxes levied or assessed with respect to the land comprising the Parcel and with respect to all buildings and improvements located on the Parcel which become due or accrue during the term of this Lease. Tenant shall pay such Property Taxes to Landlord within twenty (20) days after receipt of billing. Provided that Landlord bills Tenant at least thirty (30) days prior to the delinquency date of such Property Taxes, Tenant shall pay such Property Taxes to Landlord at least ten (10) days prior to the delinquency date, and if Tenant fails to do so, Tenant shall reimburse Landlord, on demand, for all interest, late fees and penalties that the taxing authority charges Landlord. In the event Landlord's mortgagee requires an impound for Property Taxes, then on the first day of each month during the Lease Term, Tenant shall pay Landlord one twelfth (1/12) of its annual share of such Property Taxes. Tenant's liability hereunder shall be prorated to reflect the Commencement and termination dates of this Lease. Tenant's share of the Property Taxes shall be determined by Landlord from the respective valuation assigned in the Assessor's worksheet or such other information as may be reasonably available. Landlord's reasonable determination thereof, in good faith, shall be conclusive. As used in this Lease, the term "Tenant's Pro Rata Share" shall mean a fraction, expressed as a percentage, the numerator of which is the number of square feet of floor space contained in the Premises and the denominator of which is the number of square feet of floor space contained in all of the Buildings located on the Parcel. As of the Commencement Date, Tenant's Pro Rata Share is twenty-two and forty-eight hundredths percent (22.48%). Notwithstanding the foregoing, in the event of a reassessment of the Property Taxes due to the voluntary sale of the Premises which sale occurs any time after the expiration of the second year of the Lease Term, Tenant shall not be responsible to pay its Pro Rata Share of any increase in Property Taxes due to such sale to the extent such increase exceeds twenty-five percent (25%) of the Property Tax bill assessed immediately prior to the sale of the Premises. This cap shall not apply to any sale that occurs during the first two (2) years of the Lease Term or any time after the initial Lease Term expires, and shall not apply for any other reassessment of the property due to construction of tenant improvements or any other increase in value of the property. Also, this cap shall not apply to any increase in real property taxes that result from a foreclosure sale, deed in lieu of foreclosure or other involuntary transfer of the Premises. For the purpose of this Lease, "Property Taxes" means and includes all taxes, assessments (including, but not limited to, assessments for public improvements or benefits), taxes based on vehicles, utilizing parking areas, taxes based or measured by the rent paid, payable or received under this Lease, taxes on the value, use, or occupancy of the Premises, the Buildings and/or the Parcel, Environmental Surcharges, and all other governmental impositions and charges of every kind and nature whatsoever, whether or not customary or within the contemplation of the parties hereto and regardless of whether the same shall be extraordinary or ordinary, general or special, unforeseen or foreseen, or similar or dissimilar to any of the foregoing which, at any time during the Lease Term, shall be applicable to the Premises, the Buildings and/or the Parcel or assessed, levied or imposed upon the Premises, the Buildings and/or the Parcel, or become due and payable and a lien or charge upon the Premises, the Buildings and/or the Parcel, or any part thereof, under or by virtue of any present or future laws, statutes, ordinances, regulations or other requirements of any governmental authority whatsoever. The term "Environmental Surcharges" shall mean and include any and all expenses, taxes, charges or penalties imposed by the Federal Department of Energy, the Federal Environmental protection Agency, the Federal Clean Air Act, or any regulations promulgated thereunder or any other local, state or federal governmental agency or entity now or hereafter vested with the power to impose taxes, assessments, or other types of surcharges as a means of controlling or abating environmental pollution or the use of energy. The term "Property Taxes" shall not include any federal, state or local net income, estate, or inheritance tax imposed on Landlord. C. Other Taxes: Tenant shall, as additional rent, pay or reimburse Landlord for any tax based upon, allocable to, or measured by the area of the Premises or the Buildings or the Parcel; or by the rent paid, payable or received under this Lease; any tax upon or with respect to the possession, leasing, operation, any tax upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy of the Premises or any portion thereof; any privilege tax, excise tax, business and occupation tax, gross receipts tax, sales and/or use tax, water tax, sewer tax, employee tax, occupational license tax imposed upon Landlord or Tenant with respect to the Premises; any tax upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. 8. Insurance. A. Indemnity. Tenant agrees to indemnify, protect and defend Landlord against and hold Landlord harmless from any and all claims, causes of action, judgements, obligations or liabilities, and all reasonable expenses incurred in investigating or resisting the same (including reasonable attorneys' fees), on account of, or arising out of, the operation, maintenance, use or occupancy of the Premises and all areas appurtenant thereto. This Lease is made on the express understanding that Landlord shall not be liable for, or suffer loss by reason of, injury to person or property, from whatever cause (except for active negligence or willful misconduct of Landlord), which in any way may be connected with the operation, use or occupancy of the Premises specifically including, without limitation, any liability for injury to the person or property of Tenant, its agents, officers, employees, licensees and invitees. B. Liability Insurance. Tenant shall, at Tenant's expense, obtain and keep in force during the term of this Lease a policy of comprehensive public liability insurance insuring Landlord and Tenant against claims and liabilities arising out of the operation, use, or occupancy of the Premises and all areas appurtenant thereto, including parking areas. Such insurance shall be in an amount of not less than Three Million Dollars ($3,000,000.00) for bodily injury or death as a result of any one occurrence and Five Hundred Thousand Dollars ($500,000.00) for damage to property as a result of any one occurrence. The insurance shall be with companies approved by Landlord, which approval Landlord agrees not to withhold unreasonably. Tenant shall deliver to Landlord, prior to possession, and at least thirty (30) days prior to the expiration thereof, a certificate of insurance evidencing the existence of the policy required hereunder and such certificate shall certify that the policy (1) names Landlord as an additional insured, (2) shall not be cancelled or altered without thirty (30) days prior written notice to Landlord, (3) insures performance of the indemnity set forth in Paragraph 8.A above, (4) the coverage is primary and any coverage by Landlord is in excess thereto and (5) contains a cross-liability endorsement. Landlord may maintain a policy or policies of comprehensive general liability insurance insuring Landlord (and such others as are designated by Landlord), against liability for personal injury, bodily injury, death and damage to property occurring or resulting from an occurrence in, on or about the Premises or the Common Area, with such limits of coverage as Landlord may from time to time determine are reasonably necessary for its protection. The cost of any such liability insurance maintained by Landlord shall be a Common Area Charge and Tenant shall pay, as additional rent, its share of such cost to Landlord as provided in Paragraph 12 below. C. Property Insurance. Landlord shall obtain and keep in force during the term of this Lease a policy or policies of insurance covering loss or damage to the Premises and the Buildings, in the amount of the full replacement value thereof, providing protection against those perils included within the classification of "all risk" insurance, plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months rent (including, without limitation, sums payable as Additional Rent), plus, at Landlord's option, flood insurance and earthquake insurance, and any other coverages which may be required from time to time by Landlord's mortgagee. Tenant shall have no interest in nor any right to the proceeds of any insurance procured by Landlord on the Premises. Tenant shall, within twenty (20) days after receipt of billing, pay to Landlord as additional rent, the full cost of such insurance procured and maintained by Landlord. Tenant acknowledges that such insurance procured by Landlord shall contain a deductible which reduces Tenant's cost for such insurance and, in the event of loss or damage, Tenant shall be required to pay to Landlord the amount of such deductible. D. Tenant's Insurance. Release of Landlord. Tenant acknowledges that the insurance to be maintained by Landlord on the Premises pursuant to Subparagraph C above will not insure any of Tenant's property. Accordingly, Tenant, at Tenant's own expense, shall maintain in full force and effect on all of its fixtures, equipment, leasehold improvements and personal property in the Premises, a policy of "All Risk' coverage insurance to the extent of at least ninety percent (90%) of their insurable value. Tenant hereby releases Landlord, and its partners, officers, agents employees and servants from any and all claims, demands, losses, expenses or injuries to the Premises or to the furnishings, fixtures, equipment, inventory or other personal property of Tenant in, about, or upon the Premises, which are caused by perils, events or happenings where the same are covered by the insurance required by this Lease or which are the subject of insurance carried by Tenant and in force at the time of such loss. 9. Utilities. Tenant shall pay for all water, gas, light, heat, power, electricity, telephone, trash pick-up, sewer charges and all other services supplied to or consumed on the Premises, and all taxes and surcharges thereon. In addition, the cost of any utility services supplied to the Common Area or not separately metered to the Premises shall be a Common Area Charge and Tenant shall pay its share of such costs to Landlord as provided in Paragraph 12 below. 10. Repairs and Maintenance. A. Landlord's Repairs. Subject to provisions of Paragraph 16, Landlord shall keep and maintain the exterior roof, structural elements and exterior walls of the Building in good order and repair. Landlord shall not, however, be required to maintain, repair or replace the interior surface of exterior walls, nor shall Landlord be required to maintain, repair or replace windows, doors, skylights or plate glass. Landlord shall have no obligation to make repairs under this Subparagraph until a reasonable time after receipt of written notice from Tenant of the need for such repairs. Tenant shall reimburse Landlord, as additional rent, within fifteen (15) days after receipt of billing, for the cost of such repairs and maintenance which are the obligation of Landlord hereunder, provided however, that Tenant shall not be required to reimburse Landlord for the cost of maintenance and repairs of the structural elements of the Building unless such maintenance or repair is required because of the negligence or willful misconduct of Tenant or its employees, agents or invitees. As used herein, the term "structural elements of the building" shall mean and be limited to the foundation, footings, floor slab (but not flooring), structural walls, and roof structure (but not roofing or roof membrane). Notwithstanding anything itn the foregoing to the contrary, Tenant shall not be responsible to reimburse Landlord for the cost of any roof replacement during the first two (2) years of the Lease Term; however, if, at any time after the expiration of the second (2nd) year of the Lease Term, throughout the balance of the term of this Lease or any extension thereof, the roof membrane requires replacement, Landlord shall perform such replacement and Tenant shall pay to Landlord, as Additional Rent, a fraction of the cost of such replacement, which fraction shall have as its numerator the number of calendar months remaining in the Lease Term at the time of such replacement and shall have as its denominator 240 months. If Tenant exercises any option to extend the term of this Lease, then at the commencement of any such option term, Tenant shall pay to Landlord an additional fraction of the cost of such replacement, which fraction shall have as its denominator the number of months in the option term in question, and shall have as its denominator 240 months. All payments required of Tenant under this Subparagraph 10.A. shall be made within thirty (30) days after receipt of billing. B. Tenant's Repairs. Except as expressly provided in Subparagraph A above, Tenant shall, at its sole cost, keep and maintain the entire Premises and every part thereof, including without limitation, the windows, window frames, plate glass, glazing, skylights, truck doors, doors and all door hardware, the walls and partitions, and the electrical, plumbing, lighting, heating, ventilating and air conditioning systems and equipment in good order, condition and repair. The term "repair' shall include replacements, restorations and/or renewals when necessary as well as painting. Tenant's obligation shall extend to all alterations, additions and improvements to the Premises, and all fixtures and appurtenances therein and thereto. Tenant shall, at all times during the Lease Term, have in effect a service contract for the maintenance of the heating, ventilating and air conditioning ("HVAC") equipment with an HVAC repair and maintenance contractor approved by Landlord. The HVAC service contract shall provide for periodic inspection and servicing at least once every three (3) months during the term hereof, and Tenant shall provide Landlord with a copy of such contract and all periodic service reports. Should Tenant fail to make repairs required of Tenant hereunder forthwith upon five (5) days notice from Landlord or should Tenant fail thereafter to diligently complete the repairs, Landlord, in addition to all other remedies available hereunder or by law and without waiving any alternative remedies, may make the same, and in that event, Tenant shall reimburse Landlord as additional rent for the cost of such maintenance or repairs within five (5) days of written demand by Landlord. Landlord shall have no maintenance or repair obligations whatsoever with respect to the Premises except as expressly provided in Paragraphs 10.A and 11. Tenant hereby expressly waives the provisions of Subsection 1 of Section 1932 and Sections 1941 and 1942 of the Civil Code of California and all rights to make repairs at the expense of Landlord as provided in Section 1942 of said Civil Code. There shall be no allowance to Tenant for diminution of rental value, and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from the making of or the failure to make, any repairs, alterations, decorations, additions or improvements in or to any portion of the Premises or the Building or Common Area (or any of the areas used in connection with the operation thereof, or in or to any fixtures, appurtenances or equipment), or by reason of the negligence of Tenant or any other tenant or occupant of the Parcel. In no event shall Landlord be responsible for any consequential damages arising or alleged to have arisen from any of the foregoing matters. Tenant hereby agrees that Landlord shall not be liable for injury to Tenant's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers, or any other person in or about the Premises, the Building, or the Common Area, nor shall Landlord be liable for injury to the person of Tenant, Tenant's employees, agents or contractors whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the Building or the Parcel. 11. Common Area. Subject to the terms and conditions of this Lease and such rules and regulations as Landlord may from time to time prescribe, Tenant and Tenant's employees, invitees and customers shall, in common with other occupants of the Parcel, and their respective employees, invitees and customers, and others entitled to the use thereof, have the nonexclusive right to use the access roads, parking areas and facilities provided and designated by Landlord for the general use and convenience of the occupants of the Parcel, which areas and facilities are referred to herein as "Common Area. This right shall terminate upon the termination of this Lease. Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord further reserves the right to promulgate such reasonable rules and regulations relating to the use of the Common Area, and any part or parts thereof, as Landlord may deem appropriate for the best interest of the occupants of the Parcel. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice, and all amendments shall be effective upon delivery of a copy of them to Tenant. Tenant shall have the non-exclusive use of no more than two hundred fifty (250) of the parking spaces in the Common Area as designated from time to time by Landlord. Tenant shall not at any time park or permit the parking of Tenant's trucks or other vehicles, or the trucks or other vehicles of others, adjacent to loading areas so as to interfere in any way with the use of such areas, nor shall Tenant at any time park or permit the parking of Tenant's vehicles or trucks, or the vehicles or trucks of Tenant's suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not abandon any inoperative vehicles or equipment on any portion of the Common Area. Tenant shall make no alterations, improvements or additions to the Common Area. Landlord shall operate, manage, insure, maintain and repair the Common Area in good order, condition and repair. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord. The cost of such repair, maintenance, operation, insurance and management, including without limitation, maintenance and repair of landscaping, irrigation systems, paving, sidewalks, fences, and lighting, shall be a Common Area Charge and Tenant shall pay to Landlord its share of such costs as provided in Paragraph 12 below. 12. Common Area Charges. Tenant shall pay to Landlord, as additional rent, upon demand but not more often than once each calendar month, an amount equal to its Pro Rata Share of the Common Area Charges as defined in Paragraphs 8.C, 9, 11 of this Lease. Tenant acknowledges and agrees that the Common Area Charges shall include an additional five percent (5%) of the actual expenditures in order to compensate Landlord for accounting, management and processing services. 13. Alterations. Tenant shall not make, or suffer to be made, any alterations, improvements or additions in, on, about or to the Premises or any part thereof, without the prior written consent of Landlord and without a valid building permit issued by the appropriate governmental authority. As a condition to giving such consent, Landlord may require that Tenant agree to remove any such alterations, improvements or additions at the termination of this Lease, and to restore the Premises to their prior condition. Unless Landlord requires that Tenant remove any such alterations, improvement or addition, any alteration, addition or improvement to the Premises, except movable furniture and trade fixtures not affixed to the Premises, shall become the property of Landlord upon termination of the Lease and shall remain upon and be surrendered with the Premises at the termination of this Lease. Without limiting the generality of the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery, and carpet installations made by Tenant regardless of how affixed to the Premises, together with all other additions, alterations and improvements that have become an integral part of the Building, shall be and become the property of the Landlord upon termination of the Lease, and shall not be deemed trade fixtures, and shall remain upon and be surrendered with the Premises at the termination of this Lease. If, during the term hereof, any alteration, addition or change of any sort to all or any portion of the Premises is required by law, regulation, ordinance or order of any public agency, Tenant shall promptly make the same at its sole cost and expense. If during the term hereof, any alteration, addition, or change to the Common Area is required by law, regulation, ordinance or order of any public agency, Landlord shall make the same and the cost of such alteration, addition or change shall be a Common Area Charge and Tenant shall pay its share of said cost to Landlord as provided in Paragraph 12 above. 14. Acceptance of the Premises. By entry and taking possession of the Premises pursuant to this Lease, Tenant accepts the Premises as being in good and sanitary order, condition and repair and accepts the Premises in their condition existing as of the date of such entry, and Tenant further accepts the tenant improvements to be constructed by Landlord, if any, as being completed in accordance with the plans and specifications for such improvements, except for punch list items. Tenant shall have thirty (30) days after it has taken possession of the Premises to notify Landlord of any problems needing correction with respect to the HVAC, plumbing, and electrical, excluding any work done by Tenant or its contractors, employees or agents in retrofitting the Premises to suit its specific requirements. Tenant acknowledges that neither the Landlord nor Landlord's agents has made any representation or warranty as to the suitability of the Premises to the conduct of Tenant's business. Any agreements, warranties or representations not expressly contained herein shall in no way bind either Landlord or Tenant, and Landlord and Tenant expressly waive all claims for damages by reason of any statement, representation, warranty, promise or agreement, if any, not contained in this Lease. This Lease constitutes the entire understanding between the parties hereto and no addition to, or modification of, any term or provision of this Lease shall be effective until set forth in a writing signed by both Landlord and Tenant. 15. Default. A. Events of Default. A breach of this Lease shall exist if any of the following events (hereinafter referred to as "Event of Default") shall occur: 1. Default in the payment when due of any installment of rent or other payment required to be made by Tenant hereunder, where such default shall not have been cured within three (3) days after written notice of such default is given to Tenant; 2. Tenant's failure to perform any other term, covenant or condition contained in this Lease where such failure shall have continued for twenty (20) days after written notice of such failure is given to Tenant; 3. Tenant's vacating or abandonment of the Premises; 4. Tenant's assignment of its assets for the benefit of its creditors: 5. The sequestration of, attachment of, or execution on, any substantial part of the property of Tenant or on any property essential to the conduct of Tenant's business shall have occurred and Tenant shall have failed to obtain a return or release of such property within thirty (30) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier; 6. Tenant or any guarantor of Tenant's obligations hereunder shall commence any case, proceeding or other action seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seek appointment of a receiver, trustee, custodian, or other similar official for it or for all or any substantial part of its property; 7. Tenant or any such guarantor shall take any corporate action to authorize any of the actions set forth in Clause 6 above; or 8. Any case, proceeding or other action against Tenant or any guarantor of Tenant's obligations hereunder shall be commenced seeking to have an order for relief entered against it as debtor, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (i) results in the entry of an order for relief against it which is not fully stayed within seven (7) business days after the entry thereof or (ii) remains undismissed for a period of forty-five (45) days. B. Remedies. Upon any Event of Default, Landlord shall have the following remedies, in addition to all other rights and remedies provided by law, to which Landlord may resort cumulatively, or in the alternative: 1. Recovery of Rent. Landlord shall be entitled to keep this Lease in full force and effect (whether or not Tenant shall have abandoned the Premises) and to enforce all of its rights and remedies under this Lease, including the right to recover rent and other sums as they become due, plus interest at the Permitted Rate (as defined in Paragraph 33 below) from the due date of each installment of rent or other sum until paid. 2. Termination. Landlord may terminate this Lease by giving Tenant written notice of termination. On the giving of the notice all of Tenant's rights in the Premises and the Building and Parcel shall terminate. Upon the giving of the notice of termination, Tenant shall surrender and vacate the Premises in the condition required by Paragraph 34, and Landlord may re-enter and take possession of the Premises and all the remaining improvements or property and eject Tenant or any of Tenant's subtenants, assignees or other person or persons claiming any right under or through Tenant or eject some and not others or eject none. This Lease may also be terminated by a judgement specifically providing for termination. Any termination under this paragraph shall not release Tenant from the payment of any sum then due Landlord or from any claim for damages or rent previously accrued or then accruing against Tenant. In no event shall any one or more of the following actions by Landlord constitute a termination of this Lease: a. maintenance and preservation of the Premises; b. efforts to relet the Premises; c. appointment of a receiver in order to protect Landlord's interest hereunder; d. consent to any subletting of the Premises or assignment of this Lease by Tenant, whether pursuant to provisions hereof concerning subletting and assignment or otherwise; or e. any other action by Landlord or Landlord's agents intended to mitigate the adverse effects from any breach of this Lease by Tenant. 3. Damages. In the event this Lease is terminated pursuant to Subparagraph 15.B.2 above, or otherwise, Landlord shall be entitled to damages in the following sums: a. the worth at the time of award of the unpaid rent which has been earned at the time of termination; plus b. the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus c. the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and d. any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which in the ordinary course of things would be likely to result therefrom including, without limitation, the following: (i) expenses for cleaning, repairing or restoring the Premises; (ii) expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting, including installation of leasehold improvements (whether such installation be funded by a reduction of rent, direct payment or allowance to the succeeding lessee, or otherwise); (iii) real estate broker's fees, advertising costs and other expenses of reletting the Premises; (iv) costs of carrying the Premises such as taxes and insurance premiums thereon, utilities and security precautions; (v) expenses in retaking possession of the Premises; (vi) attorneys' fees and court costs; and (vii) any unamortized real estate brokerage commission paid in connection with this Lease. e. The "worth at the time of award" of the amounts referred to in Subparagraphs (a) and (b) of this Paragraph, is computed by allowing interest at the Permitted Rate. The "worth at the time of award" of the amounts referred to in Subparagraph (c) of this Paragraph is computed by discounting such amount at the discount rate of the Federal Reserve Board of San Francisco at the time of award plus one percent (1%). The term "rent" as used in this Paragraph shall include all sums required to be paid by Tenant to Landlord pursuant to the terms of this Lease. 16. Destruction. In the event that any portion of the Premises are destroyed or damaged by an uninsured peril, Landlord or Tenant may, upon written notice to the other, given within thirty (30) days after the occurrence of such damage or destruction, elect to terminate this Lease; provided, however, that either party may, within thirty (30) days after receipt of such notice, elect to make any required repairs and/or restoration at such party's sole cost and expense, in which event this Lease shall remain in full force and effect, and the party having made such election to restore or repair shall thereafter diligently proceed with such repairs and/or restoration. In the event the Premises are damaged or destroyed from any insured peril to the extent of fifty percent (50%) or more of the then replacement cost of the Premises, Landlord may, upon written notice to Tenant, given within thirty (30) days after the occurrence of such damage or destruction, elect to terminate this Lease. If Landlord does not give such notice in writing within such period, Landlord shall be deemed to have elected to rebuild or restore the Premises, in which event Landlord shall, at its expense, promptly rebuild or restore the Premises to their condition prior to the damage or destruction and Tenant shall pay to Landlord upon commencement of reconstruction the amount of any deductible from the insurance policy. In the event the Premises are damaged or destroyed from any insured peril to the extent of less than fifty percent (50%) of the then replacement cost of the Premises, Landlord shall, at Landlord's expense, promptly rebuild or restore the Premises to their condition prior to the damage or destruction and Tenant shall pay to Landlord upon commencement of reconstruction the amount of any deductible from the insurance policy. In the event that, pursuant to the foregoing provisions, Landlord is to rebuild or restore the Premises, Landlord shall, within thirty (30) days after the occurrence of such damage or destruction, provide Tenant with written notice of the time required for such repair or restoration. If such period is longer than two hundred seventy (270) days from the issuance of a building permit, Tenant may, within thirty (30) days after receipt of Landlord's notice, elect to terminate the Lease by giving written notice to Landlord of such election, whereupon the Lease shall immediately terminate. The period of time for Landlord to complete the repair or restoration shall be extended for delays caused by the fault or neglect of Tenant or because of acts of God, acts of publication, labor disputes, strikes, fires, freight embargoes, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of contractors or subcontractors due to such causes, or other contingencies beyond the control of Landlord. Landlord's obligation to repair or restore the Premises shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises. Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect; provided, however, that during any period of repairs or restoration, rent and all other amounts to be paid by Tenant on account of the Premises and this Lease shall be abated in proportion to the area of the Premises rendered not reasonably suitable for the conduct of Tenant's business thereon. Tenant hereby expressly waives the provisions of Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the California Civil Code. 17. Condemnation. A. Definition of Terms. For the purposes of this Lease, the term (1) "Taking" means a taking of the Premises or damage to the Premises related to the exercise of the power of eminent domain and includes a voluntary conveyance, in lieu of court proceedings, to any agency, authority, public utility, person or corporate entity empowered to condemn property; (2) "Total Taking" means the taking of the entire Premises or so much of the Premises as to prevent or substantially impair the use thereof by Tenant for the uses herein specified; provided, however, in no event shall a Taking of less than ten percent (10%) of the Premises be deemed a Total Taking; (3) "Partial Taking" means the taking of only a portion of the Premises which does not constitute a Total Taking; (4) "Date of Taking" means the date upon which the title to the Premises, or a portion thereof, passes to and vests in the condemnor or the effective date of any order for possession if issued prior to the date title vests in the condemnor; and (5) "Award" means the amount of any award made, consideration paid, or damages ordered as a result of a Taking. B. Rights. The parties agree that in the event of a Taking all rights between them or in and to an Award shall be as set forth herein and Tenant shall have no right to any Award except as set forth herein. C. Total Taking. In the event of a Total Taking during the term hereof (1) the rights of Tenant under the Lease and the leasehold estate of Tenant in and to the Premises shall cease and terminate as of the Date of Taking; (2) Landlord shall refund to Tenant any prepaid rent; (3) Tenant shall pay Landlord any rent or charges due Landlord under the Lease, each prorated as of the Date of Taking; (4) Tenant shall receive from Landlord those portions of the Award attributable to trade fixtures of Tenant and for moving expenses of Tenant; and (5) the remainder of the Award shall be paid to and be the property of Landlord. D. Partial Taking. In the event of a Partial Taking during the term hereof (1) the rights of Tenant under the Lease and leasehold estate of Tenant in and to the portion of the Premises taken shall cease and terminate as of the Date of Taking; (2) from and after the Date of Taking the Monthly Installment of rent shall be an amount equal to the product obtained by multiplying the Monthly Installment of rent immediately prior to the Taking by a fraction, the numerator of which is the number of square feet contained in the Premises after the Taking and the denominator of which is the number of square feet contained in the Premises prior to the Taking; (3) Tenant shall receive from the Award the portions of the Award attributable to trade fixtures of Tenant; and (4) the remainder of the Award shall be paid to and be the property of Landlord. 18. Mechanics' Lien. Tenant shall (A) pay for all labor and services performed for, materials used by or furnished to, Tenant or any contractor employed by Tenant with respect to the Premises; (B) indemnify, defend, protect and hold Landlord and the Premises harmless and free from any liens, claims, liabilities, demands, encumbrances, or judgements created or suffered by reason of any labor or services performed for, materials used by or furnished to, Tenant or any contractor employed by Tenant with respect to the Premises; (C) give notice to Landlord in writing five (5) days prior to employing any laborer or contractor to perform services related to, or receiving materials for use upon the Premises; and (D) permit Landlord to post a notice of nonresponsibility in accordance with the statutory requirements of California Civil Code Section 3094 or any amendment thereof. In the event Tenant is required to post an improvement bond with a public agency in connection with the above, Tenant agrees to include Landlord as an additional obligee. 19. Inspection of the Premises. Tenant shall permit Landlord and its agents to enter the Premises at any reasonable time for the purpose of inspecting the same, performing Landlord's maintenance and repair responsibilities, posting a notice of non-responsibility for alterations, additions or repairs and at any time within ninety (90) days prior to expiration of this Lease, to place upon the Premises, ordinary "For Lease" or "For Sale" signs. 20. Compliance with Laws. Tenant shall, at its own cost, comply with all of the requirements of all municipal, county, state and federal authorities now in force, or which may hereafter be in force, pertaining to the use and occupancy of the Premises, and shall faithfully observe all municipal, county, state and federal law, statutes or ordinances now in force or which may hereafter be in force. The judgement of any court of competent jurisdiction or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such ordinance or statute in the use and occupancy of the Premises shall be conclusive of the fact that such violation by Tenant has occurred. 21. Subordination. The following provisions shall govern the relationship of this Lease to any underlying lease, mortgage or deed of trust which now or hereafter affects the Premises, the Building and/or the Parcel, or Landlord's interest or estate therein (the "Project") and any renewal, modification, consolidation, replacement, or extension thereof (a "Security Instrument"). A. Priority. This Lease is subject and subordinate to Security Instruments existing as of the Commencement Date. However, if any Lender so requires, this Lease shall become prior and superior to any such Security Instrument. B. Subsequent Security Instruments. At Landlord's election, this Lease shall become subject and subordinate to any Security Instrument created after the Commencement Date. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed so long as Tenant is not in default and performs all of its obligations under this Lease, unless this Lease is otherwise terminated pursuant to its terms. C. Documents. Tenant shall execute any document or instrument required by Landlord or any Lender to make this Lease either prior or subordinate to a Security Instrument, which may include such other matters as the Lender customarily requires in connection with such agreements, including provisions that the Lender not be liable for (1) the return of the Security Deposit unless the Lender receives it from Landlord, and (2) any defaults on the part of Landlord occurring prior to the time that the Lender takes possession of the Project in connection with the enforcement of its Security Instrument. Tenant's failure to execute any such document or instrument within ten (10) days after written demand therefor shall constitute a default by Tenant or, at Landlord's option, Landlord may execute such documents on behalf of Tenant as Tenant's attorney-in-fact. Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact to execute such documents in accordance with this Paragraph. D. Tenant's Attornment. Tenant shall attorn (1) to any purchaser of the Premises at any foreclosure sale or private sale conducted pursuant to any Security Instrument encumbering the Project; (2) to grantee or transferee designated in any deed given in lieu of foreclosure; or (3) to the lessor under any underlying ground lease should such ground lease be terminated. E. Lender. The term "Lender" shall mean (1) any beneficiary, mortgagee, secured party, or other holder of any deed of trust, mortgage, or other written security device or agreement affecting the Project; and (2) any lessor under any underlying lease under which Landlord holds its interest in the Project. 22. Holding Over. This Lease shall terminate without further notice at the expiration of the Lease Term. Any holding over by Tenant after expiration shall not constitute a renewal or extension or give Tenant any rights in or to the Premises except as expressly provided in this Lease. Any holding over after the expiration with the consent of Landlord shall be construed to be a tenancy from month to month, at one hundred fifty percent (150%) of the monthly rent for the last month of the Lease Term, and shall otherwise be on the terms and conditions herein specified insofar as applicable. 23. Notices. Any notice required or desired to be given under this Lease shall be in writing with copies directed as indicated below and shall be personally served or given by mail. Any notice given by mail shall be deemed to have been given when forty-eight (48) hours have elapsed from the time such notice was deposited in the United States mails, certified and postage prepaid, addressed to the party to be served with a copy as indicated herein at the last address given by that party to the other party under the provisions of this Paragraph. At this date of execution of this Lease, the address of Landlord is: 511 Division Street Campbell CA 95008 and the address of Tenant is: 1188 Bordeaux Drive Sunnyvale, CA 94089 Attn: Mr. Michael S. Shimada, CFO After the Commencement Date, the address of Tenant shall be at the Premises. 24. Attorneys' Fees. In the event either party shall bring any action or legal proceeding for damages for any alleged breach of any provision of this Lease, to recover rent or possession of the Premises, to terminate this Lease, or to enforce, protect or establish any term or covenant of this Lease or right or remedy of either party, the prevailing party shall be entitled to recover as a part of such action or proceeding, reasonable attorneys' fees and court costs, including attorneys' fees and costs for appeal, as may be fixed by the court or jury. The term "prevailing party" shall mean the party who received substantially the relief requested, whether by settlement, dismissal, summary judgement, or otherwise. 25. Nonassignment. A. Landlord's Consent Required. Tenant's interest in this Lease is not assignable, by operation of law or otherwise, nor shall Tenant have the right to sublet the Premises, transfer any interest of Tenant therein or permit any use of the Premises by another party, without the prior written consent of Landlord to such assignment, subletting, transfer or use, which consent Landlord agrees not to withhold unreasonably subject to the provisions of Subparagraph B below. A consent to one assignment, subletting, occupancy or use by another party shall not be deemed to be a consent to any subsequent assignment, subletting, occupancy or use by another party. Any assignment or subletting without such consent shall be void and shall, at the option of Landlord, terminate this Lease. Landlord's waiver or consent to any assignment or subletting hereunder shall not relieve Tenant from any obligation under this Lease unless the consent shall so provide. B. Transferee Information Required. If Tenant desires to assign its interest in this Lease or sublet the Premises, or transfer any interest of Tenant therein, or permit the use of the Premises by another party (hereinafter collectively referred to as a "Transfer"), Tenant shall give Landlord at least thirty (30) days prior written notice of the proposed Transfer and of the terms of such proposed Transfer, including, but not limited to, the name and legal composition of the proposed transferee, a financial statement of the proposed transferee, the nature of the proposed transferee's business to be carried on in the Premises, the payment to be made or other consideration to be given to Tenant on account of the Transfer, and such other pertinent information as may be requested by Landlord, all in sufficient detail to enable Landlord to evaluate the proposed Transfer and the prospective transferee. It is the intent of the parties hereto that this Lease shall confer upon Tenant only the right to use and occupy the Premises, and to exercise such other rights as are conferred upon Tenant by this Lease. The parties agree that this Lease is not intended to have a bonus value nor to serve as a vehicle whereby Tenant may profit by a future Transfer of this Lease or the right to use or occupy the Premises as a result of any favorable terms contained herein, or future changes in the market for leased space. It is the intent of the parties that any such bonus value that may attach to this Lease shall be and remain the exclusive property of Landlord, except as provided for in subparagraph (2) below. Accordingly, in the event Tenant seeks to Transfer its interest in this Lease or the Premises, Landlord shall have the following options, which may be exercised at its sole choice without limiting Landlord in the exercise of any other right or remedy which Landlord may have by reason of such proposed Transfer: (1) Landlord may elect to terminate this Lease effective as of the proposed effective date of the proposed Transfer and release Tenant from any further liability hereunder accruing after such termination date by giving Tenant written notice of such termination within twenty (20) days after receipt by Landlord of Tenant's notice of intent to transfer as provided above. If Landlord makes such election to terminate this Lease, Tenant shall surrender the Premises, in accordance with Paragraph 34, on or before the effective termination date; or (2) Landlord may consent to the proposed Transfer on the condition that Tenant agrees to pay to Landlord, as additional rent, fifty percent (50%) of any and all rents or other consideration (including key money) received by Tenant from the transferee by reason of such Transfer in excess of the rent payable by Tenant to Landlord under this Lease (less any brokerage commissions or advertising expenses incurred by Tenant in connection with the Transfer). Tenant expressly agrees that the foregoing is a reasonable condition for obtaining Landlord's consent to any Transfer; or (3) Landlord may reasonably withhold its consent to the proposed Transfer. 26. Successors. The covenants and agreements contained in this Lease shall be binding on the parties hereto and on their respective heirs, successors and assigns (to the extent the Lease is assignable). 27. Mortgagee Protection. In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgagee of a mortgage encumbering the Premises, whose address shall have been furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or judicial foreclosure, if such should prove necessary to effect a cure. 28. Landlord Loan or Sale. Tenant agrees promptly following request by Landlord to (A) execute and deliver to Landlord any documents, including estoppel certificates presented to Tenant by Landlord, (i) certifying that this Lease is unmodified and in full force and effect and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, and (iii) evidencing the status of the Lease as may be required either by a lender making a loan to Landlord to be secured by a deed of trust or mortgage covering the Premises or a purchaser of the Premises from Landlord and (B) to deliver to Landlord the financial statement of Tenant with an opinion of a certified public accountant, including a balance sheet and profit and loss statement, for the last completed fiscal year all prepared in accordance with generally accepted accounting principles consistently applied. Tenant's failure to deliver an estoppel certificate promptly following such request shall be an Event of Default under this Lease. 29. Surrender of Lease Not Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenants, or operate as an assignment to Landlord of any or all such subleases or subtenants. 30. Waiver. The waiver by Landlord or Tenant of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant or condition herein contained. 31. General. A. Captions. The captions and paragraph headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or extend the meaning of any part of this Lease, or be used to interpret specific sections. The word (s) enclosed in quotation marks shall be construed as defined terms for purposes of this Lease. As used in this Lease, the masculine, feminine and neuter and the singular or plural number shall each be deemed to include the other whenever the context so requires. B. Definition of Landlord. The term "Landlord" as used in this Lease, so far as the covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner at the time in question of the fee title of the Premises, and in the event of any transfer or transfers of the title of such fee, the Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall after the date of such transfer or conveyance be automatically freed and relieved of all liability with respect to performance of any covenants or obligations on the part of Landlord contained in this Lease, thereafter to be performed; provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject as aforesaid, be binding upon each Landlord, its heirs, personal representatives, successors and assigns only during its respective period of ownership. C. Time of Essence. Time is of the essence for the performance of each term, covenant and condition of this Lease. D. Severability. In case any one or more of the provisions contained herein, except for the payment of rent, shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein. This Lease shall be construed and enforced in accordance with the laws of the State of California. E. Joint and Several Liability. If Tenant is more than one person or entity, each such person or entity shall be jointly and severally liable for the obligations of Tenant hereunder. F. Law. The term "law" shall mean any judicial decision, statute, constitution, ordinance, resolution, regulation, rule, administrative order, or other requirement of any government agency or authority having jurisdiction over the parties to this Lease or the Premises or both, in effect at the Commencement Date of this Lease or any time during the Lease Term, including, without limitation, any regulation, order, or policy of any quasi-official entity or body (e.g., board of fire examiners, public utility or special district). G. Agent. As used herein the term Agent shall mean, with respect to either Landlord or Tenant, its respective agents, employees, contractors (and their subcontractors), and invitees (and in the case of Tenant, its subtenants). H.WAIVER OF JURY TRIAL. LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM COUNTERCLAIM OR CROSS-COMPLAINT IN ANY ACTION, PROCEEDING, AND/OR HEARING BROUGHT BY EITHER LANDLORD AGAINST TENANT OR TENANT AGAINST LANDLORD ON ANY MATTER WHATSOEVER ARISING OUT OF, OR AN ANY WAY CONNECTED WITH, THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY LAW, STATUTE, OR REGULATION, EMERGENCY OR OTHERWISE, NOW OR HEREAFTER IN EFFECT. INITIALS: LANDLORD_________ TENANT _________ 32. Sign. Tenant shall not place or permit to be placed any sign or decoration on the land or the exterior of the Building without the prior written consent of Landlord. Tenant, upon written notice by Landlord, shall immediately remove any sign or decoration that Tenant has placed or permitted to be placed on the land or the exterior of the Building without the prior written consent of Landlord, and if Tenant fails to so remove such sign or decoration within five (5) days after Landlord's written notice, Landlord may enter upon the Premises and remove said sign or decoration and Tenant agrees to pay Landlord, as additional rent upon demand, the cost of such removal. At the termination of this Lease, Tenant shall remove any sign which it has placed on the Parcel or Building and shall repair any damage caused by the installation or removal of such sign. 33. Interest on Past Due Obligations. Any Monthly Installment of rent or any other sum due from Tenant under this Lease which is received by Landlord after the date the same is due shall bear interest from said due date until paid, at an annual rate equal to the lesser of (the "Permitted Rate"): (1) twelve percent (12%); or (2) five percent (5%) plus the rate established by the Federal Reserve Bank of San Francisco, as of the twenty-fifth (25th) day of the month immediately preceding the due date, on advances to member banks under Section 13 and 13 (a) of the Federal Reserve Act, as now in effect or hereafter from time to time amended. Payment of such interest shall not excuse or cure any default by Tenant. In addition, Tenant shall pay all costs and attorneys' fees incurred by Landlord in collection of such amounts. 34. Surrender of the Premises. On the last day of the term hereof, or on the sooner termination of this Lease, Tenant shall surrender the Premises to Landlord in their condition existing as of the Commencement Date of this Lease, ordinary wear and tear excepted, with all originally painted interior walls washed, and other interior walls cleaned, and repaired or replaced, all carpets shampooed and cleaned, the air conditioning and heating equipment serviced and repaired by a reputable and licensed service firm, all floors cleaned and waxed, all to the reasonable satisfaction of Landlord. Tenant shall remove all of Tenant's personal property and trade fixtures from the Premises, and all property not so removed shall be deemed abandoned by Tenant. Tenant, at its sole cost, shall repair any damage to the Premises caused by the removal of Tenant's personal property, machinery and equipment, which repair shall include, without limitation, the patching and filling of holes and repair of structural damage. If the Premises are not so surrendered at the termination of this Lease, Tenant shall indemnify, defend, protect and hold Landlord harmless from and against loss or liability resulting from delay by Tenant in so surrendering the Premises including without limitation, any claims made by any succeeding tenant or losses to Landlord due to lost opportunities to lease to succeeding tenants. 35. Authority. The undersigned parties hereby warrant that they have proper authority and are empowered to execute this Lease on behalf of Landlord and Tenant, respectively. 36. Public Record. This Lease is made subject to all matters of public record affecting title to the property of which the Premises are a part. 37. Brokers. Tenant represents and warrants to Landlord that it has dealt only with Jeff Duke of Equus Associates respecting this transaction and hereby agrees to indemnify and hold Landlord harmless from and against any brokerage commission or fee, obligation, claim or damage (including attorneys' fees) paid or incurred respecting any other broker claiming through Tenant or with which/whom Tenant has dealt. It is acknowledged that one or more of Landlord's partners may be real estate brokers. 38. Limitation on Landlord's Liability. Tenant, for itself and its successors and assigns (to the extent this Lease is assignable), hereby agrees that in the event of any actual, or alleged, breach or default by Landlord under this Lease that: A) Tenant's sole and exclusive remedy against Landlord shall be as against Landlord's interest in the Building; B) No partner or officer of any partner of Landlord shall be sued or named as a party in a suit or action (except as may be necessary to secure jurisdiction of the partnership); C) No service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership); D) No partner of Landlord shall be required to answer or otherwise plead to any service of process; E) No judgment will be taken against any partner of Landlord; F) Any judgment taken against any partner of Landlord maybe vacated and set aside at any time nunc pro tunc; G) No writ of execution will ever be levied against the assets of any partner of Landlord; H) The covenants and agreements of Tenant set forth in this Section 38 shall be enforceable by Landlord and any partner of Landlord. 39. Hazardous Material. A. Definitions. As used herein, the term "Hazardous Material" shall mean any substance: (i) the presence of which requires investigation or remediation under any federal, state or local statutes, regulation, ordinance, order, action, policy or common law; (ii) which is or becomes defined "hazardous waste," "hazardous substance," pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.); (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority, agency, department, commission, board, agency, or instrumentality of the United States, the State of California or any political subdivision thereof; (iv) the presence of which on the Premises causes or threatens to cause a nuisance upon the Premises or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Premises; (v) the presence of which on adjacent properties could constitute a trespass to Landlord or Tenant; (vi) without limitation which contains gasoline, diesel fuel, or other petroleum hydrocarbons; (vii) without limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation; or (viii) without limitation radon gas. B. Landlord's Indemnity. Landlord shall indemnify, defend, protect and hold Tenant harmless from and against all liabilities, claims, penalties, fines, response costs and other expenses (including, but limited to, reasonable attorneys' fees and consultants' fees and costs) arising out of, resulting from, or caused by any Hazardous Material used, generated, discharged, transported to or from, stored or disposed of by Landlord or its Agents in, on, under, over, through or about the Premises and/or the surrounding real property. C. Permitted Use. Subject to the compliance by Tenant with the provisions of Subparagraphs D, E, F, G, I, J and K below, Tenant shall be permitted to use and store on the Premises those Hazardous Materials listed in Exhibit "D" attached hereto in the quantities attached set forth in Exhibit "D". D. Hazardous Materials Management Plan. Prior to Tenant using, handling, transporting or storing any Hazardous Material at or about the Premises (including, without limitation, those listed in Exhibit "D"), Tenant shall submit to Landlord a Hazardous Materials Management Plan ("HMMP") for Landlord's review and approval, which approval shall not be unreasonably withheld. The HMMP shall describe: (i) the quantities of each material to be used, (ii) the purpose for which each material is to be used, (iii) the method of storage of each material, (iv) the method of transporting each material to and from the Premises and within the Premises, (v) the methods Tenant will employ to monitor the use of the material and to detect any leaks or potential hazards, and (vi) any other information any department of any governmental entity (city, state or federal) requires prior to the issuance of any required permit for the Premises or during Tenant's occupancy of the Premises. Landlord may, but shall have no obligation to review and approve the foregoing information and HMO, and such review and approval or failure to review and approve shall not act as an estoppel or otherwise waive Landlord's rights under this Lease or relieve Tenant of its obligations under this lease. If Landlord determines in good faith by inspection of the Premises or review of the HMMP that the methods in use or described by Tenant are not adequate in Landlord's good faith judgment to prevent or eliminate the existence of environmental hazards, then Tenant shall not use, handle, transport, or store such Hazardous Materials at or about the Premises unless and until such methods are approved by Landlord in good faith and added to an approved HMMP. Once approved by Landlord, Tenant shall strictly comply with the HMMP and shall not change its use, operations or procedures with respect to Hazardous Materials without submitting an amended HMMP for Landlord's review and approval as provided above. E. Use Restriction. Except as specifically allowed in Subparagraph C above, Tenant shall not cause or permit any Hazardous Material to be used, stored, generated, discharged, transported to or from, or disposed of in or about the Premises, or any other land or improvements in the vicinity of the Premises. Without limiting the generality of the foregoing, Tenant, at its sole cost, shall comply with all Laws relating to the storage, use, generation, transport, discharge and disposal by Tenant or its Agents of any Hazardous Material. If the presence of any Hazardous Material on the Premises caused or permitted by Tenant or its Agents results in contamination of the Premises or any soil, air, ground or surface waters under, through, over, on, in or about the Premises, Tenant, at its expense, shall promptly take all actions necessary to return the Premises and/or the surrounding real property to the condition existing prior to the appearance of such Hazardous Material. F. Tenant Indemnity. Tenant shall defend, protect, hold harmless and indemnify Landlord and its Agents and Lenders with respect to all actions, claims, losses (including, diminution in value of the Premises), fines, penalties, fees, (including, but not limited to, reasonable attorneys' and consultants' fees and costs) costs, damages, liabilities, remediation costs, investigation costs, response costs and other expenses arising out of, resulting from, or caused by any Hazardous Material used, generated discharged, transported to or from, stored, or disposed of by Tenant or its Agents in, on, under, over, through or about the Premises and/or the surrounding real property. Tenant shall not suffer any lien to be recorded against the Premises as a consequence for the disposal of any Hazardous Material on the Premises by Tenant or its Agents, including any so called state, federal or local "super fund" lien related to the "clean up" of any Hazardous Material in, over, on, under through, or about the Premises. Landlord agrees that Tenant shall have no liability or obligation to Landlord under this Lease with respect to any Hazardous Materials on or about the Premises, which were not caused or contributed to by Tenant or Tenant's Agents. G. Compliance. Tenant shall immediately notify Landlord of any inquiry, test, investigation, enforcement proceeding by or against Tenant or the Premises concerning any Hazardous Material. Any remediation plan prepared by or on behalf of Tenant must be submitted to landlord prior to conducting any work pursuant to such plan and prior to submittal to any applicable government authority and shall be subject to Landlord's consent. Tenant acknowledges that Landlord, as the owner of the Property, at its election, shall have the sole right to negotiate, defend, approve and appeal any action taken or order issued with regard to any Hazardous Material by any applicable governmental authority. H. Assignment and Subletting. It shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or subletting if (i) the proposed assignee's or subtenant's anticipated use of the Premises involves the storage, generation, discharge, transport, use or disposal of any Hazardous Material not permitted under Subparagraph C above; (ii) if the proposed assignee or subtenant has been required by any prior landlord, lender, or governmental authority to "clean up" or remediate any Hazardous Material and has failed to promptly do so; (iii) if the proposed assignee or subtenant is subject to investigation or enforcement order or proceeding by any governmental authority in connection with the use, generation, discharge, transport, disposal or storage of any material amount of Hazardous Material; provided that (ii) and (iii) will not apply in the case of a Fortune 500 Company. I. Surrender. Upon the expiration or earlier termination of the Lease, Tenant, at its sole cost, shall remove all Hazardous Materials from the Premises that Tenant or its Agents introduced to the Premises. If Tenant fails to so surrender the Premises, Tenant shall indemnify, protect, defend and hold Landlord harmless from and against all damages resulting from Tenant's failure to surrender the Premises as required by this Paragraph, including, without limitation, any actions, claims, losses, liabilities, fees (including, but not limited to, reasonable attorneys' fees and consultants' fees and costs), fines, costs, penalties, or damages in connection with the condition of the Premises including, without limitation, damages occasioned by the inability to relet the Premises or a reduction in the fair market and/or rental value of the Premises by reason of the existence of any Hazardous Materials in, on, over, under, through or around the Premises. J. Right to Appoint Consultant. Landlord shall have the right to appoint a consultant to conduct an investigation to determine whether any Hazardous Material is being used, generated, discharged, transported to or from, stored or disposed of in, on, over, through, or about the Premises, in an appropriate and lawful manner. If Tenant has violated any Law or convenant in this Lease regarding the use, storage or disposal of Hazardous Materials on or about the Premises, Tenant shall reimburse Landlord for the cost of such investigation. Tenant, at its expense, shall comply with all reasonable recommendations of the consultant required to conform Tenant's use, storage or disposal of Hazardous Materials to the requirements of applicable Law or to fulfill the obligations of Tenant hereunder. K. Holding Over. If any action of any kind is required to be taken by any governmental authority to clean-up, remove, remediate or monitor Hazardous Material (the presence of which is the result of the acts or omissions of Tenant or its Agents) and such action is not completed prior to the expiration or earlier termination of the Lease, Tenant shall be deemed to have impermissibly held over until such time as such required action is completed, and Landlord shall be entitled to all damages directly or indirectly incurred in connection with such holding over, including without limitation, damages occasioned by the inability to re-let the Premises or a reduction of the fair market and/or rental value of the Premises. L Existing Environmental Reports. Tenant hereby acknowledges that it has received, read and reviewed the reports and test results described in Exhibit "E" attached hereto and made a part hereof (the "Existing Environmental Reports"). M. Provisions Survive Termination. The provisions of this Paragraph 39 shall survive the expiration or termination of this Lease. N. Controlling Provisions. The provisions of this Paragraph 39 are intended to govern the rights and liabilities of the Landlord and Tenant hereunder respecting Hazardous Materials to the exclusion of any other provisions in this Lease that might otherwise be deemed applicable. The provisions of this Paragraph 39 shall be controlling with respect to any provisions in this Lease that are inconsistent with this Paragraph 39. 40. Option to Extend. A. Provided that Tenant is not in default under this Lease at the time of exercise of the hereinafter described option or at the time of termination of the then existing term of this Lease, as the case may be, Tenant shall have one (1) option to extend the term of this Lease for a period of five (5) years (the "Option Term"). Said option shall be exercised only by written notice delivered to Landlord not later than one hundred eighty (180) days prior to the expiration date of the then existing term of this Lease. In all respects, the terms, convenants and conditions of this Lease shall remain unchanged during the Option Term, except that the Monthly Installment of rent payable during the Option Term, which shall be determined in accordance with Subparagraph B and C below, and except that there shall be no further option to extend the term of this Lease at the end of the Option Term. B. The Monthly Installment of rent payable during the Option Term shall be ninety-five percent (95%) of the fair market rental for the Premises as of the first day of the Option Term (the "Fair Market Rental"); but in no event thsll the Monthly Installment of rent payable during the Option Term be less than the Monthly Installment of rent payable during the last calendar month of the original Lease Term. C. Promptly following exercise of the option to extend, the parties shall meet and endeavor to agree on the Fair Market Rental of the Premises as of the first day of the Option Term. In determining the Fair Market Rental for the Premises, the Premises shall be compared only to buildings of a similar quality and size. If within thirty (30) days after exercise of the option, the parties cannot agree upon the Fair Market Rental, the parties shall submit the matter to binding appraisal in accordance with the following procedure: Within sixty (60) days after exercise of the option, the parties shall either (a) jointly appoint an appraiser for this purpose or (b) failing this joint action, separately designate a disinterested appraiser. No person shall be appointed or designated an appraiser unless he or she has at least five (5) years experience in appraising major commercial property in Santa Clara County and is a member of a recognized society of real estate appraisers. If, within thirty (30) days after the appointment, the two appraisers reach agreement on the Fair Market Rental, that value shall be binding and conclusive upon the parties. If the two appraisers thus appointed cannot reach agreement on the question presented within thirty (30) days after their appointment, then the appraisers thus appointed shall appoint a third disintereseted appraiser having like qualifications. If within thirty (30) days after the appointment of the third appraiser, a majority of the appraisers agree on the Fair Market Rental, that value shall be binding and conclusive upon the parties. If within thirty (30) days after the appointment of the third appraiser, a majority of the appraisers cannot reach agreement on the question presented, then the three appraisers shall each submit their independent appraisal to the parties, and the appraisal farthest from the median of the three appraisals shall be disregarded and the mean average of the remaining two appraisals shall be deemed to be the Fair Market Rental of the Premises as of the first day of the Option Term and shall be binding and conclusive upon the parties. Each party shall pay the fees and expenses of the appraiser appointed by it and shall share equally the fees and expenses of the third appraiser. If the two appraisers appointed by the parties cannot agree on the appointment of the third appraiser, they or either of them shall give notice of such failure to agree to the parties and if the parties fail to agree upon the selection of such third appraiser within ten (10) days after the appraisers appointed by the parties give such notice, then either of the parties, upon notice to the other party may request such appointment by the American Arbitration Association, or on its failure, refusal or inability to act, may apply for such apppointment to the presiding judge of the Superior Court of Santa Clara County, California. 41. Third Opportunity to Lease. A. Definitions. As used in this Paragraph 41, the following terms shall have the following meanings: (1) "Third Opportunity Space" shall mean the space located in Building C commonly known as 4415 Fortran Court and currently leased to Novellus Systems, Inc. ("Novellus"). (2) "Prior Right" or "Prior Rights" shall mean (a) the option to expand into the Third Opportunity Space which has been previously granted to AG Associates, Inc. ("AG") and/or (b) the right of first refusal covering the Third Opportunity Space which has been previously granted to Novellus Systems, Inc. (3) "Novellus Lease" shall mean the existing lease between Landlord and Novellus covering the Third Opportunity Space. B. Third Opportunity to Lease. Provided that (i) Tenant is not in default under this Lease; (ii) this Lease is in full force and effect; (iii) Tenant has not assigned this Lease and is in physical occupancy of at least fifty percent (50%) of the area of the Premises; and (iv) neither AG nor Novellus has exercised its respective Prior Right and all Prior Rights have expired; then, and only then, Tenant shall have the right to lease the Third Opportunity Space, as the Third Opportunity Space becomes available upon the expiration of the Novellus Lease subject, however, to the following terms and conditions. C. Landlord's Notice. If Landlord proposes to lease the Third Opportunity Space to a prospective tenant after the expiration of Novellus Lease and all conditions set forth in Subparagraph B above are satisfied, then Landlord shall notify Tenant in writing ("Landlord's Notice") of the form of lease Landlord intends to use, and the following basic business terms upon which Landlord is willing to lease such space (collectively referred to herein as the "Basic Business Terms"): (i) the description of the particular Third Opportunity Space then available (the "Proposed Space"); (ii) the term of the lease; (iii) the tenant improvements Landlord is willing to construct or that it will require to be constructed and the contribution Landlord is willing to make to pay for such tenant improvements, if any; (iv) the rent for the initial term or the formula to be used to determine such rent (including, if applicable the rental commencement date, Tenant's share of taxes, assessments, operating expenses, insurance costs and the like); (v) any option or options to extend (including the rent to be charged or the formula for such charges during the extension periods); and (vi) any other material business term Landlord elects to specify. D. Second Lease. If Tenant, within two (2) business days after receipt of Landlord's Notice, indicates in writing its agreement to lease the Proposed Space on the Basic Business Terms stated in Landlord's Notice (the "Second Lease"), and within two (2) days after Tenant's receipt thereof, Tenant executes and returns to Landlord the Second Lease, Landlord shall lease to Tenant and Tenant shall lease from Landlord the Proposed Space on the terms and conditions contained in the Second Lease, provided, however, that this Lease shall be modified to include, and the Second Lease shall include, a cross-default provision providing that Tenant will be in default under both the Second Lease and this Lease, if Tenant is in default under either Lease. E. Failure to Exercise. If Tenant does not indicate in writing its agreement to lease the Proposed Space on the terms contained in Landlord's Notice within the two (2) business day time period, or if Tenant does not execute and return to Landlord the Second Lease within two (2) business days after Tenant's receipt thereof, then Landlord shall thereafter have the unfettered right to lease the Proposed Space to any third party on any terms and conditions. F. Termination. The provisions of this Paragraph shall terminate upon (i) the expiration of earlier termination of this Lease; or (ii) any assignment by Tenant of its interest in this Lease or the subletting by Tenant of substantially all of the Premises for substantially all of the remainder of the Lease Term; or (iii) as to any particular Proposed Space, Tenant's failure to exercise its right to lease granted herein as to such Proposed Space at its first opportunity to do so, or (iv) the exercise of any Prior Right by any party then holding such Prior Right. IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set forth below. TENANT: LANDLORD: ELEXSYS INTERNATIONAL, INC. SOUTH BAY/FORTRAN, a California limited a California corporation partnership By: ____________________________ By: ____________________________ Printed:_________________________ Printed:_________________________ Title: ___________________________ Title: ___________________________ Dated: __________________________ Dated: __________________________ EXHIBIT A Site Plan EXHIBIT B LEGAL DESCRIPTION All that real property situated in the City of San Jose, County of Santa Clara, State of California, described as follows: Beginning at the Southwesterly corner of that certain 31.74 acre tract of land described in the deed from The First National Bank of San Jose, a corporation, to F. W. Zanker and Curtner Zanker, dated May 5, 1939, recorded May 8, 1939 in Book 934 Official Records, page 16, Santa Clara County Records, in the Northerly line Alviso-Milpitas Road, thence from said point of beginning N. 89 deg. 35' E. 630.30 feet to the Southeasterly corner thereof; thence along the Easterly line of said 31.74 acre tract for the three following courses and distances; N. 1 deg. 13' E. 768.90 feet, and N. 0 deg. 57' E. 597.96 feet and N. 0 deg. 31' E. 149.97 feet to the Southeasterly corner of that certain 9.316 acre tract of land described in the deed from F. W. Zanker, et al, to B.S. Brazil, a single man, dated October 25, 1943, recorded November 16, 1943 in Book 1176 Official Records, page 21, Santa Clara County Records; thence S. 89 deg. 35' W. along the Southerly line of said 9.316 acre tract 651.78 feet to the Southwesterly corner thereof in the Westerly line of said 31.74 acre tract; thence S. 0 deg. 08' W. along said last mentioned line 1512.88 feet to the point of beginning. Excepting therefrom that portion thereof conveyed to the City of San Jose, a municipal; corporation, recorded September 2, 1985 in Book J828, page 1719, Official Records, described as follows: Beginning at the Southeasterly corner of that certain 31.74 acre tract of land described in the deed from The First National Bank of San Jose, a corporation, to F. W. Zanker and Curtner Zanker, dated May 5, 1939, recorded May 8, 1939 in Book 934 Official Records, page 16, Santa Clara County Records, said point being on the Northerly line of Alviso-Milpitas Road, thence leaving said point of beginning along the Easterly line of said 31.74 acre parcel N. 1 deg. 13' E. 30.00 feet to the true point of beginning of the parcel herein being described; thence leaving said true point of beginning and said Easterly line along the following courses and distances; From a tangent bearing of N. 88 deg. 47' 00" W. along a curve to the right with a radius of 50.00 feet, through a central angle of 126 deg. 52' 12" for an arc length of 110.71 feet to a point on reverse curvature; from a tangent bearing of N. 38 deg. 05' 12" E. along a curve to the left with a radius of 50.00 feet, through a central angle of 36 deg. 52' 12" for an arc length of 32.18 feet; N. 1 deg. 13' 00" E. 361.13 feet; N. 0 deg. 57' 00" E. 597.93 feet; N. 0 deg. 31' 52" E. 18.69 feet; along a tangent curve to the left with a radius of 40.00 feet, through a central angle of 90 deg. 56' 58" for an arc length of 63.50 feet to a point on a line parallel with and distant 90.00 feet Southerly, measured at right angles from the Southerly line of that certain 9.316 acre parcel of land described in the deed from F. W. Zanker, et al, to B. S. Brazil, recorded November 16, 1943 in Book 1176 of Official Records, at page 21, Santa Clara County Records; thence along said parallel line, S. 89 deg. 34' 54" W. 579.99 feet to a point on the Westerly line of said 31.74 acre parcel of land; thence leaving said parallel line along said Westerly line, N. 0 deg. 06' 10" E. 90.00 feet to the Southwesterly corner of the hereinabove described 9.316 acre parcel; thence leaving said Westerly line along the Southerly line of said 9.316 acre parcel, N. 89 deg. 34' 54" E. 651.24 feet to the Southeasterly corner thereof, said corner lying in said Easterly line of the hereinabove described 31.74 acre parcel; thence along said Easterly line the following course and distances: S. 0 deg. 31' 52" W. 149.98 feet; S. 0 deg. 57' 00" W. 598.11 feet and S. 1 deg. 13' 00" W. 598.11 feet and S. 1 deg. 13' 00" W. 471.20 feet to the true point of beginning. ALSO EXCEPTING THEREFROM all that portion conveyed to the State of California by Grant Deed recorded August 31, 1994 in Book N 579, Page 2028, Official Records, described as follows: Being a portion of that certain parcel of land described in the Deed from Ray H. Collishaw and Earlyn R. Collishaw, husband and wife, to William L. Marocco, a single man, recorded May 4, 1982 in Book G 762 of Official Records at Page 218, Santa Clara County Records. Beginning at the Southeast corner of said parcel conveyed to Marocco; thence from said Point of Beginning, along the Southerly line of said parcel conveyed to Marocco N. 89 deg. 01' 16" W. 626.45 feet to the Southwest corner of said parcel conveyed to Marocco ; thence along the Westerly line of said parcel conveyed to Marocco, N. 1 deg. 13' 13" E. 227.77 feet; thence leaving said Westerly line, from a tangent bearing of S. 67 deg. 46' 42" E., along a curve to the right with a radius of 275.00 feet; through a central angle of 18 deg. 08' 37" for an arc length of 87.08 feet; thence S. 49 deg. 38' 05" E., 103.64 feet; thence along a tangent curve to the left with a radius of 275.00 feet, through a central angle of 34 deg. 57' 21" for an arc length of 167.78 feet; thence S. 84 deg. 35' 26" E. 318.98 feet to a point in the Easterly line of said parcel conveyed to Marocco, said Easterly line S. 2 deg. 20' 03" W., 31.97 feet to the Point of Beginning. ARB. No. 15-30-9 & 9.1 EXHIBIT "C" IMPROVEMENT AGREEMENT This Improvement Agreement is made part of that Lease dated March 11, 1996 (the "Lease") by and between SOUTH BAY/FORTRAN, a California limited partnership ("Landlord"), and ELEXSYS INTERNATIONAL, INC., a California corporation ("Tenant"). Landlord and Tenant agree that the following terms are part of the Lease: 1. Purpose of Improvement Agreement. The purpose of this Improvement Agreement is to set forth the rights and obligations of Landlord and Tenant with respect to the construction of the Tenant Improvements in the Premises. 2. Definitions. As used in this Improvement Agreement, the following terms shall have the following meanings, and initially capitalized terms which are not defined below, but which are defined in the Lease and which are used in this Improvement Agreement, shall have the meanings ascribed to them by the Lease: A. Final Tenant Improvement Plans. The term "Final Tenant Improvement Plans" shall mean those plans and specifications for the Tenant Improvements to be constructed by Landlord which are to be designed and approved by Landlord and Tenant pursuant to Paragraph 3 below. B. Tenant Improvements. The term "Tenant Improvements" shall mean the tenant improvements to be constructed by Landlord in accordance with the Final Tenant Improvement Plans. C. Landlord's Code Work. The term "Landlord's Code Work" shall mean all work required to bring the Premises as they exist on the date of execution of this Lease (prior to the construction of any Tenant Improvements) into compliance with all governmental codes, ordinances and statutes, including Americans With Disabilities Act ("ADA"). If the Tenant Improvements are going to replace or substantially alter any existing improvement which are not now in compliance with any governmental codes, then Landlord shall not be required to bring such existing improvements into compliance with governmental codes and such work shall be excluded from the definition "Landlord's Code Work". For example, if any existing bathrooms which do not comply with ADA requirements are going to be replaced or substantially altered by the Tenant Improvements, then Landlord shall not be required to make any alterations to such existing bathrooms. D. Substantial Completion and Substantially Complete. The terms "Substantial Completion" and "Substantially Complete" shall each mean the date when all of the following have occurred with respect to the Tenant Improvements: (i) the construction of the Tenant Improvements has been substantially completed in accordance with the provisions of this Improvement Agreement (except for minor punch list items which do not substantially interfere with Tenant's use of the Premises); and (ii) the Building Department of the City of San Jose has completed its final inspection of such improvements and has "signed off" the building inspection card approving such work as complete. E. TI Costs. The term "TI Costs" shall mean and include all costs and expenses paid or incurred by Landlord for any or all of the following: architectural and engineering fees and costs, all building permit fees and taxes and other governmental fees and taxes required for the construction and occupancy of the Tenant Improvements, all of Landlord's contractors' and subcontractors' prices and fees for constructing the Tenant Improvements, including the cost of all partitioning, utility systems, fire sprinkler systems, heating, ventilating and air conditioning systems and equipment, roof screens, electrical distribution facilities, wiring, lighting, ceilings, installation of fixtures and equipment, restrooms, carpeting, and all other improvements and alterations required to finish the existing Building for occupancy by Tenant in accordance with the Final Tenant Improvement Plans; provided, however, TI Costs shall not include any costs attributable Landlord's Code Work. The Landlord's contractor's price for constructing the Tenant Improvements shall include the cost of a job superintendent and project manager plus a fee of five percent (5%) of all other TI Costs. F. Maximum TI Allowance. The term "Maximum TI Allowance" shall mean a sum equal to $11.90 multiplied by the number of square feet of floor space contained within the Premises. The square footage of the Premises is 66,638 sq. ft. Accordingly, the Maximum TI Allowance is Seven Hundred Eighty-Nine Thousand Seven Hundred Seventy-Nine Dollars ($789,779.00). G. Excess TI Costs. The term "Excess TI Costs" shall mean all TI Costs in excess of the Maximum TI Allowance. 3. Design of Tenant Improvements. A. Preliminary Tenant Improvement Plans. Tenant shall, on or before April 10, 1996, prepare and deliver to Landlord for its review and approval preliminary plans for the Tenant Improvements, which preliminary plans shall show Tenant's desired floor plan, layout, electrical requirements, HVAC requirements and general requirements in sufficient detail in order to permit Landlord to prepare working drawings for the Tenant Improvements (the "Preliminary Tenant Improvement Plans"). Within five (5) business days after receipt of the Preliminary Tenant Improvement Plans, Landlord shall either approve such plans or notify Tenant in writing of any request for changes to the Preliminary Tenant Improvement Plans. If Landlord submits any request for changes, the parties shall meet and confer to develop Preliminary Tenant Improvement Plans that are acceptable to both Landlord and Tenant within five (5) business days after Landlord has notified Tenant of its request for changes. B. Development and Approval of Tenant Improvement Plans. Once the Preliminary Tenant Improvement Plans have been approved by Landlord and Tenant, Landlord shall complete and submit to Tenant for its approval final working drawings for the Tenant Improvements. Tenant shall approve the final working drawings for the Tenant Improvements or notify Landlord in writing of its specific request for changes within five (5) business days after receipt of the working drawings from Landlord. If Tenant submits any request for changes, the parties shall confer and reach agreement upon the final working drawings for the Tenant Improvements within five (5) business days after Tenant has notified Landlord of its request for changes. When Landlord and Tenant agree upon the final working drawings for the Tenant Improvements, a representative of each shall sign the same. The final working drawings so approved by Landlord and Tenant are referred to herein as the "Final Tenant Improvement Plans". 4. Construction of Tenant Improvements. Landlord shall, at the expense of Landlord and Tenant as specified in Paragraph 10 below, construct the Tenant Improvements, in accordance with the following: A. Building Permit. As soon as the Final Tenant Improvement Plans have been approved by Landlord and Tenant, Landlord shall apply for a building permit for the Tenant Improvements, and shall diligently pursue the obtaining of such building permit. B. Commencement of Tenant Improvements. As soon as the building permit for the Tenant Improvements has been issued, Landlord shall commence construction of the Tenant Improvements and shall diligently prosecute such construction to completion. 5. Construction Contract. The following shall govern the manner in which the construction contract shall be let by Landlord for the construction of the Tenant Improvements: A. Landlord shall engage South Bay Construction Company, a California corporation ("SBCC") as the general contractor to construct the Tenant Improvements. Tenant acknowledges that SBCC is an affiliate of the Landlord. B. All major subcontractors for the Tenant Improvements shall be chosen by a competitive bid process where (i) Tenant shall have the right to approve subcontractors who bid on specific parts of the job; (ii) the subcontractor shall be awarded to the lowest responsible bidder unless Landlord and Tenant otherwise agree (which decision may arise from concerns as to whether the subcontractor will be able to complete its work in a timely manner); and, (iii) Tenant shall have the right to review and approve all subcontracts prior to submission to subcontractors. C. The construction contract with SBCC shall provide for SBCC to be compensated or reimbursed as follows with respect to the construction of the Tenant Improvements: (i) to be paid a general contractor's fee equal to five percent (5%) of all TI Costs; (ii) to be reimbursed for all payments to subcontractors or material suppliers; (iii) to be reimbursed for the following cost items (a) temporary electric power, (b) on-site office trailer, (c) temporary on-site toilets, (d) trash removal and site clean up, (e) long distance telephone charges, (f) messenger and air courier charges; and (vi) to be reimbursed the following hourly rates for the cost of a job superintendent ($55.00/hr) and of a project manager ($68.00/hr). 6. Substitutions. In developing the Preliminary Tenant Improvement Plans and Final Tenant Improvement Plans, Tenant shall designate and select material and equipment which can be obtained with normal lead times. If at any time during the plan development process or the course of construction, it becomes apparent that a particular material or item of equipment is not or will not be obtainable within a reasonable period of time, the parties shall meet and confer to find a substitute therefor. 7. Changes to Approved Plans. Once the Final Tenant Improvement Plans have been approved by Landlord and Tenant, neither shall have the right to order extra work or change orders with respect to the construction of the Tenant Improvements without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed, provided there is a reasonable basis for such change or such change is required by any Law. All extra work or change orders requested by either Landlord or Tenant shall be made in writing, shall specify any added or reduced cost and/or construction time resulting therefrom, and shall become effective and a part of the Final Tenant Improvement Plans once approved in writing by both parties. If a change order requested by Tenant results in a net increase in the TI Costs which causes the total TI Costs to exceed the Maximum TI Allowance, Tenant shall pay to Landlord the amount of such increase caused by the change order requested by Tenant in accordance with the provisions of Paragraph 10 below. 8. Delivery of Possession, Punch List and Acceptance Agreement. As soon as the Tenant Improvements are Substantially Completed, Landlord and Tenant shall together walk through the Premises and inspect all Tenant Improvements so completed, using reasonable efforts to discover all uncompleted or defective construction in the Tenant Improvements. Unless any uncompleted or defective construction would materially affect Tenant's ability to conduct its business, then when such inspection has been completed, Tenant shall sign an acceptance agreement which shall (i) include a list of all "punch list" items which the parties agree are to be corrected by Landlord and (ii) state the Commencement Date. As soon as such inspection has been completed and such acceptance agreement executed, Landlord shall deliver possession of the Premises to Tenant. Landlord shall use reasonable efforts to complete and/or repair such "punch list" items within thirty (30) days after receiving the acceptance agreement and punch list. Landlord shall have no obligation to deliver possession of the Premises to Tenant until such procedures regarding the preparation of a punch list and the execution of the acceptance agreement have been completed. Tenant's taking possession of any part of the Premises shall be deemed to be an acceptance by Tenant of Landlord's work of improvement in such part as complete and in accordance with the terms of the Lease except for the punch list items noted and latent defects that could not reasonably have been discovered by Tenant during its inspection of the Tenant Improvements prior to completion of the acceptance agreement. Notwithstanding anything contained herein, Tenant's obligation to pay the Monthly Installment of rent and Additional Rent shall commence as provided in the Lease, regardless of whether Tenant completes such inspection or executes such acceptance agreement. 9. Standard of Construction and Warranty. Landlord warrants that the Tenant Improvements shall be constructed in a good and workmanlike manner substantially in accordance with the Final Tenant Improvement Plans (as modified by change orders approved by Landlord and Tenant). All materials and equipment furnished shall be new, of good quality and installed in accordance with the vendor's or manufacturer's specifications, instructions and requirements. The foregoing warranty shall terminate one (1) year following the date of Substantial Completion of the Tenant Improvements unless Tenant makes a written claim against Landlord under the foregoing warranty within said one (1) year period, in which case the warranty shall survive only as to the specific matter described in such claim. 10. Payment of TI Costs. The TI Costs for the Tenant Improvements shall be paid by Landlord and Tenant as follows: A. Landlord shall pay all TI Costs up to the Maximum TI Allowance. In no event shall Landlord be required to pay any TI Costs in excess of the Maximum TI Allowance. B. If the TI Costs exceed the Maximum TI Allowance, then Tenant shall pay to Landlord the full amount of all Excess TI Costs in accordance with the procedures set forth in Subparagraph C below. C. During the course of constructing the Tenant Improvements, each progress payment due to Landlord's contractor or to any subcontractor or material supplier shall be paid by Landlord and Tenant as follows: (i) Landlord shall pay a fraction of each progress payment, which fraction shall have as its numerator the Maximum TI Allowance and shall have as its denominator Landlord's estimate of the total TI Costs to complete the construction of the Tenant Improvements; and (ii) Tenant shall pay the balance of each progress payment ("Tenant's Share"). Tenant shall pay Tenant's Share of each progress payment to Landlord within ten (10) days after receipt of billing. If, at any time during the course of constructing the Tenant Improvements, Landlord revises its estimate of the total TI Costs to complete the Tenant Improvements so that the amount previously paid by Tenant is not sufficient to pay Tenant's Share of the TI Costs paid to date, then Tenant shall pay to Landlord, within ten (10) days after receipt of billing, the amount necessary to increase Tenant's contribution toward the TI Costs so that Landlord has paid only its fractional share of the TI Costs and Tenant has paid the balance. Upon the completion of the Tenant Improvements, Landlord shall provide Tenant with a reconciliation of the estimated TI Costs to the actual TI Costs and Tenant's payments on account thereof, and Tenant shall pay to Landlord, or Landlord shall refund to Tenant, a any net amount due or refundable, as the case may be, within ten (10) days after Tenant's receipt of the reconciliation. If Tenant shall fail to comply with any demand for payment made pursuant to this Paragraph 10.C within ten (10) days of receipt thereof, Landlord may (i) terminate, effective immediately, this Lease by giving written notice of termination to Tenant, (ii) cease construction of the Tenant Improvements, and/or (iii) exercise any and all remedies available to Landlord at law or in equity, including those set forth in Paragraph 15.B of the Lease. 11. Accounting. When the Tenant Improvements are Substantially Completed and all TI Costs have been determined, Landlord shall submit to Tenant a final and detailed accounting of all TI Costs paid by Landlord. Tenant shall have the right to the audit books, records and supporting documents of Landlord to the extent necessary to determine the accuracy of such accounting during normal business hours after giving Landlord at least five (5) business days prior written notice. Any such audit must be conducted, if at all, within thirty (30) days after Landlord delivers such accounting to Tenant. 12. Landlord's Code Work. Landlord shall perform all of Landlord's Code Work at Landlord's sole cost and expense. 13. Effect of Agreement. In the event of any inconsistency between this Improvement Agreement and the Lease, the terms of this Improvement Agreement shall prevail. TENANT: ELEXSYS INTERNATIONAL, INC., a California corporation DATED: __________________ By: ____________________________ Name: __________________________ Title: _________________________ LANDLORD: SOUTH BAY/FORTRAN, a California limited partnership By: SBC&D CO., INC., a California corporation General Partner Dated: __________________ By: _______________________ JAMES D. MAIR President EXHIBIT D HAZARDOUS MATERIALS MANAGEMENT PLAN (To be provided by Tenant prior to Occupancy) EXHIBIT E 1. ATT report dated July 9, 1992: Preliminary (Phase I) Environmental Site Assessment Update for the Property at 4405 - 4445 Fortran Court, San Jose, CA (Project No. 929368). 2. SECOR International Incorporated report dated July 10, 1995: Phase I Environmental Site Assessment Report - 4405, 4415, 4425, 4435 and 4445 Fortran Drive, San Jose, CA (Job No. 70076-001-01). 3. SECOR International Incorporated report dated July 24, 1995: Technical Report Soil Sampling and Grab Groundwater Sampling - 4405-4445 Fortran Drive, San Jose, CA EX-10.3 4 ANETEC ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT This Asset Purchase Agreement ("Agreement") is entered into as of May 3, 1996 by and among: Anetec Technology, Inc., a California corporation ("Seller"); Helen Kwong (the "Shareholder"); Elexsys Acquisition Corporation, a California corporation ("Purchaser") and Elexsys International Inc., a Delaware corporation ("Parent"). Certain other capitalized terms used in this Agreement are defined in Exhibit A. Recitals A. The Shareholder has represented to Purchaser that she is the sole stockholder of Seller. B. The Shareholder and Seller wish to provide for the sale of certain assets of Seller and Shareholder to Purchaser on the terms set forth in this Agreement. Agreement The parties to this Agreement, intending to be legally bound, agree as follows: 1. Sale of Assets; Related Transactions 1.1 Sale of Assets. (a) At the Closing (as hereinafter defined), the Shareholder and Seller shall cause to be sold, assigned, transferred, conveyed and delivered to Purchaser good, valid and marketable title to the Purchased Seller Assets, free and clear of any and all Encumbrances, on the terms set forth in this Agreement. (b) At the Closing, the Shareholder shall cause to be sold, assigned, transferred, conveyed and delivered to Purchaser good, valid and marketable title to the Purchased Shareholder Assets, free and clear of any and all Encumbrances, on the terms set forth in this Agreement. 1.2 Purchase Price. (a) As consideration for the sale of the Purchased Seller Assets to Purchaser and as consideration for the non-competition covenants set forth in the Noncompetition Agreement: (i) Purchaser shall pay to Seller $1,000,000 in cash or by wire transfer (payable in same-day funds) at the Closing (the "Seller Closing Payment"); (ii) Purchaser shall deliver to Seller at the Closing a promissory note executed by Parent in the principal amount of $1,000,000 in the form attached hereto as Exhibit B (the "Promissory Note"); (iii) Purchaser shall deliver to Seller 100,000 shares of Parent's Common Stock (the "Shares") at the Closing; and (iv) Purchaser shall assume the Specified Contractual Liabilities at the Closing. (b) As consideration for the sale of the Purchased Shareholder Assets to Purchaser and as additional consideration for the non-competition covenants set forth in the Noncompetition Agreement, Purchaser shall pay to Shareholder $400,000 in cash at the Closing (the "Shareholder Closing Payment"). 1.3 Closing. (a) The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Cooley Godward Castro Huddleson & Tatum, Five Palo Alto Square, Suite 400, 3000 El Camino Real, Palo Alto, California 94306 at 2:00 p.m. on May __, 1996, or at such other time and date as the parties hereto may mutually agree (the "Scheduled Closing Time"). (The date on which the Closing actually takes place is referred to in this Agreement as the "Closing Date.") (b) At the Closing: (i) the Shareholder shall execute and deliver to Parent and Purchaser a Noncompetition Agreement in the form attached hereto as Exhibit C (the "Noncompetition Agreement"); (ii) the Shareholder and Seller shall execute and deliver to Purchaser and Parent a certificate (the "Closing Certificate") setting forth the Shareholder's and Seller's representations and warranties that (A) each of the representations and warranties made by Seller and the Shareholder in this Agreement was accurate in all respects as of the date of this Agreement, (B) except as expressly set forth in the Closing Certificate, each of the representations and warranties made by Seller and the Shareholder in this Agreement is accurate in all respects as of the Closing Date as if made on the Closing Date, (C) each of the covenants and obligations that Seller and the Shareholder are required to have complied with or performed pursuant to this Agreement at or prior to the Closing has been duly complied with and performed in all respects, and (D) except as expressly set forth in the Closing Certificate, each of the conditions set forth in Sections 7.3, 7.5 and 7.6 has been satisfied in all respects; (iii) the Seller shall execute and deliver to Purchaser bills of sale, endorsements and assignments in form acceptable to Purchaser transferring title to the Purchased Seller Assets to Purchaser; (iv) the Shareholder shall execute and deliver to Purchaser bills of sale, endorsements and assignments in form acceptable to Purchaser transferring title to the Purchased Shareholder Assets to Purchaser; and (v) the Shareholder and Seller shall cause to be executed and delivered to Purchaser (A) such other documents evidencing the transfer of the Purchased Seller Assets and Purchased Shareholder Assets to Purchaser as are reasonably requested by Purchaser, (B) estoppel certificates with respect to various contractual obligations of Seller, and (C) evidence that any notices or filings required to have been given to or made with Governmental Bodies in connection with the Transactions have been given and made and that all Consents required to have been obtained in connection with the Transactions have been obtained. 1.4 No Other Liabilities. Neither Purchaser nor Parent shall assume or be responsible for or liable to any Person for any Liabilities of Seller or the Shareholder whatsoever, other than the Specified Contractual Liabilities in the event the Closing occurs. 1.5 Retained Payment. Purchaser may retain such portion of the Seller Closing Payment as is required to satisfy in full Seller's outstanding obligations to Mydata Automation Inc. and The Sumitomo Bank of California, provided, that any payment retained by Purchaser shall be delivered in satisfaction on such obligations on behalf of Seller within 15 days of the Closing Date. 2. Representations and Warranties of the Shareholder and Seller The Shareholder and Seller jointly and severally represent and warrant, to and for the benefit of the Indemnitees, as follows: 2.1 Due Organization; No Subsidiaries; Etc. (a) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Seller Contracts. (b) Except as set forth in Part 2.1(b) of the Disclosure Schedule, Seller has not conducted any business under or otherwise used, for any purpose or in any jurisdiction, any fictitious name, assumed name, trade name or other name, other than the name "Anetec Technology, Inc." (c) Seller is not and has not been required to be qualified, authorized, registered or licensed to do business as a foreign corporation in any jurisdiction other than the jurisdictions identified in Part 2.1(c) of the Disclosure Schedule, except where the failure to be so qualified, authorized, registered or licensed has not had and will not have a Material Adverse Effect on Seller. Seller is in good standing as a foreign corporation in each of the jurisdictions identified in Part 2.1(c) of the Disclosure Schedule. (d) Part 2.1(d) of the Disclosure Schedule accurately sets forth (i) the names of the members of Seller's board of directors, (ii) the names of the members of each committee of Seller's board of directors, and (iii) the names and titles of Seller's officers. (e) Seller does not own any controlling interest in any Entity and, except for the equity interests identified in Part 2.1(e) of the Disclosure Schedule, Seller has never owned, beneficially or otherwise, any shares or other securities of, or any direct or indirect equity interest in, any Entity. Seller has not agreed and is not obligated to make any future investment in or capital contribution to any Entity. Seller has not guaranteed and is not responsible or liable for any obligation of any of the Entities in which it owns or has owned any equity interest. 2.2 Articles of Incorporation and Bylaws; Records. Seller has delivered to Parent and Purchaser accurate and complete copies of: (1) Seller's articles of incorporation and bylaws, including all amendments thereto; (2) the stock records of Seller; and (3) except as set forth in Part 2.2 of the Disclosure Schedule, the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the stockholders of Seller, the board of directors of Seller and all committees of the board of directors of Seller. There have been no formal meetings or other proceedings of the stockholders of Seller, the board of directors of Seller or any committee of the board of directors of Seller that are not fully reflected in such minutes or other records. There has not been any violation of any of the provisions of Seller's articles of incorporation or bylaws, and Seller has not taken any action that is inconsistent in any material respect with any resolution adopted by Seller's stockholders, Seller's board of directors or any committee of Seller's board of directors. The books of account, stock records, minute books and other records of Seller are accurate, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices. 2.3 Capitalization, Etc. (a) The authorized capital stock of Seller consists of: (i) 1,000,000 shares of Common Stock, no par value (the "Common Stock"), of which 1,000 shares have been issued and are outstanding as of the date of this Agreement. All of the outstanding shares of Common Stock have been duly authorized and validly issued, and are fully paid and non-assessable. All of the outstanding shares of Common Stock are held, beneficially and of record, by the Shareholder, free and clear of any Encumbrances. (b) There is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Seller; or (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Seller. 2.4 Financial Statements. (a) Seller has delivered to Purchaser the following financial statements and notes (collectively, the "Seller Financial Statements"): (i) The unaudited balance sheets of Seller as of December 31, 1995, and the related unaudited income statements, statements of stockholders' equity of Seller for the year then ended together with the notes thereto; and (ii) the unaudited balance sheet of Seller as of March 31, 1996 (the "Unaudited Interim Balance Sheet"), and the related unaudited income statement of Seller for the three months then ended. (b) The Seller Financial Statements are accurate and complete in all material respects and present fairly the financial position of Seller as of the respective dates thereof and the results of operations. The Seller Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered (except that the financial statements referred to in Section 2.4(a)(ii) do not contain footnotes). All of the records of Seller are in the actual possession and control of Seller. Seller has in place an adequate and appropriate system of internal controls which is at least as comprehensive and effective as the systems of internal controls customarily maintained by similarly situated companies. 2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure Schedule, since March 31, 1996; (a) there has not been any material adverse change in Seller's business, condition, assets, liabilities, intellectual property rights, operations, financial performance or prospects, and, to the best of the knowledge of Seller and the Shareholder, no event has occurred that will, or could reasonably be expected to, have a Material Adverse Effect on Seller; (b) there has not been any material loss, damage or destruction to, or any material interruption in the use of, any of Seller's assets (whether or not covered by insurance); (c) Seller has not declared, accrued, set aside or paid any dividend or made any other distribution in respect of any shares of capital stock, and has not repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities; (d) there has been no amendment to Seller's articles of incorporation or bylaws, and Seller has not effected or been a party to any Acquisition Transaction, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (e) Seller has not formed any subsidiary or acquired any equity interest or other interest in any other Entity; (f) Seller has not made any capital expenditure; (g) Seller has not (i) entered into or permitted any of the assets owned or used by it to become bound by any Contract that is or would constitute a Material Contract (as defined in Section 2.9(a)), or (ii) amended or prematurely terminated, or waived any material right or remedy under, any such Contract; (h) Seller has not made any pledge of any of its assets or otherwise permitted any of its assets to become subject to any Encumbrance, except for pledges of immaterial assets made in the ordinary course of business and consistent with Seller's past practices; (i) Seller has not (i) established or adopted any Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment to, or increased the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees, or (iii) hired any new employee; (j) Seller has not changed any of its methods of accounting or accounting practices in any respect; (k) Seller has not commenced or settled any Legal Proceeding; (l) Seller has not entered into any material transaction or taken any other material action outside the ordinary course of business or inconsistent with its past practices; and (m) Seller has not agreed or committed to take any of the actions referred to in clauses "(c)" through "(l)" above. 2.6 Title to Assets. (a) Seller owns, and has good, valid and marketable title to, all assets purported to be owned by it, including: (i) all assets reflected on the Unaudited Interim Balance Sheet; (ii) all assets referred to in Parts 2.7 and 2.8 of the Disclosure Schedule and all of Seller's rights under the Contracts identified in Part 2.9 of the Disclosure Schedule; and (iii) all other assets reflected in Seller's books and records as being owned by Seller. Except as set forth in Part 2.6(a) of the Disclosure Schedule, all of said assets are owned by Seller free and clear of any Encumbrances, except for (x) any lien for current taxes not yet due and payable, and (y) minor liens that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto or materially impair the operations of Seller. (b) Part 2.6(b) of the Disclosure Schedule identifies all assets that are material to the business of Seller and that are being leased or licensed to Seller. (c) Seller's aggregate obligations (i) to Mydata Automation Inc. do not exceed $182,000 and (ii) to The Sumitomo Bank of California do not exceed $112,000. (d) The Shareholder owns, and has good, valid and marketable title to the Purchased Shareholder Assets. All of the Purchased Shareholder Assets are owned by the Shareholder free and clear of any Encumbrances, except for (x) any lien for current taxes not yet due and payable, and (y) minor liens that have arisen in the ordinary course of business and that do not (in any case or in the aggregate) materially detract from the value of the assets subject thereto. 2.7 Equipment; Leasehold. (a) All material items of equipment and other tangible assets owned by or leased to Seller are adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are adequate for the conduct of Seller's business in the manner in which such business is currently being conducted. Part 2.7 of the Disclosure Schedule provides an accurate and complete list of all items of equipment, materials, prototypes, tools, vehicles, furniture and other tangible assets owned by or leased to Seller with an original value in excess of $500. (b) Seller does not own any real property or any interest in real property, except for the leasehold created under the real property lease identified in Part 2.9 of the Disclosure Schedule. 2.8 Proprietary Assets. (a) Other than common law tradename and trademark rights to "Anetec Technology, Inc.", the Seller has no Seller Proprietary Assets. (b) Seller is not infringing, misappropriating or making any unlawful use of, and Seller has not at any time infringed, misappropriated or made any unlawful use of, or received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement, misappropriation or unlawful use of, any Proprietary Asset owned or used by any other Person. 2.9 Contracts. (a) Part 2.9(a) of the Disclosure Schedule identifies: (i) each Seller Contract relating to the employment of, or the performance of services by, any employee, consultant or independent contractor; (ii) each Seller Contract relating to the acquisition, transfer, use, development, sharing or license of any technology or any Proprietary Asset; (iii) each Seller Contract imposing any restriction on Seller's right or ability (A) to compete with any other Person, (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person, or (C) develop or distribute any technology; (iv) each Seller Contract creating or involving any agency relationship, distribution arrangement or franchise relationship; (v) each Seller Contract relating to the creation of any Encumbrance with respect to any asset of Seller; (vi) each Seller Contract involving or incorporating any guaranty, any pledge, any performance or completion bond, any indemnity or any surety arrangement; (vii) each Seller Contract creating or relating to any partnership or joint venture or any sharing of revenues, profits, losses, costs or liabilities; (viii) each Seller Contract relating to the purchase or sale of any product or other asset by or to, or the performance of any services by or for, any Related Party (as defined in Section 2.16); (ix) each Seller Contract constituting or relating to a Government Contract or Government Bid; (x) any other Seller Contract that was entered into outside the ordinary course of business or was inconsistent with Seller's past practices; (xi) any other Seller Contract that has a term of more than 60 days and that may not be terminated by Seller (without penalty) within 60 days after the delivery of a termination notice by Seller; and (xii) any other Seller Contract that contemplates or involves (A) the payment or delivery of cash or other consideration in an amount or having a value in excess of $10,000 in the aggregate, or (B) the performance of services having a value in excess of $10,000 in the aggregate. (Contracts in the respective categories described in clauses "(i)" through "(xii)" above are referred to in this Agreement as "Material Contracts.") (b) Seller has delivered to Parent and Purchaser accurate and complete copies of all written Contracts identified in Part 2.9(a) of the Disclosure Schedule, including all amendments thereto. Part 2.9(b) of the Disclosure Schedule provides an accurate description of the terms of each non-written Seller Contract. Each Contract identified in Parts 2.9(a) and (b) of the Disclosure Schedule is valid and in full force and effect, and, to the best of the knowledge of Seller and the Shareholder, is enforceable by Seller in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. (c) Except as set forth in Part 2.9(c) of the Disclosure Schedule: (i) Seller has not violated or breached, or committed any default under, any Seller Contract, and, to the best of the knowledge of Seller and the Shareholder, no other Person has violated or breached, or committed any default under, any Seller Contract, which violation, breach or default has not been waived or satisfied as of the date of this Agreement; (ii) to the best of the knowledge of Seller and the Shareholder, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, (A) result in a violation or breach of any of the provisions of any Seller Contract, (B) give any Person the right to declare a default or exercise any remedy under any Seller Contract, (C) give any Person the right to accelerate the maturity or performance of any Seller Contract, or (D) give any Person the right to cancel, terminate or modify any Seller Contract; (iii) since December 31, 1992, Seller has not received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Seller Contract that has not been resolved as of the date of this Agreement; and (iv) Seller has not waived any of its material rights under any Material Contract. (d) No Person is renegotiating, or has a right pursuant to the terms of any Seller Contract to renegotiate, any amount paid or payable to Seller under any Material Contract or any other material term or provision of any Material Contract. (e) The Contracts identified in Parts 2.9(a) and (b) of the Disclosure Schedule collectively constitute all of the Contracts necessary to enable Seller to conduct its business in the manner in which its business is currently being conducted. (f) Part 2.9(f) of the Disclosure Schedule identifies and provides a brief description of each proposed Contract as to which any bid, offer, award, written proposal, term sheet or similar document has been submitted or received by Seller since January 1, 1995. (g) Part 2.9(g) of the Disclosure Schedule provides an accurate description and breakdown of Seller's backlog under Seller Contracts. 2.10 Liabilities. Seller has no accrued, contingent or other Liabilities of any nature, either matured or unmatured (whether or not required to be reflected in financial statements in accordance with generally accepted accounting principles, and whether due or to become due), except for: (a) Liabilities identified as such in the "liabilities" column of the Unaudited Interim Balance Sheet; (b) accounts payable or accrued salaries that have been incurred by Seller since March 31, 1996 in the ordinary course of business and consistent with Seller's past practices; (c) Liabilities under Seller Contracts identified in Parts 2.9(a) and (b) of the Disclosure Schedule, to the extent the nature and magnitude of such Liabilities can be specifically ascertained by reference to the text of such Seller Contracts; (d) the Liabilities identified in Part 2.10 of the Disclosure Schedule and (e) any Liabilities that neither Seller nor Shareholder have any reason to be aware of. 2.11 Compliance with Legal Requirements. Seller is, and has at all times been, in compliance in all material respects with all applicable Legal Requirements. Except as set forth in Part 2.11 of the Disclosure Schedule, Seller has not received any notice or other communication from any Governmental Body regarding any actual or possible violation of, or failure to comply with, any Legal Requirement. 2.12 Governmental Authorizations. Part 2.12 of the Disclosure Schedule identifies each Governmental Authorization held by Seller, and Seller has delivered to Parent and Purchaser accurate and complete copies of all Governmental Authorizations identified in Part 2.12 of the Disclosure Schedule. The Governmental Authorizations identified in Part 2.12 of the Disclosure Schedule are valid and in full force and effect, and collectively constitute all Governmental Authorizations necessary to enable Seller to conduct its business in the manner in which its business is currently being conducted. Seller is, and at all times has been, in substantial compliance with the terms and requirements of the respective Governmental Authorizations identified in Part 2.12 of the Disclosure Schedule. Seller has not received any notice or other communication from any Governmental Body regarding (a) any actual or possible violation of or failure to comply with any term or requirement of any Governmental Authorization, or (b) any actual or possible revocation, withdrawal, suspension, cancellation, termination or modification of any Governmental Authorization. 2.13 Sales and Property Tax Matters. (a) Each Sales and Property Tax required to have been paid, or claimed by any Governmental Body to be payable, by Seller has been duly paid in full on a timely basis. Each Sales and Property Tax required to have been withheld or collected by Seller has been duly withheld and collected; and (to the extent required) each such tax has been paid to the appropriate Governmental Body. (b) Part 2.13(b) of the Disclosure Schedule accurately identifies each examination or audit of any Tax Return of Seller concerning Sales and Property Tax that has been conducted since December 31, 1990. The Shareholder and Seller have delivered to Parent and Purchaser accurate and complete copies of all audit reports and similar documents (to which the Shareholder or Seller has access) relating to such Tax Returns. (c) Except as set forth in Part 2.13(c) of the Disclosure Schedule, no claim or other Proceeding is pending or has been threatened against or with respect to Seller in respect of any Sales and Property Tax. There are no unsatisfied liabilities for any Sales and Property Tax (including liabilities for interest, additions to tax and penalties thereon and related expenses) with respect to any notice of deficiency or similar document received by Seller. Seller has not entered into nor has become bound by any agreement or consent pursuant to Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). (d) The Shareholder and Seller have delivered to Parent and Purchaser accurate and complete copies of all Tax Returns relating to any Sales and Property Tax that have been filed on behalf of Seller since December 31, 1990. The information respecting Sales and Property Tax contained in each of the Tax Returns so delivered to Parent and Purchaser is accurate and complete in all respects. 2.14 Employee and Labor Matters; Benefit Plans. (a) Part 2.14 of the Disclosure Schedule identifies and provides an accurate and complete description of each Seller Plan. Seller has not established, adopted, maintained, sponsored, contributed to, participated in or incurred any Liability with respect to any Employee Benefit Plan, except for Seller Plans identified in Part 2.14 of the Disclosure Schedule; and Seller has not provided or made available any fringe benefit or other benefit of any nature to any of its employees, except as set forth in Part 2.14 of the Disclosure Schedule. (b) Seller has delivered to Parent and Purchaser, with respect to each Seller Plan: (i) an accurate and complete copy of such Seller Plan and all amendments thereto (including any amendment that is scheduled to take effect in the future); (ii) an accurate and complete copy of each Contract (including any trust agreement, funding agreement, service provider agreement, insurance agreement, investment management agreement or recordkeeping agreement) relating to such Seller Plan; (iii) an accurate and complete copy of any description, summary, notification, report or other document that has been furnished to any employee of either of Seller with respect to such Seller Plan; (iv) an accurate and complete copy of any form, report, registration statement or other document that has been filed with or submitted to any Governmental Body with respect to such Seller Plan; and (v) an accurate and complete copy of any determination letter, notice or other document that has been issued by, or that has been received by Seller from any Governmental Body with respect to such Seller Plan. (c) Each Seller Plan is being and has at all times been operated and administered in full compliance with the provisions thereof. Each contribution or other payment that is required to have been accrued or made under or with respect to any Seller Plan has been duly accrued and made on a timely basis. (d) Each Seller Plan has at all times complied and been operated and administered in full compliance with all applicable reporting, disclosure and other requirements of ERISA and the Code and all other applicable Legal Requirements. 2.15 Environmental Matters. Seller is in compliance in all material respects with all applicable Environmental Laws, which compliance includes the possession by Seller of all permits and other Governmental Authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. Seller has not received any notice or other communication (in writing or otherwise), whether from a Governmental Body, citizens group, employee or otherwise, that alleges that Seller is not in compliance with any Environmental Law, and, to the best of the knowledge of Seller and the Shareholder, there are no circumstances that may prevent or interfere with Seller's compliance with any Environmental Law in the future. To the best of the knowledge of Seller and the Shareholder, no current or prior owner of any property leased or controlled by Seller has received any notice or other communication (in writing or otherwise), whether from a Government Body, citizens group, employee or otherwise, that alleges that such current or prior owner or Seller is not in compliance with any Environmental Law. All Governmental Authorizations currently held by Seller pursuant to Environmental Laws are identified in Part 2.15 of the Disclosure Schedule. (For purposes of this Section 2.15: (i) "Environmental Law" means any federal, state, local or foreign Legal Requirement relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any law or regulation relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern; and (ii) "Materials of Environmental Concern" include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other substance that is now or hereafter regulated by any Environmental Law or that is otherwise a danger to health, reproduction or the environment.) 2.16 Related Party Transactions. Except as set forth in Part 2.16 of the Disclosure Schedule: (a) no Related Party has, and no Related Party has at any time since December 31, 1992 had, any direct or indirect interest in any material asset used in or otherwise relating to the business of Seller (other than the interest of Shareholder in the Purchased Shareholder Assets); (b) since December 31, 1992, no Related Party has entered into, or has had any direct or indirect financial interest in, any material Contract, transaction or business dealing involving Seller; and (c) no Related Party is competing, or has at any time since December 31, 1992 competed, directly or indirectly, with Seller. (For purposes of the Section 2.16 each of the following shall be deemed to be a "Related Party": (i) each individual who is, or who has at any time since December 31, 1992 been, an officer of Seller; (ii) each member of the immediate family of each of the individuals referred to in clause "(i)" above; and (iii) any trust or other Entity (other than Seller) in which any one of the individuals referred to in clauses "(i)" and "(ii)" above holds (or in which more than one of such individuals collectively hold), beneficially or otherwise, a material voting, proprietary or equity interest.) 2.17 Legal Proceedings; Orders. (a) Except as set forth in Part 2.17 of the Disclosure Schedule, there is no pending Legal Proceeding, and (to the best of the knowledge of Seller and the Shareholder) no Person has threatened to commence any Legal Proceeding: (i) that involves Seller or any of the assets owned or used by Seller or any Person whose Liability Seller has or may have retained or assumed, either contractually or by operation of law; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Transactions. To the best of the knowledge of Seller and the Shareholder, except as set forth in Part 2.17 of the Disclosure Schedule, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that could reasonably be expected to, give rise to or serve as a basis for the commencement of any such Legal Proceeding. (b) Except as set forth in Part 2.17 of the Disclosure Schedule, no Legal Proceeding has ever been commenced by or has ever been pending against Seller. (c) There is no order, writ, injunction, judgment or decree to which Seller, or any of the assets owned or used by Seller, is subject. The Shareholder is not subject to any order, writ, injunction, judgment or decree that relates to Seller's business or to any of the assets owned or used by Seller. To the best of the knowledge of Seller and the Shareholder, no officer or other employee of Seller is subject to any order, writ, injunction, judgment or decree that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to Seller's business. 2.18 Authority; Binding Nature of Agreement. Seller and the Shareholder have the absolute and unrestricted right, power and authority to enter into and to perform their respective obligations under this Agreement. The execution, delivery and performance by Seller of this Agreement have been duly authorized by all necessary action on the part of Seller, its board of directors and the Shareholder. This Agreement constitutes the legal, valid and binding obligations of Seller and the Shareholder, enforceable against each of them in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. 2.19 Non-Contravention; Consents. Except as set forth in Part 2.19 of the Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or any of the other Transactional Agreements, nor (2) the consummation of the Transactions will directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of (i) any of the provisions of Seller's articles of incorporation or bylaws, or (ii) any resolution adopted by Seller's stockholders, Seller's board of directors or any committee of Seller's board of directors; (b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which Seller, the Shareholder or any of the assets owned or used by Seller, is subject; (c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Seller or the Shareholder or that otherwise relates to Seller's business or to any of the assets owned or used by Seller; (d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Seller Contract that is or would constitute a Material Contract, or give any Person the right to (i) declare a default or exercise any remedy under any such Seller Contract, (ii) accelerate the maturity or performance of any such Seller Contract, or (iii) cancel, terminate or modify any such Seller Contract; or (e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by Seller (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of Seller). Except as set forth in Part 2.19 of the Disclosure Schedule, neither Seller nor the Shareholder will be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of the Agreement or any of the other Transactional Agreements, or (y) the consummation of the Transactions. 2.20 Brokers. Neither Seller nor the Shareholder have agreed or become obligated to pay, or have taken any action that might result in any Person claiming to be entitled to receive, any brokerage commission, finder's fee or similar commission or fee in connection with any of the Transactions, except for a payment to Harry Parmar. 2.21 Fair Consideration; No Fraudulent. Conveyance. (a) After due inquiry and negotiation, the sale and purchase of the Purchased Seller Assets is made in exchange for fair and equivalent consideration, and Seller is not insolvent and will not be rendered insolvent by the sale of the Purchased Seller Assets under the terms of the Agreement. The transactions contemplated by the Agreement will not constitute a fraudulent conveyance or any act with similar potential consequences, or otherwise give any creditor of Seller or Shareholder any rights to any of the Purchased Seller Assets transferred to Purchaser. (b) After due inquiry and negotiation, the sale and purchase of the Purchased Shareholder Assets is made in exchange for fair and equivalent consideration, and Seller is not insolvent and will not be rendered insolvent by the sale of the Purchased Shareholder Assets under the terms of the Agreement. The transactions contemplated by the Agreement will not constitute a fraudulent conveyance or any act with similar potential consequences, or otherwise give any creditor of Shareholder or Seller any rights to any of the Purchased Seller Assets transferred to Purchaser. 2.22 Full Disclosure. The Agreement (including the Disclosure Schedule) does not, and the Closing Certificate will not, (i) contain any representation, warranty or information that is false or misleading with respect to any material fact, or (ii) omit to state any material fact or necessary in order to make the representations, warranties and information contained and to be contained herein and therein (in the light of the circumstances under which such representations, warranties and information were or will be made or provided) not false or misleading. 2.23 All Necessary Assets. The Purchased Seller Assets and the Purchased Shareholder Assets together consist of all of the assets necessary for Seller to conduct its business in the manner in which it is currently being conducted. 3. Representations and Warranties of Parent and Purchaser Parent and Purchaser represent and warrant, to and for the benefit of Seller, as follows: 3.1 Authority; Binding Nature of Agreements. Parent and Purchaser have the absolute and unrestricted right, power and authority to enter into and perform their obligations under the Agreement. The Agreement constitutes the legal, valid and binding obligations of Parent and Purchaser and is enforceable against Parent and Purchaser in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. The Shares when issued in compliance with the provisions of this Agreement will be validly issued and will be fully paid and nonassessable, and will be free of any liens or encumbrances; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws. The Promissory Note when issued in compliance with the provisions of this Agreement will be validly issued and will be free of any liens or encumbrances; provided, however, that the Promissory Note may be subject to restrictions on transfer under state and/or federal securities laws. 3.2 Brokers. Neither Parent nor Purchaser have agreed or become obligated to pay, and have not taken any action that might result in any Person claiming to be entitled to receive, any brokerage commission, finder's fee or similar commission or fee in connection with any of the Transactions, except for a payment by Purchaser to Harry Parmar. 4. Certain Securities Matters 4.1 Representations of Seller and Shareholder. The Seller and Shareholder jointly and severally represent and warrant, to and for the benefit of the Indemnitees, as follows: (a) Each of Seller and Shareholder has received and reviewed (i) a copy of Purchaser's report on Form 10-K for the year ending September 30, 1995, as filed with the SEC, (ii) a copy of Purchaser's report on Form 10-Q for the quarter ending December 31, 1995, (iii) a copy of Purchaser's annual report to shareholders for the fiscal year ended September 30, 1995, and (iv) a copy of Purchaser's proxy statement for the annual meeting of shareholder on January 30, 1996; (b) Each of Seller and Shareholder is aware (i) that the Shares are being issued under an exemption from the registration requirements of the Securities Act, (ii) that neither Seller nor Shareholder are being provided with any prospectus or other offering materials other than the documents referred to in Section 4.1(a), and (iii) that the Transactions have not been approved or reviewed by the Commission or by any other Governmental Body; (c) Each of Seller and Shareholder (i) is aware that because the issuance of the Shares has not been registered under the Securities Act, such shares must be held indefinitely unless their resale or other disposition is registered under the Securities Act or is exempt from the registration requirements of the Securities Act, (ii) is aware of the provisions of Rule 144 promulgated under the Securities Act which permits limited resales of shares purchased in certain exempt transactions, subject to the satisfaction of various requirements; (d) Each of Seller and Shareholder realizes that, if the requirements of Rule 144 are not satisfied, any disposition by Seller or Shareholder of any of the Shares may require registration under the Securities Act, and that Purchaser is not under any obligation to take any action to register any of the Shares; (e) Each of Seller and Shareholder (i) has such knowledge and experience in financial and business matters, (ii) is capable of evaluating the merits and risks of the Transactions and the merits and risks of investing in the Common Stock of Purchaser, and (iii) has discussed the Transactions, and the merits and risks of investing in the Common Stock of Purchaser, with employees of Purchaser; (f) Seller is acquiring the Shares for investment and for Seller's own account and not with a view to, or for resale in connection with, any unregistered distribution thereof (other than a distribution to Shareholder upon dissolution of Seller), and has no present intention to sell or otherwise dispose of any interest in or risk related to the Shares except in accordance with Section 4.2 and except for a distribution of the Shares to Shareholder upon dissolution of Seller; (g) Upon Shareholder's acquisition of the Shares upon dissolution of Seller, Shareholder will acquire the Shares for investment and for Shareholder's own account and not with a view to, or for resale in connection with, any unregistered distribution thereof, and will have no present intention to sell or otherwise dispose of any interest in or risk related to the Shares except in accordance with Section 4.2; (h) Each of Seller and Shareholder has fully considered the risks of an investment in the Shares, and understands that (i) such an investment is suitable only for an investor who is able to bear the economic consequences of losing the entire investment, (ii) such an investment is a speculative investment which involves a high degree of risk of loss, and (iii) there are substantial restrictions on the transferability of the Shares, and it may not be possible for to liquidate an investment in the Shares in the case of emergency; (i) Each of Seller and Shareholder is able (i) to bear the economic risk of his or her investment in the Shares, (ii) to hold the Shares, and (iii) to afford a complete loss of their investment in the Shares; (j) Each of Seller and Shareholder has been given the opportunity to ask questions of, and to receive answers from, Representatives of Purchaser concerning the terms and provisions of the Transactions and the business and prospects of Purchaser, and to obtain any additional information necessary to verify the accuracy of the information set forth in the documents referred to in Section 4.1(a); (k) Shareholder is a bona fide, full-time resident of the State of California; Seller's principal place of business is in the State of California and Seller only enters into contracts (including this Agreement) in the State of California. (l) Each of Seller and Shareholder understands that the certificates representing the Shares may bear a legend identical or similar in effect to the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION"; and (m) Each of Seller and Shareholder understands and intends that the representations and warranties being made in this Section 4.1 (i) may be relied upon by Purchaser in determining their suitability as an investor in the Shares, and (ii) shall survive their receipt of the Shares. 4.2 Sale of the Shares by Shareholder. Seller or Shareholder may sell some or all of the Shares if (i) the sale of such Shares is covered by an registration statement declared effective by the Commission; or (ii) the Seller or the Shareholder shall have delivered to Parent an unqualified opinion of counsel satisfactory to Parent to the effect that such Shares may be sold without registration or qualification because of the availability of exemptions under the Securities Act and applicable state securities laws, provided, however, that no such opinion shall be required for the distribution of the Shares to Shareholder upon dissolution of Seller or such transfer is performed in accordance with Section 6.8. Except as expressly permitted by this Section 4.2, Seller and Shareholder shall not, directly or indirectly, sell or otherwise dispose of, or offer to sell or otherwise dispose of, any of the Shares at any time on or after the Closing Date. 5. Certain Covenants of Seller 5.1 Access and Investigation. During the period from the date of this Agreement through the Closing Date (the "Pre-Closing Period"), Seller shall, and shall cause its Representatives to: (a) provide Parent, Purchaser and Purchaser's Representatives with reasonable access to Seller's Representatives, personnel and assets and to all existing books, records, Tax Returns, work papers and other documents and information relating to Seller; and (b) provide Parent, Purchaser and Purchaser's Representatives with copies of such existing books, records, Tax Returns, work papers and other documents and information relating to Seller, and with such additional financial, operating and other data and information regarding Seller, as Purchaser may reasonably request. 5.2 Operation of Seller's Business. During the Pre-Closing Period: (a) Seller shall conduct its business and operations in the ordinary course and in substantially the same manner as such business and operations have been conducted prior to the date of this Agreement; (b) Seller shall use reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and maintain its relations and good will with all suppliers, customers, landlords, creditors, employees and other Persons having business relationships with Seller; (c) Seller shall cause its officers to report regularly (but in no event less frequently than weekly) to Purchaser concerning the status of Seller's business; (d) Seller shall not declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, and shall not repurchase, redeem or otherwise reacquire any shares of capital stock or other securities; (e) Seller shall not sell, issue or authorize the issuance of (i) any capital stock or other security, (ii) any option or right to acquire any capital stock or other security, or (iii) any instrument convertible into or exchangeable for any capital stock or other security; (f) Seller shall not amend or permit the adoption of any amendment to Seller's articles of incorporation or bylaws, or effect or permit Seller to become a party to any Acquisition Transaction, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction; (g) Seller shall not form any subsidiary or acquire any equity interest or other interest in any other Entity; (h) Seller shall not make any capital expenditures; (i) Seller shall not (i) enter into, or permit any of the assets owned or used by it to become bound by, any Contract that is or would constitute a Material Contract, or (ii) amend or prematurely terminate, or waive any material right or remedy under, any such Contract; (j) Seller shall not (i) acquire, lease or license any right or other asset from any other Person, (ii) sell or otherwise dispose of, or lease or license, any right or other asset to any other Person, or (iii) waive or relinquish any right, except for assets acquired, leased, licensed or disposed of by Seller pursuant to Contracts that are not Material Contracts; (k) Seller shall not (i) lend money to any Person (except that Seller may make routine travel advances to employees in the ordinary course of business, or (ii) incur or guarantee any indebtedness for borrowed money; (l) Seller shall not (i) establish, adopt or amend any Employee Benefit Plan, (ii) pay any bonus or make any profit-sharing payment, cash incentive payment or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees, or (iii) hire any new employee whose aggregate annual compensation is expected to exceed $50,000; (m) Seller shall not change any of its methods of accounting or accounting practices in any material respect; (n) Seller shall not commence or settle any Legal Proceeding; (o) Seller shall not agree or commit to take any of the actions described in clauses "(e)" through "(o)" above. 5.3 Notification; Updates to Disclosure Schedule. (a) During the Pre-Closing Period, Seller shall promptly notify Parent and Purchaser in writing of: (i) the discovery by Seller of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes an inaccuracy in or breach of any representation or warranty made by Seller or the Shareholder in this Agreement; (ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute an inaccuracy in or breach of any representation or warranty made by Seller or the Shareholder in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement; (iii) any breach of any covenant or obligation of Seller; and (iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 7 or Section 8 impossible or unlikely. (b) If any event, condition, fact or circumstance that is required to be disclosed pursuant to Section 5.3(a) requires any change in the Disclosure Schedule, or if any such event, condition, fact or circumstance would require such a change assuming the Disclosure Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then Seller shall promptly deliver to Parent and Purchaser an update to the Disclosure Schedule specifying such change. No such update shall be deemed to supplement or amend the Disclosure Schedule for the purpose of (i) determining the accuracy of any of the representations and warranties made by Seller or the Shareholder in this Agreement, or (ii) determining whether any of the conditions set forth in Section 7 has been satisfied. 5.4 No Negotiation. During the Pre-Closing Period, Seller shall not, directly or indirectly: (a) solicit or encourage the initiation of any inquiry, proposal or offer from any Person (other than Purchaser) relating to a possible Acquisition Transaction; (b) participate in any discussions or negotiations or enter into any agreement with, or provide any non-public information to, any Person (other than Purchaser) relating to or in connection with a possible Acquisition Transaction; or (c) consider, entertain or accept any proposal or offer from any Person (other than Purchaser) relating to a possible Acquisition Transaction. Seller shall promptly notify Parent and Purchaser in writing of any material inquiry, proposal or offer relating to a possible Acquisition Transaction that is received by Seller during the Pre-Closing Period. 5.5 Bulk Transfer Waiver and Indemnification. Although no party hereto acknowledges that bulk transfer laws are applicable to the transactions contemplated by this Agreement, to the extent that such laws are determined to apply, Purchaser waives compliance by Seller with the provisions of any applicable bulk transfer laws for the protection of creditors, and each of Seller and the Shareholder agree to indemnify and hold Purchaser harmless from, and reimburse Purchaser for, any loss, cost, expense, liability or damage (including reasonable counsel fees and disbursements and expenses) which Purchaser may suffer or incur by virtue of the non-compliance by Seller or Purchaser with such bulk transfer laws. 6. Certain Covenants 6.1 Filings and Consents. As promptly as practicable after the execution of this Agreement, each party to this Agreement (a) shall make all filings (if any) and give all notices (if any) required to be made and given by such party in connection with the Transactions, and (b) shall use all commercially reasonable efforts to obtain all Consents (if any) required to be obtained (pursuant to any applicable Legal Requirement or Contract, or otherwise) by such party in connection with the Transactions. Seller shall (upon request) promptly deliver to Parent and Purchaser a copy of each such filing made, each such notice given and each such Consent obtained by Seller during the Pre-Closing Period. 6.2 Best Efforts. During the Pre-Closing Period, (a) Seller shall use its best efforts to cause the conditions set forth in Section 7 to be satisfied on a timely basis, and (b) Parent and Purchaser shall use their respective best efforts to cause the conditions set forth in Section 8 to be satisfied on a timely basis. 6.3 Change of Name. Within two business days after the Closing Date, the Shareholder and Seller shall take such action as may be necessary to cause the corporate name of Seller to be changed to a new name that is satisfactory to Parent and Purchaser. Following the Closing, neither Seller nor the Shareholder shall, without the prior written consent of Parent, make any use of the name "Anetec" or any other name confusingly similar thereto, except as may be necessary for Seller to pay its liabilities, prepare tax returns and other reports, and to otherwise wind up and conclude its business. 6.4 Dissolution. Seller and the Shareholder agree that (a) as soon as possible after the Closing Date, Seller shall be liquidated and dissolved, (b) Seller shall not transact any business following the Closing Date except as necessary to wind up its affairs and to be liquidated and dissolved, (c) Seller shall not issue any securities on or after the Closing Date , and (d) no stockholder of Seller (including the Shareholder) shall transfer, encumber or dispose of any stock or other securities of Seller at any time on or after the Closing Date. Prior to the liquidation and dissolution of Seller, Seller shall pay and fully discharge all of its Liabilities (other than the Specified Contractual Liabilities), including (i) all Liabilities to their current and former employees for wages, commissions, severance pay and vacation pay, and (ii) all accounts payable and long-term indebtedness relating to its business. 6.5 Tax Returns. At least ten days prior to the filing with any Governmental Body (by Seller or the Shareholder) of any Tax Return relating to or reflecting any of the Transactions, Seller and the Shareholder shall cause a copy of such Tax Return (in the form proposed to be filed) to be delivered to Parent and Purchaser for their review. Seller and the Shareholder shall ensure that each such Tax Return is accurate and complete and is filed on a timely basis with the appropriate Governmental Body. 6.6 Further Actions. From and after the Closing Date, the Shareholder and Seller shall cooperate with Parent, Purchaser and their affiliates and Representatives, and shall execute and deliver such documents and take such other actions as Parent or Purchaser may reasonably request, for the purpose of evidencing the Transactions and putting Purchaser in possession and control of all of the Purchased Seller Assets and Purchased Shareholder Assets. Without limiting the generality of the foregoing, from and after the Closing Date, Seller shall promptly remit to Purchaser any funds that are received by Seller under Contracts included in the Purchased Seller Assets and Purchased Shareholder Assets. Seller hereby: (a) irrevocably authorizes Parent and Purchaser to endorse in the name of Seller any check or other instrument that is made payable to Seller and that represents the payment of any amount due under any Contract included in the Purchased Seller Assets; and (b) irrevocably nominates, constitutes and appoints Parent and Purchaser, and each of them, as true and lawful attorneys-in-fact of Seller (with full power of substitution) and hereby authorizes Parent and Purchaser, and each of them, in the name of and on behalf of Seller, to execute, deliver, acknowledge, certify, file and record any document, to institute and prosecute any Legal Proceeding and to take any other action that Parent or Purchaser may deem appropriate for the purpose of (i) collecting, asserting, enforcing or perfecting any claim, right or interest of any kind that is included in or relates to any of the Purchased Seller Assets, (ii) defending or compromising any claim or Legal Proceeding relating to any of the Purchased Seller Assets, or (iii) otherwise carrying out or facilitating any of the Transactions. The power of attorney referred to in the preceding sentence is and shall be coupled with an interest and shall be irrevocable, and shall survive the liquidation and dissolution of Seller. Neither Parent nor Purchaser shall be entitled to receive any payment by operation of this Section 6.6 with respect to any accounts receivable of Seller existing as of the Closing Date. 6.7 Publicity. The Shareholder and Seller shall ensure that, on and at all times after the Closing Date: (a) no press release or other publicity concerning any of the Transactions is issued or otherwise disseminated by or on behalf of the Shareholder or Seller without Parent's prior written consent; (b) the Shareholder and Seller continue to keep the terms of this Agreement and the other Transactional Agreements strictly confidential; and (c) the Shareholder and Seller keep strictly confidential, and neither the Shareholder nor Seller uses or discloses to any other Person, any non-public document or other information that relates directly or indirectly to any of the Purchased Seller Assets or Purchased Shareholder Assets to the business of either of Seller, Purchaser or any affiliate of Purchaser. 6.8 Standstill. Shareholder agrees that it will not, directly or indirectly, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale against, pledge or otherwise dispose of any of the Shares, without the prior written consent of Parent for a period of two years from the date hereof, provided, however, that the two year period shall be reduced to one year if, at any time, the Commission shall reduce the holding period under Rule 144(d)(1) promulgated under the Securities Act from two years to one year. Notwithstanding the foregoing, the Shareholder may transfer any of the Shares either during her lifetime or on death by will or intestacy to her immediate family or to a trust the beneficiaries of which are exclusively the Shareholder and/or a member or members of her immediate family; provided, however, that prior to any such transfer each transferee shall execute an agreement, satisfactory to Parent, pursuant to which each transferee shall agree to receive and hold such shares subject to the provisions of this paragraph, and there shall be no further transfer except in accordance with the provisions hereof. For the purposes of this paragraph, "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. Shareholder understands that this provision shall be binding upon Shareholder's heirs, legal representatives, successors and assigns. Shareholder agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the Shares except in compliance with this agreement. 6.9 Release of Security Interests. Within 15 days of the Closing Date, Seller shall satisfy in full its outstanding obligations to Mydata Automation Inc. and The Sumitomo Bank of California and obtain a UCC-2 release of any security interests held in the Purchaser Seller Assets. 6.10 Allocation. The consideration referred to in Section 1.2(a) is to be allocated among the Purchased Seller Assets in the manner described in Exhibit D, which exhibit shall be attached to this Agreement upon the Closing. The parties agree to negotiate in good faith to determine the allocation among the Purchased Seller Assets and to complete such negotiation prior to Closing. The allocation described in Exhibit D shall be conclusive and binding upon the Shareholder and Seller for all purposes, and no party to this Agreement shall file any Tax Return or other document with, or make any statement or declaration to, any Governmental Body that is inconsistent with such allocation. 6.11 Contingent Registration Right. If, during the 90 day period immediately after the holding period under paragraph (d) of Rule 144 promulgated under the Securities Act or any successor rule ("Rule 144") is satisfied in respect of the Shares by the Shareholder, and the Shareholder cannot sell all of the Shares pursuant to Rule 144 (assuming the Shareholder takes all actions within her control to comply with Rule 144) because of restrictions on the number of share salable under paragraph (e) of Rule 144, upon the Shareholder's written request made during the 30 days following such 90 day period, Parent, at Parent's expense, will file a registration statement under the Securities Act on Form S-3, if such form is then available to Parent, and after such filing, will use its reasonable best efforts to cause such registration statement to become effective and to remain effective for 90 days. The rights under this Section 6.11 are not transferrable. To the extent any of the Shares have been transferred pursuant to Section 6.8, such transferred Shares may be incorporated into the registration statement. 7. Conditions Precedent to Obligations of Parent and Purchaser The obligations of Parent and Purchaser to consummate the Transactions are subject to the satisfaction, at or prior to the Closing, of each of the following conditions: 7.1 Accuracy of Representations. Each of the representations and warranties made by Seller and the Shareholder in this Agreement and in each of the other agreements and instruments delivered to Parent or Purchaser in connection with the Transactions shall have been accurate in all material respects as of the date of this Agreement (without giving effect to any "Material Adverse Effect" or other materiality qualifications, or any similar qualifications, contained or incorporated directly or indirectly in such representations and warranties), and shall be accurate in all material respects as of the Scheduled Closing Time as if made at the Scheduled Closing Time (without giving effect to any update to the Disclosure Schedule and without giving effect to any "Material Adverse Effect" or other materiality qualifications, or any similar qualifications, contained or incorporated directly or indirectly in such representations and warranties). 7.2 Performance of Covenants. All of the covenants and obligations that Seller or the Shareholder is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all respects. 7.3 Consents. All Consents required or advisable to be obtained in connection with the Transactions (including the Consents identified in Part 2.19 of the Disclosure Schedule) shall have been obtained and shall be in full force and effect. 7.4 Agreements and Documents. Parent and Purchaser shall have received the following agreements and documents, each of which shall be in full force and effect: (a) the Noncompetition Agreement, executed by the Shareholder; (b) the Closing Certificate; (c) any bills of sale, endorsements and assignments in form acceptable to Purchaser transferring title to the Purchased Seller Assets and Purchased Shareholder Assets to Purchaser; (d) such other documents evidencing the transfer of the Purchased Seller Assets and Purchased Shareholder Assets to Purchaser as are reasonably requested by Purchaser; (e) estoppel certificates with respect to various contractual obligations of Seller; (f) evidence that any notices or filings required to have been given to or made with Governmental Bodies in connection with the Transactions have been given and made and that all Consents required to have been obtained in connection with the Transactions have been obtained; and (g) such other documents as Parent or Purchaser may request in good faith for the purpose of (i) evidencing the accuracy of any representation or warranty made by Seller or the Shareholder, (ii) evidencing the compliance by Seller or the Shareholder with, or the performance by Seller or the Shareholder of, any covenant or obligation set forth in the Agreement, (iii) evidencing the satisfaction of any condition set forth in this Section 7, or (iv) otherwise facilitating the consummation or performance of any of the Transactions. 7.5 No Restraints. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Transactions shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Transactions that makes consummation of the Transactions illegal. 7.6 No Legal Proceedings. No Person shall have commenced or threatened to commence any Legal Proceeding challenging or seeking the recovery of a material amount of damages in connection with the Transactions or seeking to prohibit or limit the exercise by Purchaser of any material right pertaining to its ownership of the Purchased Seller Assets or the Purchased Shareholder Assets. 7.7 Key Employees. The Persons identified in Exhibit F (the "Key Employees") shall have been employees of Seller at all times since the date of this Agreement and none of the Key Employees shall have failed to accept an offer of employment from Purchaser (conditional on the occurrence of the Closing) or communicated to any Person any intent to terminate his or her present or future employment with Purchaser or Seller. 7.8 Actions Satisfactory. All actions and proceeding taken in connection with the Transactions, and all documents relating to the Transactions, shall be reasonably satisfactory in form and substance to Parent, Purchaser and their counsel. 7.9 Satisfactory Completion of Pre-Acquisition Review. Parent and Purchaser shall have satisfactorily completed their pre-acquisition investigation and review of the business, condition, assets, liabilities, operations, financial performance, net income and prospects of Seller and shall be satisfied in their sole discretion with the results of that investigation and review. 7.10 Customer References. Seller shall have provided to Parent and Purchaser, and Parent and Purchaser shall be satisfied with, in their sole discretion, customer references of Seller. 7.11 Mylex Profit Projection. Seller shall have provided to Parent and Purchaser, and Parent and Purchaser shall be satisfied with, in their sole discretion, a profit projection for Seller's Mylex turnkey project covering the period from May 1, 1996 through September 30, 1996. 7.12 Board Approval. The transaction contemplated by this Agreement shall have been duly authorized by the Boards of Directors of Parent and Purchaser. 8. Conditions Precedent to Obligations of Seller and the Shareholder The obligations of Seller and the Shareholder to consummate the Transactions are subject to the satisfaction, at or prior to the Closing, of the following conditions: 8.1 Accuracy of Representations. Each of the representations and warranties made by Parent and Purchaser in this Agreement shall have been accurate in all material respects as of the date of this Agreement (without giving effect to any materiality or similar qualifications contained in such representations and warranties), and shall be accurate in all material respects as of the Scheduled Closing Time as if made at the Scheduled Closing Time (without giving effect to any materiality or similar qualifications contained in such representations and warranties). 8.2 Performance of Covenants. All of the covenants and obligations that Parent and Purchaser are required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all respects. 8.3 No Restraints. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Transactions shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Transactions that makes consummation of any of the Transactions illegal. 9. Termination 9.1 Termination Events. This Agreement may be terminated prior to the Closing: (a) by Parent or Purchaser if a Material Adverse Effect on Seller has occurred since the date of this Agreement; (b) by Parent or Purchaser if either reasonably determines that the timely satisfaction of any material condition set forth in Section 7 has become impossible (other than as a result of any failure on the part of Parent or Purchaser to comply with or perform any covenant or obligation of Parent or Purchaser set forth in this Agreement); (c) by Seller if Seller reasonably determines that the timely satisfaction of any material condition set forth in Section 8 has become impossible (other than as a result of any failure on the part of Seller to comply with or perform any covenant or obligation set forth in this Agreement); (d) by Parent or Purchaser at or after the Scheduled Closing Time if any material condition set forth in Section 7 has not been satisfied by the Scheduled Closing Time; (e) by Seller at or after the Scheduled Closing Time if any material condition set forth in Section 8 has not been satisfied by the Scheduled Closing Time; (f) by Parent or Purchaser if the Closing has not taken place on or before May 31, 1996 (other than as a result of any failure on the part of Parent or Purchaser to comply with or perform any covenant or obligation of Parent or Purchaser set forth in this Agreement); (g) by Seller if the Closing has not taken place on or before May 31, 1996 (other than as a result of the failure on the part of Seller to comply with or perform any covenant or obligation set forth in this Agreement); or (h) by the mutual consent of Parent, Purchaser and Seller. 9.2 Termination Procedures. If Parent or Purchaser wishes to terminate this Agreement pursuant to Section 9.1(a), Section 9.1(b), Section 9.1(d) or Section 9.1(f), Parent or Purchaser, as the case may be, shall deliver to Seller a written notice stating that it is terminating this Agreement and setting forth a brief description of the basis on which it is terminating this Agreement. If Seller wishes to terminate this Agreement pursuant to Section 9.1(c), Section 9.1(e) or Section 9.1(g), Seller shall deliver to Parent and Purchaser a written notice stating that Seller is terminating this Agreement and setting forth a brief description of the basis on which Seller is terminating this Agreement. 9.3 Effect of Termination. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement shall terminate; provided, however, that: (a) neither Seller, Purchaser nor Parent shall be relieved of any obligation or Liability arising from any prior breach by such party of any provision of this Agreement; and (b) the parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Section 11. 10. Indemnification and Other Remedies 10.1 Survival of Representations and Covenants. (a) The representations, warranties, covenants and obligations of each party to this Agreement shall survive (without limitation): (i) the execution and delivery of this Agreement and the sale of the Purchased Seller Assets and Purchased Shareholder Assets to Purchaser; (ii) any subsequent sale or other disposition of any or all of the Purchased Seller Assets or Purchased Shareholder Assets by Purchaser; (iii) the liquidation and dissolution of Seller; and (iv) the death of the Shareholder. All of said representations, warranties, covenants and obligations shall remain in full force and effect and shall survive for an unlimited period of time. (b) The representations, warranties, covenants and obligations of the Shareholder and Seller, and the rights and remedies that may be exercised by the Indemnitees, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, any of the Indemnitees or any of their Representatives. (c) For purposes of this Agreement, each statement or other item of information set forth in the Disclosure Schedule shall be deemed to be a representation and warranty made by the Shareholder and Seller in this Agreement. 10.2 Indemnification by the Shareholder and Seller. The Shareholder and Seller, jointly and severally, shall hold harmless and indemnify each of the Indemnitees from and against, and shall compensate and reimburse each of the Indemnitees for, any Damages that are directly or indirectly suffered or incurred by any of the Indemnitees or to which any of the Indemnitees may otherwise become subject at any time (regardless of whether or not such Damages relate to any third-party claim) and that arise directly or indirectly from or as a direct or indirect result of, or are directly or indirectly connected with: (a) any breach of any representation or warranty made by the Shareholder or Seller in this Agreement or any of the other Transactional Agreements; (b) any breach of any representation, warranty, statement, information or provision contained in the Disclosure Schedule; (c) any breach of any covenant or obligation of the Shareholder or Seller; (d) any Liability of Seller, the Shareholder or any Related Party, other than the Specified Contractual Liabilities; (e) any Liability (other than the Specified Contractual Liabilities) to which Parent, Purchaser or any of the other Indemnitees may become subject and that arises directly or indirectly from or relates directly or indirectly to (A) any product or system manufactured, assembled or sold by Seller, (B) any services performed by or on behalf of Seller, (C) the presence of any Hazardous Material in the soils, groundwater, surface water or air on, under, about or emanating from any site owned, leased, occupied or controlled by Seller on or at any time prior to the Closing Date, (D) the generation, manufacture, production, transportation, importation, use, treatment, refinement, processing, handling, storage, discharge, release or disposal of any Hazardous Material (whether lawfully or unlawfully) by or on behalf of Seller on or at any time prior to the Closing Date, or (F) the operation of the business of Seller, or (G) any claim, demand or action relating to Seller or the Transactions made by any Person who at any time claims to have been a holder of capital stock of Seller or any option, warrant or right (regardless of whether exercised or converted) to acquire capital stock of Seller; or (f) any Legal Proceeding relating directly or indirectly to (A) any breach, Liability, statement, omission or other matter of the type referred to in clause "(a)," "(b)," "(c)," "(d)" or "(e)" above (including any Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any of its rights under this Section 10) or (B) any allegation of any item referred to in the foregoing clause "(A)." 10.3 Indemnification by Parent and Purchaser. Parent and Purchaser shall hold harmless and indemnify each of Seller and Shareholder from and against, and shall compensate and reimburse each of the Seller and Shareholder for, any Damages that are directly or indirectly suffered or incurred by Seller and Shareholder, as the case may be, or to which Seller or Shareholder, as the case may be, may otherwise become subject at any time (regardless of whether or not such Damages relate to any third-party claim) and that arise directly or indirectly from or as a direct or indirect result of, or are directly or indirectly connected with: (a) any breach of any representation or warranty made by Parent or Purchaser in this Agreement or any of the other Transactional Agreements; (b) any breach of any covenant or obligation of Parent or Purchaser in this Agreement; or (c) any Legal Proceeding relating directly or indirectly to any breach, Liability, statement, omission or other matter of the type referred to in clause "(a)," or "(b)" above (including any Legal Proceeding commenced by Seller or Shareholder for the purpose of enforcing any of its rights under this Section 10). 10.4 Interest. Any party that is required to indemnify any other Person pursuant to this Section 10 with respect to any Damages shall also be required to pay such other Person interest on the amount of such Damages (for the period commencing as of the date on which such other Person first incurred or otherwise became subject to such Damages and ending on the date on which the applicable indemnification payment is made by such party) at a floating rate two percentage points above the rate of interest publicly announced by the Bank of America N.T. & S.A. from time to time as its prime, base or reference rate. 10.5 Setoff. In addition to any rights of setoff or other rights that Parent, Purchaser or any of the other Indemnitees may have at common law or otherwise, each of Parent and Purchaser shall have the right to withhold and deduct any sum that may be owed to any Indemnitee under this Section 10 from any amount otherwise payable by any Indemnitee to Seller or the Shareholder, including without limitation the Promissory Note. The exercise of such right of setoff by Parent or Purchaser, whether or not ultimately determined to be permitted pursuant to this Section 10.5, shall not constitute an event of default under the Promissory Note. The withholding and deduction of any such sum shall operate for all purposes as a complete discharge (to the extent of such sum) of the obligation to pay the amount from which such sum was withheld and deducted. 10.6 Nonexclusivity of Indemnification Remedies. The indemnification remedies and other remedies provided in this Section 10 shall not be deemed to be exclusive. Accordingly, the exercise by any Person of any of its rights under this Section 10 shall not be deemed to be an election of remedies and shall not be deemed to prejudice, or to constitute or operate as a waiver of, any other right or remedy that such Person may be entitled to exercise (whether under this Agreement, under any other Contract, under any statute, rule or other Legal Requirement, at common law, in equity or otherwise). 10.7 Defense of Third Party Claims. (a) In the event of the assertion or commencement by any Person other than an indemnified Section 10 Person (as hereinafter defined) of any claim or Legal Proceeding (whether against Purchaser, against any other Indemnitee or against any other Person) with respect to which an indemnifying Section 10 Person may become obligated to indemnify, hold harmless, compensate or reimburse any indemnified Section 10 Person pursuant to this Section 10, such indemnified Section 10 Person shall have the right, at its election, to designate the indemnifying Section 10 Person to assume the defense of such claim or Legal Proceeding at the sole expense of the indemnifying Section 10 Person. If an indemnified Section 10 Person so elects to designate an indemnifying Section 10 Person to assume the defense of any such claim or Legal Proceeding: (i) the indemnifying Section 10 Person shall proceed to defend such claim or Legal Proceeding in a diligent manner with counsel satisfactory to the indemnified Section 10 Person; (ii) the indemnified Section 10 Person shall make available to the indemnifying Section 10 Person any non-privileged documents and materials in the possession of the indemnified Section 10 Person that may be necessary to the defense of such claim or Legal Proceeding; (iii) the indemnifying Section 10 Person shall keep the indemnified Section 10 Person informed of all material developments and events relating to such claim or Legal Proceeding; (iv) except where separate counsel has been engaged by the indemnifying Section 10 Person as provided in Section 10.7(b), the indemnified Section 10 Person shall have the right to participate in the indemnifying Section 10 Person's defense of such claim or Legal Proceeding; (v) the indemnifying Section 10 Person shall not settle, adjust or compromise such claim or Legal Proceeding without the prior written consent of the indemnified Section 10 Person; and (vi) the indemnified Section 10 Person may at any time (notwithstanding the prior designation of the indemnifying Section 10 Person to assume the defense of such claim or Legal Proceeding) assume the defense of such claim or Legal Proceeding (it being understood that, where separate counsel has been engaged by the indemnifying Section 10 Person pursuant to Section 10.7(b), the indemnified Section 10 Person cannot assume the defense being conducted by such separate counsel on behalf of the indemnifying Section 10 Person). If the indemnified Section 10 Person does not elect to designate the indemnifying Section 10 Person to assume the defense of any such claim or Legal Proceeding (or if, after initially designating the indemnifying Section 10 Person to assume such defense, the indemnified Section 10 Person elects to assume such defense), the indemnified Section 10 Person may proceed with the defense of such claim or Legal Proceeding on its own. If the indemnified Section 10 Person so proceeds with the defense of any such claim or Legal Proceeding on its own: (1) all expenses relating to the defense of such claim or Legal Proceeding shall be borne and paid exclusively by the indemnifying Section 10 Person; (2) the indemnifying Section 10 Person shall make available to the indemnified Section 10 Person any documents and materials in the possession or control of the indemnifying Section 10 Person that may be necessary to the defense of such claim or Legal Proceeding; (3) the indemnified Section 10 Person shall keep the indemnifying Section 10 Person informed of all material developments and events relating to such claim or Legal Proceeding; and (4) the indemnified Section 10 Person shall have the right to settle, adjust or compromise such claim or Legal Proceeding with the consent of the indemnifying Section 10 Person; provided, however, that the indemnifying Section 10 Person shall not unreasonably withhold such consent. (b) If the defendants in any Legal Proceeding include both an indemnified Section 10 Person and an indemnifying Section 10 Person and any Section 10 Person shall have reasonably concluded that there may be a conflict between the positions of an indemnifying Section 10 Person and an indemnified Section 10 Person in conducting the defense of any such action or that there may be legal defenses available to it and/or other Section 10 Persons similarly situated with respect to such Legal Proceeding under this Section 10 which are different from or in addition to those available to another Section 10 Person, such Section 10 Person shall have the right to select separate counsel to conduct such legal defenses on behalf of such Section 10 Person and to otherwise participate in the defense of such action on behalf of such Section 10 Person. As used herein, any Person indemnifying another Person under this Section 10 and any Person indemnified by another Person under this Section 10 may be referred to as a "Section 10 Person." In the event a Section 10 Person exercises its right to separate counsel set forth in this Section 10.7(b), nothing in this Section 10.7 shall limit or terminate any obligation of an indemnifying Section 10 Person to an indemnified Section 10 Person under this Section 10 (including without limitation the obligations (i) to indemnify, hold harmless, reimburse and compensate an indemnified Section 10 Person and (ii) to pay the fees and expenses of the separate counsel of an indemnified Section 10 Person). 10.8 Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee (other than Parent or any successor thereto or assign thereof) shall be permitted to assert any indemnification claim or exercise any other remedy under this Agreement unless Parent (or any successor thereto or assign thereof) shall have consented to the assertion of such indemnification claim or the exercise of such other remedy. 11. Miscellaneous Provisions 11.1 Joint and Several Liability. The Shareholder shall be jointly and severally liable with Seller for the due and timely compliance with and performance of each of the covenants and obligations of Seller set forth in the Transactional Agreements. The Shareholder's obligations and Liability under this Agreement and the other Transactional Agreements shall survive the Shareholder's death (and shall be binding upon the Shareholder's personal representatives, executors, administrators, estate, heirs and successors) and shall not be limited in any way by: (i) any failure on the part of Parent, Purchaser or any other Indemnitee to exercise any right or assert any claim against Seller or the Shareholder; or (ii) the liquidation and dissolution of Seller. 11.2 Certain Disclaimers. Seller and the Shareholder acknowledge that, notwithstanding anything to the contrary contained in this Agreement, neither Parent nor Purchaser has made or provided, and neither Parent nor Purchaser is making or providing, any representation, warranty, covenant or assurance of any nature (implied or otherwise) regarding: (a) the manner in which any of the Transactions will be treated or characterized for Tax purposes, or the Tax consequences of any of the Transactions to Seller or the Shareholder; or (b) the employment or retention by Parent or Purchaser of any current or former employee of either of Seller, or the terms of employment of any such employee that Parent or Purchaser may elect to hire. 11.3 Fees and Expenses. (a) Subject to the provisions of Section 10 (including the indemnification and other obligations of Parent and Purchaser thereunder), Shareholder and Seller shall jointly and severally bear and pay all fees, costs and expenses (including all legal fees and expenses) that have been incurred or that are in the future incurred by, on behalf of or for the benefit of the Shareholder or Seller in connection with: (i) the negotiation, preparation and review of any letter of intent or similar document relating to any of the Transactions; (ii) the investigation and review conducted by Parent, Purchaser and their Representatives with respect to the business of Seller (and the furnishing of information to Parent and Purchaser and their Representatives in connection with such investigation and review); (iii) the negotiation, preparation and review of this Agreement (including the Disclosure Schedule), the other Transactional Agreements and all bills of sale, assignments, certificates and other instruments and documents delivered or to be delivered in connection with the Transactions; (iv) the preparation and submission of any filing or notice required to be made or given in connection with any of the Transactions, and the obtaining of any Consent required to be obtained in connection with any of the Transactions; and (v) the consummation and performance of the Transactions. (b) Subject to the provisions of Section 10 (including the indemnification and other obligations of Seller and the Shareholder thereunder), Parent and Purchaser shall bear and pay all fees, costs and expenses (including all legal fees and expenses payable to Cooley Godward Castro Huddleson & Tatum) that have been incurred or that are in the future incurred by or on behalf of Parent or Purchaser in connection with: (i) the negotiation, preparation and review of any letter of intent or similar document relating to any of the Transactions; (ii) the investigation and review conducted by Parent, Purchaser and their Representatives with respect to the business of Seller; (iii) the negotiation, preparation and review of this Agreement, the other Transactional Agreements and all bills of sale, assignments, certificates and other instruments and documents delivered or to be delivered in connection with the Transactions; and (iv) the consummation and performance of the Transactions. 11.4 Attorneys' Fees. If any legal action or other Legal Proceeding relating to any of the Transactional Agreements or the enforcement of any provision of any of the Transactional Agreements is brought against any party to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled). 11.5 Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile number set forth beneath the name of such party below (or to such other address or telephone number as such party shall have specified in a written notice given to the other parties hereto): if to Shareholder: Helen Kwong 6082 Stewart Avenue Fremont, CA 94538 Facsimile: 510-657-5863 if to Seller: Anetec Technology, Inc. 6082 Stewart Avenue Fremont, CA 94538 Facsimile: 510-657-5863 if to Parent: Elexsys International Inc. 1188 Bourdeaux Drive Sunnyvale, CA 94089 Facsimile: 408-743-5454 with a copy to: Cooley Godward Castro Huddleson & Tatum Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attn: Alan C. Mendelson, Esq. Facsimile: 415-857-0663 if to Purchaser: ELXI Acquisition, Inc. 1188 Bourdeaux Drive Sunnyvale, CA 94089 Facsimile: 408-743-5454 with a copy to: Cooley Godward Castro Huddleson & Tatum Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attn: Alan C. Mendelson, Esq. Facsimile: 415-857-0663 11.6 Time of the Essence. Time is of the essence of this Agreement. 11.7 Headings. The underlined headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement. 11.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. 11.9 Governing Law; Venue. (a) This Agreement shall be construed in accordance with, and governed in all respects by, the internal laws of the State of California (without giving effect to principles of conflicts of laws). (b) Subject to Section 11.17, any legal action or other Legal Proceeding relating to this Agreement, brought to enforce any award of an arbitrator or to request provisional relief pursuant to Exhibit I hereof, may be brought or otherwise commenced in any state or federal court located in the City and County of Santa Clara, California. Each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in the City and County of Santa Clara, California (and each appellate court located in the State of California) in connection with any such legal proceeding; (ii) agrees that each state and federal court located in the City and County of Santa Clara, California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the City and County of Santa Clara, California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court. (c) Notwithstanding anything in this Agreement to the contrary, if any Legal Proceeding is commenced against any party to this Agreement by any Person in or before any court or other tribunal anywhere in the United States, then such party may proceed against any other party to this Agreement in such court or other tribunal with respect to any indemnification claim or other claim arising directly or indirectly from or relating directly or indirectly to such Legal Proceeding or any of the matters alleged therein or any of the circumstances giving rise thereto. (d) Except as provided by Section 11.17, nothing contained in Section 11.9(b) or 11.9(c) shall be deemed to limit or otherwise affect the right of any Indemnitee to commence any Legal Proceeding or otherwise proceed against any of the Shareholder or either of Seller in any other forum or jurisdiction. (e) Seller irrevocably constitutes and appoints the Shareholder as its agent to receive service of process in connection with any legal proceeding relating to this Agreement or the enforcement of any provision of this Agreement. (f) Each party hereto irrevocably waives the right to a jury trial in connection with any Legal Proceeding relating to this Agreement or the enforcement of any provision of this Agreement. 11.10 Successors and Assigns; Parties in Interest. (a) This Agreement shall be binding upon: the Seller and its successors and assigns (if any); the Shareholder and his personal representatives, executors, administrators, estate, heirs, successors and assigns (if any); Parent and its successors and assigns (if any); and Purchaser and its successors and assigns (if any). This Agreement shall inure to the benefit of: Seller; the Shareholder; Parent; Purchaser; the other Indemnitees (subject to Section 10.8); and the respective successors and assigns (if any) of the foregoing. (b) Parent and Purchaser may freely assign any or all of their respective rights under this Agreement (including its indemnification rights under Section 10), in whole or in part, to any other Person without obtaining the consent or approval of any other party hereto or of any other Person. Neither Shareholder nor Seller shall be permitted to assign any of his, her or its rights or delegate any of his, her or its obligations under this Agreement without Parent's prior written consent. (c) Except for the provisions of Section 10 hereof, none of the provisions of this Agreement is intended to provide any rights or remedies to any Person other than the parties to this Agreement and their respective successors and assigns (if any). Without limiting the generality of the foregoing, (i) none of Seller's employees shall have any rights under this Agreement or under any of the other Transactional Agreements (except for the Shareholder as expressly agreed) and (ii) no creditor of either of Seller shall have any rights under this Agreement or any of the other Transactional Agreements. 11.11 Remedies Cumulative; Specific Performance. The rights and remedies of the parties hereto shall be cumulative (and not alternative). Parent, Purchaser, Shareholder and Seller agree that: (a) in the event of any breach or threatened breach by a party to this Agreement of any covenant, obligation or other provision set forth in this Agreement or any other Transaction Agreement, any non-breaching party shall be entitled (in addition to any other remedy that may be available to it) to (i) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (ii) an injunction restraining such breach or threatened breach; and (b) neither party to this Agreement or Indemnitee shall be required to provide any bond or other security in connection with any such decree, order or injunction or in connection with any related action or Legal Proceeding. 11.12 Waiver. (a) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy. (b) No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given. 11.13 Amendments. This Agreement may be amended, modified, altered or supplemented only by means of a written instrument duly executed and delivered on behalf of Purchaser and the Shareholder. 11.14 Severability. In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by law. 11.15 Entire Agreement. The Transactional Agreements set forth the entire understanding of the parties relating to the subject matter thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter thereof, including, without limitation, the Letter Agreement dated April 23, 1996 between Parent and Seller and the Letter of Intent dated April 4, 1996 between Parent and Seller. 11.16 Construction. (a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders. (b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement. (c) As used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words "without limitation." (d) Except as otherwise indicated, all references in this Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement and Exhibits to this Agreement. (e) 11.17 Arbitration. After the Closing, the parties agree to arbitrate any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement through arbitration in accordance with Exhibit I hereto, which Exhibit I is hereby incorporated by reference into this Agreement and made a part hereof. The parties to this Agreement have caused this Agreement to be executed and delivered as of May 3, 1996. Anetec Technology, Inc., a California corporation By: Helen Kwong, President Helen Kwong, an individual Elexsys International Inc., a Delaware corporation By: W. Barry Hegarty, President ELXI Acquisition, Inc., a California corporation By: W. Barry Hegarty, President EXHIBIT A CERTAIN DEFINITIONS For purposes of the Agreement (including this Exhibit A): Acquisition Transaction. "Acquisition Transaction" shall mean any transaction involving: (a) the sale, license, disposition or acquisition of all or a material portion of Seller's business or assets; (b) the issuance, disposition or acquisition of (i) any capital stock or other equity security of Seller, (ii) any option, call, warrant or right (whether or not immediately exercisable) to acquire any capital stock or other equity security of Seller or (iii) any security, instrument or obligation that is or may become convertible into or exchangeable for any capital stock or other equity security of Seller; or (c) any merger, consolidation, business combination, reorganization or similar transaction involving Seller. Agreement. "Agreement" shall mean the Asset Purchase Agreement to which this Exhibit A is attached, as it may be amended from time to time. Commission. "Commission" shall mean the Securities and Exchange Commission. Consent. "Consent" shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization). Contract. "Contract" shall mean any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, note, warranty, insurance policy, benefit plan or legally binding commitment or undertaking of any nature. Damages. "Damages" shall include any loss, damage, injury, decline in value, lost opportunity, liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost (including costs of investigation) or expense of any nature. Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated as of the date of the Agreement) delivered to Parent and Purchaser on behalf of Seller and the Shareholder. Employee Benefit Plan. "Employee Benefit Plan" shall have the meaning specified in Section 3(3) of ERISA. Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). Entity. "Entity" shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity. ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. ERISA Affiliate. "ERISA Affiliate" shall mean any Person that is, or would be treated as a single employer with Seller under Section 414 of the Code. Excluded Assets. "Excluded Assets" shall mean the assets identified on Exhibit G (to the extent owned by Seller on the date of execution and delivery of this Agreement). Government Bid. "Government Bid" shall mean any quotation, bid or proposal submitted to any Governmental Body or any proposed prime contractor or higher-tier subcontractor of any Governmental Body. Government Contract. "Government Contract" shall mean any prime contract, subcontract, letter contract, purchase order or delivery order executed or submitted to or on behalf of any Governmental Body or any prime contractor or higher-tier subcontractor, or under which any Governmental Body or any such prime contractor or subcontractor otherwise has or may acquire any right or interest. Governmental Authorization. "Governmental Authorization" shall mean any: (a) permit, license, certificate, franchise, permission, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Contract with any Governmental Body. (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or Entity and any court or other tribunal). (b) (b) Parent; (b) Purchaser; (c) Parent's current and future affiliates; (d) the respective Representatives of the Persons referred to in clauses "(a)", "(b)" and "(c)" above; and (e) the respective successors and assigns of the Persons referred to in clauses "(a)", "(b)", "(c)" and "(d)" above; provided, however, that in no event shall Seller or the Shareholder be deemed to be "Indemnitees." Legal Proceeding. "Legal Proceeding" shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel. Legal Requirement. "Legal Requirement" shall mean any federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body. Liability. "Liability" shall mean any debt, obligation, duty or liability of any nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint, several or secondary liability), regardless of whether such debt, obligation, duty or liability would be required to be disclosed on a balance sheet prepared in accordance with generally accepted accounting principles and regardless of whether such debt, obligation, duty or liability is immediately due and payable. Material Adverse Effect. A violation or other matter will be deemed to have a "Material Adverse Effect" on Seller if such violation or other matter (considered together with all other matters that would constitute exceptions to the representations and warranties set forth in the Agreement or in the Closing Certificate but for the presence of "Material Adverse Effect" or other materiality qualifications, or any similar qualifications, in such representations and warranties) would have a material adverse effect on Seller's business, intellectual property rights, condition, assets, liabilities, operations, financial performance or prospects. Net Revenues. "Net Revenues" means the gross amount collected on the sale of products, maintenance or services less (a) discounts actually allowed, (b) credits for claims, allowances, retroactive price reductions or returned items, (c) prepaid freights, (d) sales taxes or other governmental charges actually paid in connection with the sale (but excluding what is commonly known as income tax), and (e) brokerage, commissions and other reasonable fees paid to others for or in connection with sales of products, maintenance or services. Person. "Person" shall mean any individual, Entity or Governmental Body. Proprietary Asset. "Proprietary Asset" shall mean: (a) any patent, patent application, trademark (whether registered or unregistered), trademark application, trade name, fictitious business name, service mark (whether registered or unregistered), service mark application, copyright (whether registered or unregistered), copyright application, maskwork, maskwork application, trade secret, know-how, customer list, franchise, system, computer software, computer program, invention, design, blueprint, engineering drawing, proprietary product, technology, proprietary right or other intellectual property right or intangible asset; and (b) any right to use or exploit any of the foregoing. Purchased Seller Assets. "Purchased Seller Assets" shall mean and include all of the properties, rights, interests and other tangible and intangible assets of Seller (wherever located and whether or not required to be reflected on a balance sheet prepared in accordance with generally accepted accounting principles). Without limiting the generality of the foregoing, the Purchased Seller Assets shall include: (2) inventories; work-in-process; and finished goods; (3) fixed assets; (4) intangible assets (rights (but not duties or obligations) under contracts, customer lists, supplier lists, trade secrets, software, procedures and any other items required by Parent or Purchaser to continue Seller's operations); (5) any investments or securities held by Seller; (6) all equipment, materials, prototypes, tools, supplies, vehicles, furniture, fixtures, improvements and other tangible assets of Seller (including the tangible assets identified in Part 2.9 of the Disclosure Schedule); (7) all advertising and promotional materials possessed by Seller; (8) all Seller Proprietary Assets and goodwill of Seller; (9) all rights of Seller under Seller Contracts (including the Contracts identified in Part 2.9 of the Disclosure Schedule); (10) all Governmental Authorizations held by Seller (including the Governmental Authorizations identified in Part 2.12 of the Disclosure Schedule); (11) all claims and causes of action of Seller against other Persons (regardless of whether or not such claims and causes of action have been asserted by Seller), and all rights of indemnity, warranty rights, rights of contribution, rights to refunds, rights of reimbursement and other rights of recovery possessed by Seller (regardless of whether such rights are currently exercisable); and (12) all books, records, files and data of Seller. Purchased Shareholder Assets. "Purchased Shareholder Assets" shall consist of all of the tangible assets owned by the Shareholder needed for the conduct of or useful in connection with the business of Seller, including, without limitation, the items identified on Exhibit J. Representatives. "Representatives" shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives. Sales and Property Tax. "Sales and Property Tax" shall mean any tax (including any value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body. Securities Act. "Securities Act" shall mean the Securities Act of 1933, as amended. Seller Contract. "Seller Contract" shall mean any Contract: (a) to which Seller is a party; (b) by which Seller or any of its assets is or may become bound or under which Seller has, or may become subject to, any obligation; or (c) under which Seller has or may acquire any right or interest. Seller Plan. "Seller Plan" shall mean any Employee Benefit Plan that is currently in effect and: (d) that was established or adopted by Seller or any ERISA Affiliate or is maintained or sponsored by Seller; (e) in which Seller participates; (f) with respect to which Seller or any ERISA Affiliate is or may be required or permitted to make any contribution; or (g) with respect to which Seller or any ERISA Affiliate is or may become subject to any liability. Seller Proprietary Asset. "Seller Proprietary Asset" shall mean any Proprietary Asset owned by or licensed to Seller or otherwise used by Seller. Specified Contractual Liabilities. "Specified Contractual Liabilities" shall mean the obligations of Seller under the contracts identified on Exhibit H to the Agreement, but only to the extent such obligations (i) arise after the Closing Date, (ii) do not arise from or relate to any breach by Seller of any provision of any of such contracts, (iii) do not arise from or relate to any event, circumstance or condition occurring or existing on or prior to the Closing Date that, with notice or lapse of time, would constitute or result in a breach of any of such contracts, and (iv) are ascertainable (in nature and amount) solely by reference to the express terms of such contracts; provided, however, that notwithstanding the foregoing, and notwithstanding anything to the contrary contained in the Agreement, the "Specified Contractual Liabilities" shall not include, and Purchaser shall not be required to assume or to perform or discharge: (1) any Liability of Seller arising from or relating to any action taken by Seller, or any failure on the part of Seller to take any action, at any time prior to, on or after the Closing Date; (2) any Liability of Seller arising from or relating to (x) any services performed by Seller for any customer, or (y) any claim or Legal Proceeding against Seller; (3) any Liability of Seller for the payment of any Tax; (4) any Liability of Seller under or with respect to any Employee Benefit Plan; (5) any Liability of Seller to any employee or former employee (whether for salaries, wages, severance pay, vacation pay, benefits or other compensation, or otherwise); (6) any Liability of Seller to the Shareholder or any other Related Party; (7) any Liability under any Contract, if Seller shall not have obtained, prior to the Closing Date, any Consent required to be obtained from any Person with respect to the assignment or delegation to Purchaser any rights or obligations under such Contract; (8) any Liability that is inconsistent with or that constitutes an inaccuracy in, or that arises or exists by virtue of any breach of, (x) any representation or warranty made by the Shareholder or Seller in any of the Transactional Agreements, or (y) any covenant or obligation of the Shareholder or Seller in any of the Transactional Agreements; or (9) any other Liability that is not specifically included in the "Specified Contractual Liabilities." Tax. "Tax" shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body. Tax Return. "Tax Return" shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax. Transactional Agreements. "Transactional Agreements" shall mean: (h) the Agreement; (i) (i) the Promissory Note; and (j) the agreements and instruments referred to in Section 1.3(b) of the Agreement. Transactions. "Transactions" shall mean (a) the execution and delivery of the respective Transactional Agreements, and (b) all of the transactions contemplated by the respective Transactional Agreements, including: (i) the sale of the Purchased Seller Assets by Seller to Purchaser in accordance with the Agreement; (ii) the sale of the Purchased Shareholder Assets by Shareholder to Purchaser in accordance with the Agreement; (iii) the assumption of the Specified Contractual Liabilities by Purchaser pursuant to the Agreement; (iv) the liquidation and dissolution of Seller in accordance with the Agreement; and (v) the performance by Seller, the Shareholder, Parent and Purchaser of their respective obligations under the Transactional Agreements and the exercise by Seller, the Shareholder, Parent and Purchaser of their respective rights under the Transactional Agreements. ASSET PURCHASE AGREEMENT among: Anetec Technology, Inc., a California corporation; Helen Kwong; ELXI Acquisition, Inc., a California corporation; and Elexsys International Inc., a Delaware corporation Dated as of May 3, 1996 TABLE OF CONTENTS Page Section 1. Sale of Assets; Related Transactions 1 1.1 Sale of Assets. 1 1.2 Purchase Price. 1 1.3 Closing. 2 1.4 No Other Liabilities. 3 1.5 Retained Payment. 3 Section 2.Representations and Warranties of the Shareholder and Seller 3 2.1 Due Organization; No Subsidiaries; Etc. 3 2.2 Articles of Incorporation and Bylaws; Records. 4 2.3 Capitalization, Etc. 4 2.4 Financial Statements. 5 2.5 Absence of Changes. 5 2.6 Title to Assets. 6 2.7 Equipment; Leasehold. 7 2.8 Proprietary Assets. 7 2.9 Contracts. 8 2.10 Liabilities. 10 2.11 Compliance with Legal Requirements. 10 2.12 Governmental Authorizations. 10 2.13 Sales and Property Tax Matters. 11 2.14 Employee and Labor Matters; Benefit Plans. 11 2.15 Environmental Matters. 12 2.16 Related Party Transactions. 13 2.17 Legal Proceedings; Orders. 13 2.18 Authority; Binding Nature of Agreement. 14 2.19 Non-Contravention; Consents. 14 2.20 Brokers. 15 2.21 Fair Consideration; No Fraudulent. Conveyance. 15 2.22 Full Disclosure. 15 2.23 All Necessary Assets. 15 Section 3. Representations and Warranties of Parent and Purchaser 15 3.1 Authority; Binding Nature of Agreements. 15 3.2 Brokers. 16 Section 4. Certain Securities Matters 16 4.1 Representations of Seller and Shareholder. 16 4.2 Sale of the Shares by Shareholder 18 Section 5. Certain Covenants of Seller 18 5.1 Access and Investigation. 18 5.2 Operation of Seller's Business. 19 5.3 Notification; Updates to Disclosure Schedule. 20 5.4 No Negotiation. 21 5.5 Bulk Transfer Waiver and Indemnification. 21 Section 6. Certain Covenants 21 6.1 Filings and Consents. 21 6.2 Best Efforts. 22 6.3 Change of Name. 22 6.4 Dissolution 22 6.5 Tax Returns 22 6.6 Further Actions. 22 6.7 Publicity. 23 6.8 Standstill. 23 6.9 Release of Security Interests. 24 6.10 Allocation. 24 6.11 Contingent Registration Right. 24 Section 7.Conditions Precedent to Obligations of Parent and Purchaser 24 7.1 Accuracy of Representations. 24 7.2 Performance of Covenants 25 7.3 Consents 25 7.4 Agreements and Documents 25 7.5 No Restraints 25 7.6 No Legal Proceedings. 26 7.7 Key Employees. 26 7.8 Actions Satisfactory. 26 7.9 Satisfactory Completion of Pre-Acquisition Review. 26 7.10 Customer References. 26 7.11 Mylex Profit Projection. 26 7.12 Board Approval. 26 Section 8. Conditions Precedent to Obligations of Seller and the Shareholder 26 8.1 Accuracy of Representations 26 8.2 Performance of Covenants 27 8.3 No Restraints 27 Section 9. Termination 27 9.1 Termination Events. 27 9.2 Termination Procedures. 28 9.3 Effect of Termination. 28 Section 10. Indemnification and Other Remedies 28 10.1 Survival of Representations and Covenants. 28 10.2 Indemnification by the Shareholder and Seller. 29 10.3 Indemnification by Parent and Purchaser. 30 10.4 Interest. 30 10.5 Setoff. 30 10.6 Nonexclusivity of Indemnification Remedies. 30 10.7 Defense of Third Party Claims. 31 10.8Exercise of Remedies by Indemnitees Other Than Parent. 33 Section 11. Miscellaneous Provisions 33 11.1 Joint and Several Liability. 33 11.2 Certain Disclaimers 33 11.3 Fees and Expenses. 33 11.4 Attorneys' Fees. 34 11.5 Notices. 35 11.6 Time of the Essence. 36 11.7 Headings. 36 11.8 Counterparts. 36 11.9 Governing Law; Venue. 36 11.10 Successors and Assigns; Parties in Interest. 37 11.11 Remedies Cumulative; Specific Performance. 38 11.12 Waiver. 38 11.13 Amendments. 38 11.14 Severability. 38 11.15 Entire Agreement. 39 11.16 Construction. 39 11.17 Arbitration. 39 EXHIBITS Exhibit A: Certain Definitions Exhibit B: Form of Promissory Note Exhibit C: Form of Noncompetition Agreement Exhibit D: Allocation of Consideration Exhibit E: Form of Confidential Information and Invention Assignment Agreement Exhibit F: Key Employees Exhibit G: Excluded Assets Exhibit H: Assumed Contracts Exhibit I: Dispute Resolution Exhibit J: Purchased Shareholder Assets PROMISSORY NOTE $1,000,000 Palo Alto, California May __, 1996 For Value Received, the undersigned hereby unconditionally promises to pay to the order of Anetec Technology, Inc., a California corporation (the "Company") or holder, at 6082 Stewart Avenue, Fremont, California 94538, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of one million dollars ($1,000,000) together with interest accrued from the date hereof on the unpaid principal at the rate of 8.00% per annum, or the maximum rate permissible by law (which under the laws of the State of California shall be deemed to be the laws relating to permissible rates of interest on commercial loans), whichever is less, as follows: Principal Repayment. The outstanding principal amount hereunder shall be subject to scheduled amortized repayments on the dates and in the amounts listed below: Principal Repayment Date Repayment Amount One year from the date hereof $500,000 Two years from the date hereof $500,000 Interest Payments. Interest shall be payable in arrears on each Principal Repayment Date. This Note may be prepaid at any time without penalty. All money paid toward the satisfaction of this Note shall be applied first to the payment of interest as required hereunder and then to the retirement of the principal. Reference is made to that certain Asset Purchase Agreement dated May 3, 1996 among the Company, Helen Kwong, ELIX Acquisition, Inc., and the undersigned, for addition terms to which this Note is subject. This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. Signed: Elexsys International Inc., a Delaware corporation By: ________________________ W. Barry Hegarty, President and Chief Operating Officer NONCOMPETITION AGREEMENT This NONCOMPETITION AGREEMENT (this "Agreement") is made as of May __, 1996, by and among ELEXSYS INTERNATIONAL INC., a Delaware corporation ("Parent"), ELXI Acquisition, Inc., a California corporation ("Purchaser") and HELEN KWONG (the "Shareholder"). RECITALS A. As an employee and shareholder of Anetec Technology, Inc., a California corporation (the "Seller"), the Shareholder has obtained extensive and valuable knowledge and information concerning the business of Seller (including confidential information relating to Seller and its operations, assets, contracts, customers, personnel, plans and prospects). B. Concurrently with the execution and delivery of this Agreement, Purchaser is purchasing from Seller, certain of Seller's assets, business and goodwill, pursuant to the terms and conditions of an asset purchase agreement dated as of May 3, 1996 by and among Parent, Purchaser, Seller and Shareholder (the "Asset Purchase Agreement"). Section 7.4 of the Asset Purchase Agreement requires that a noncompetition agreement be executed and delivered by the Shareholder as a condition to the purchase of such assets by Purchaser, and the Shareholder is entering into this Agreement in order to induce Purchaser to purchase certain assets of Seller. C. Seller has conducted and is conducting its business on a worldwide basis. AGREEMENT The parties, intending to be legally bound, agree as follows: 1. DEFINITIONS Capitalized terms used but not expressly defined in this Agreement shall have the meanings ascribed to them in the Asset Purchase Agreement. 2. ACKNOWLEDGMENTS BY THE SHAREHOLDER The Shareholder acknowledges that (a) the Shareholder has occupied a position of trust and confidence with Seller prior to the date hereof and has become familiar with the following, any and all of which constitute confidential information of Seller, (collectively the "Confidential Information"): (i) any and all trade secrets concerning the business and affairs of Seller, data, know-how, compositions, processes, customer lists, current and anticipated customer requirements, price lists, market studies, business plans; (ii) any and all information concerning the business and affairs of Seller (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and backgrounds of key personnel, personnel training and techniques and materials), however documented; and (iii) any and all notes, analysis, compilations, studies, summaries, and other material prepared by or for Seller containing or based, in whole or in part, on any information included in the foregoing, (b) the business of Seller is international in scope, (c) Purchaser has required that the Shareholder make the covenants set forth in this Agreement as a condition to Purchaser's purchase of certain assets, business and goodwill of the Shareholder; (d) the provisions of this Agreement are reasonable and necessary to protect and preserve Seller's business, and (e) Seller would be irreparably damaged if the Shareholder were to breach the covenants set forth in Sections 3, 4, 5, 6 and 7 of this Agreement. 3. CONFIDENTIAL INFORMATION The Shareholder acknowledges and agrees that all Confidential Information known or obtained by the Shareholder, whether before or after the date hereof, is the property of Purchaser. Therefore, the Shareholder agrees that the Shareholder will not, at any time, disclose to any unauthorized Persons or use for his own account or for the benefit of any third party any Confidential Information, whether the Shareholder has such information in the Shareholder's memory or embodied in writing or other physical form, without Purchaser's written consent, unless and to the extent that the Confidential Information is or becomes generally known to and available for use by the public other than as a result of the Shareholder's fault or the fault of any other Person bound by a duty of confidentiality to Purchaser or Seller. The Shareholder agrees to deliver to Purchaser at the time of execution of this Agreement, and at any other time Purchaser may request, all documents, memoranda, notes, plans, records, reports, and other documentation, models, components, or computer software, whether embodied in a disk or in other form (and all copies of all of the foregoing), relating to the businesses, operations, or affairs of Seller and any other Confidential Information that the Shareholder may then possess or have under the Shareholder's control. 4. NONCOMPETITION As an inducement for Parent and Purchaser to enter into the Asset Purchase Agreement and as additional consideration for the consideration to be paid to the Seller under the Asset Purchase Agreement (all or a part of which will be distributed to the Shareholder), the Shareholder agrees that during the Noncompetition Period (as hereinafter defined), the Shareholder will not, directly or indirectly, engage or invest in, own, manage, operate, finance, control, or participate in the ownership, management, operation, financing, or control of, be employed by, associated with, or in any manner connected with, lend the Shareholder's name or any similar name to, lend the Shareholder's credit to, or render services or advice to, any business whose products, product development, services or other activities compete in any respect with the products, product development, services or other activities of or offered by Seller, as such existed at or before the Closing (the "Restricted Business"), anywhere in the world; provided, however, that the Shareholder may purchase or otherwise acquire up to (but not more than) one percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended. The Shareholder agrees that this covenant is reasonable with respect to its duration, geographical area, and scope. As used herein, the "Noncompetition Period" shall commence upon the Closing and end upon the first to occur of (i) the date three years after the Closing or (ii) the date of the termination by Purchaser, Parent or any subsidiary or Parent (each, a "Parent Company") without cause of the Shareholder's employment with a Parent Company. A transfer of Shareholder between two Parent Companies shall not be construed as a termination. 5. NONSOLICITATION. The Shareholder further agrees that for a period of three years after the Closing, she will not: (a) directly or indirectly, personally or through others, encourage, induce, attempt to induce, solicit or attempt to solicit (on the Shareholder's own behalf or on behalf of any other person or entity) any employee of a Parent Company to leave his or her employment with such Parent Company; (b) employ, or permit any entity over which the Shareholder exercises any control, to employ such employee who has terminated his or her employment with a Parent Company during such three-year period; or (c) directly or indirectly, personally or through others, approach, contact, solicit, advise or do (or attempt to do) business with, or otherwise interfere with the relationship of a Parent Company with, any person or entity who is, was or is reasonably anticipated to become a customer or client of a Parent Company or Seller with respect to the Restricted Business. 6. NO DISPARAGEMENT. The Shareholder will not, at any time during or after the three-year period, disparage any Parent Company, or any of their respective shareholders, directors, officers, employees, or agents. 7. NEW EMPLOYMENT. The Shareholder will, for a period of three years after the Closing, within ten days after accepting any employment, advise Parent of the identity of any employer of the Shareholder. Parent may serve notice upon each such employer that the Shareholder is bound by this Agreement and furnish each such employer with a copy of this Agreement or relevant portions thereof. 8. INDEPENDENCE OF OBLIGATIONS. The covenants of the Shareholder set forth in this Agreement shall be construed as independent of any other agreement or arrangement between the Shareholder, on the one hand, and Parent, Purchaser or Seller, on the other. The existence of any claim or cause of action by the Shareholder against Parent, Purchaser or Seller shall not constitute a defense to the enforcement of such covenants against the Shareholder. 9. REMEDIES If the Shareholder breaches the covenants set forth in this Agreement, each of Parent and Purchaser will be entitled to the following remedies: (a) Damages from the Shareholder; and (b) In addition to its right to Damages and any other rights it may have, to obtain injunctive or other equitable relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, it being agreed that money damages alone would be inadequate to compensate the Parent or Purchaser and would be an inadequate remedy for such breach. (c) The rights and remedies of the parties to this Agreement are cumulative and not alternative. 10. NON-EXCLUSIVITY. The rights and remedies of Parent and Purchaser hereunder are not exclusive of or limited by any other rights or remedies which Parent or Purchaser may have, whether at law, in equity, by contract or otherwise, all of which shall be cumulative (and not alternative). Without limiting the generality of the foregoing, the rights and remedies of Parent and Purchaser hereunder, and the obligations and liabilities of the Shareholder hereunder, are in addition to their respective rights, remedies, obligations and liabilities under the law of unfair competition, misappropriation of trade secrets and the like. 11. INDEMNIFICATION. Without in any way limiting any of the rights or remedies otherwise available to Purchaser, the Shareholder shall hold harmless and indemnify Purchaser from and against, and shall compensate and reimburse Parent and Purchaser from, any Damages which are directly or indirectly suffered or incurred at any time by Parent or Purchaser, or to which Parent or Purchaser otherwise becomes subject (regardless of whether or not such Damages relate to a third-party claim) and that arise from or are directly or indirectly connected with, any breach of any covenant or obligation of the Shareholder contained herein. 12. WAIVER The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 13. GOVERNING LAW This Agreement will be governed by the laws of the State of California without regard to conflicts of laws principles. 14. JURISDICTION; SERVICE OF PROCESS (a) Subject to Section 23, any legal action or other Legal Proceeding relating to this Agreement or the enforcement of any provision of this Agreement, brought to enforce any award of an arbitrator or to request provisional relief pursuant to Exhibit A hereof, may be brought or otherwise commenced in any state or federal court located in the City and County of Santa Clara, California. Each party to this Agreement: (i) expressly and irrevocably consents and submits to the jurisdiction of each state and federal court located in the City and County of Santa Clara, California (and each appellate court located in the State of California) in connection with any such legal proceeding; (ii) agrees that each state and federal court located in the City and County of Santa Clara, California shall be deemed to be a convenient forum; and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such legal proceeding commenced in any state or federal court located in the City and County of Santa Clara, California, any claim that such party is not subject personally to the jurisdiction of such court, that such legal proceeding has been brought in an inconvenient forum, that the venue of such proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court. (b) Notwithstanding anything in this Agreement to the contarary, if any Legal Proceeding is commenced against any party to this Agreement by any Person in or before any court or other tribunal anywhere in the United States, then such party may proceed against other party to this Agreement in such court or other tribunal with respect to any indemnification claim or other claim arising directly or indirectly from or relating directly or indirectly to such Legal Proceeding or any of the matters alleged therein or any of the circumstances giving rise thereto. (c) Except as provided by Section 23, nothing contained in Section 14(a) or 14(b) shall be deemed to limit or otherwise affect the right of each of Parent and Purchaser to commence any Legal Proceeding or otherwise proceed against the Shareholder in any other forum or jurisdiction. 15. SEVERABILITY If any provision of this Agreement or any part of any such provision is held under any circumstances to be invalid or unenforceable in any jurisdiction, then (a) such provision or part thereof shall, with respect to such circumstances and in such jurisdiction, be deemed amended to conform to applicable laws so as to be valid and enforceable to the fullest possible extent, (b) the invalidity or unenforceability of such provision or part thereof under such circumstances and in such jurisdiction shall not affect the validity or enforceability of such provision or part thereof under any other circumstances or in any other jurisdiction, and (c) such invalidity of enforceability of such provision or part thereof shall not affect the validity or enforceability of the remainder of such provision or the validity or enforceability of any other provision of this Agreement. Each provision of this Agreement is separable from every other provision of this Agreement, and each part of each provision of this Agreement is separable from every other part of such provision. 16. COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 17. SECTION HEADINGS, CONSTRUCTION The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Section" or "Sections" refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word "including" does not limit the preceding words or terms. 18. NOTICES All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand, (b) sent by facsimile, provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service or registered mail (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): Shareholder: Helen Kwong 6082 Stewart Avenue Fremont, CA 94538 Facsimile No.: 510-657-5863 Parent: Elexsys International Inc. 1188 Bordeaux Drive Sunnyvale, CA 94089 Attention: W. Barry Hegarty, President Facsimile No.: 408-743-5454 with a copy to: Cooley Godward Castro Huddleson & Tatum Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attention: Alan C. Mendelson, Esq. Facsimile No.: 415-857-0663 Purchaser: ELXI Acquisition, Inc. 1188 Bordeaux Drive Sunnyvale, CA 94089 Attention: W. Barry Hegarty, President Facsimile No.: 408-743-5454 with a copy to: Cooley Godward Castro Huddleson & Tatum Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 Attention: Alan C. Mendelson, Esq. Facsimile No.: 415-857-0663 19. FURTHER ASSURANCES. The Shareholder shall execute and/or cause to be delivered to Parent or Purchaser such instruments and other documents and shall take such other actions as Parent or Purchaser may reasonably request to effectuate the intent and purposes of this Agreement. 20. ASSIGNMENT. This Agreement and all obligations hereunder are personal to the Shareholder and may not be transferred or assigned by the Shareholder at any time. Each of Parent and Purchaser may assign its respective rights under this Agreement to any entity in connection with any sale or transfer of all or a substantial portion of its respective assets to such entity. 21. BINDING NATURE. Subject to Section 20, this Agreement will be binding upon the Shareholder and the Shareholder's representatives, executors, administrators, estate, heirs, successors and assigns, and will inure to the benefit of Parent and Purchaser and their respective successors and assigns. 22. ATTORNEYS' FEES AND EXPENSES. If any legal action or other legal proceeding relating to the enforcement of any provision of this Agreement is brought against the Shareholder, the prevailing party shall be entitled to recover reasonable attorneys' fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled). 23. ARBITRATION. The parties agree to arbitrate any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement through arbitration in accordance with Exhibit A hereto, which Exhibit A is hereby incorporated by reference into this Agreement and made a part hereof. [the remainder of this page is intentionally blank] 24. ENTIRE AGREEMENT This Agreement and the other Transactional Agreements constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior written and oral agreements and understandings among Parent, Purchaser and the Shareholder with respect to the subject matter of this Agreement. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. PARENT: SHAREHOLDER: ELEXSYS INTERNATIONAL INC., a Delaware corporation By:______________________ By:_____________ W. Barry Hegarty, Helen Kwong, President an individual ELXI ACQUISITION, INC., a California corporation By:______________________ W. Barry Hegarty, President A-5 EXHIBIT A DISPUTE RESOLUTION 25. BINDING ARBITRATION. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract, or statute, or concerning the interpretation, effect, termination, validity, performance and/or breach of any of the provisions of this Agreement, shall be resolved by final and binding arbitration administered by Judicial Arbitration & Mediation Services, Inc. ("JAMS"), located at 111 North Market Street, Suite 800, San Jose, California 95113, Telephone: (408) 288-2240 (the "Administrator"). Notwithstanding the foregoing or any other provision contained in this Exhibit, the parties shall have the right to request provisional relief from a court of competent jurisdiction pursuant to California Code of Civil Procedure Section 1281.8. 26. INITIATION. Arbitration shall be initiated in the following manner: 26.(a) Timing. Unless barred by an applicable statute or period of limitations, either party may initiate an arbitration at any time after a dispute has arisen by serving upon the other party and filing with the Administrator a written Demand for Arbitration, including a general description of the nature of the claim and the nature and amount of damages and/or other relief sought (the "Demand for Arbitration"). A claim shall be forever barred if on the date the Demand for Arbitration is filed with the Administrator, the claim, if asserted in a civil action, would be barred under law by an applicable statute or period of limitations. 26.(b) Response. If the responding party desires to file a response and/or counterclaim to the Demand for Arbitration, it must do so within 20 calendar days after service of the Demand for Arbitration. Any response to a counterclaim shall be filed and served within 10 calendar days after service of the counterclaim, but no such response shall be required. A failure to file a counterclaim or response will not operate to delay the arbitration proceedings. 26.(c) Further Pleadings. After the filing of the Demand for Arbitration, any counterclaim, and/or any responses thereto, no further claims or counterclaims may be made in that proceeding except by order of the arbitrator made on a duly noticed motion to the arbitrator. 27. APPOINTMENT AND POWERS OF ARBITRATOR. The dispute shall be submitted to a single arbitrator chosen by the parties from a list of retired judges provided by the Administrator. The Administrator shall provide such list to the parties 20 days after the Demand for Arbitration is filed. Should the parties be unable to agree on a choice of arbitrator within 10 days after receipt of the list from the Administrator, then either party may request the Administrator to furnish a list of three names and each side may strike one name, thereby nominating the remaining person as the arbitrator. If more than one name remains, the Administrator shall choose an arbitrator from the list of remaining names. If the designated arbitrator shall die, become incapable of, unwilling to, or unable to serve or proceed with the arbitration, the Administrator shall appoint a replacement arbitrator, and such replacement arbitrator shall have all such powers as if he or she had been originally appointed as the arbitrator. Should either party refuse or neglect, after reasonable notice, to furnish the arbitrator with any papers or information demanded or to attend hearings before the arbitrator, the arbitrator is empowered by both parties to proceed with the remainder of the arbitration process set forth in this Exhibit. The arbitrator is authorized to issue an award for compensatory damages, and/or to grant any equitable remedy or relief he or she deems just and equitable and within the scope of the applicable Agreement, including, but not limited to, an injunction or order for specific performance. The arbitrator shall not have the authority to award punitive damages. 28. COSTS AND FEES. The arbitrator, in his or her discretion, shall be authorized to determine whether a party is the prevailing party, and if so, to award to that prevailing party reimbursement for its share of the costs and fees of the Administrator and the arbitrator, and reimbursement for its reasonable attorneys' fees, disbursements pursuant to California Code of Civil Procedure Section 1033.5, and costs arising from the arbitration. However, until any such order is issued, the parties shall bear equally the costs and fees of the Administrator and the arbitrator. 29. LOCATION AND DATE OF ARBITRATION HEARING. The arbitration shall be held in San Jose, California, and shall commence no later than six months following the service of the Demand For Arbitration. 30. PRE-HEARING CONFERENCES. Within 20 days of the time that the arbitrator is chosen, the arbitrator shall hold a Pre-Hearing Conference with the parties for the purpose of narrowing the issues, establishing a discovery schedule, arranging an acceptable procedure for any law and motion proceedings and in all respects arranging for the most expeditious hearing possible of the matters in dispute. 31. DISCOVERY. The parties shall have the right to conduct the following discovery: 31.(a) Exchange of Documents. At the Pre-Hearing Conference, the parties shall exchange requests for production of no more than 15 categories of documents (the "Document Request List") that are relevant to the issues in the arbitration and that are to be produced by the other side. Subject to any disputes as to production, the responsive documents shall be produced by the responding party, or made available for inspection, at the requesting party's option, within 20 days of the exchange of the Document Request Lists. Any disputes as to production of documents shall be addressed to the arbitrator as promptly as possible, and in any event no more than 10 days after completion of the 20-day production period, and shall promptly and informally be resolved by the arbitrator. 31.(b) Exchange of Witness Lists. Within 20 days after the production of documents, the parties shall exchange a list of: (i) any fact witnesses they intend to call at the arbitration hearing, and (ii) any other persons who may have material information about the dispute. The fact witness list also shall include a brief description of each identified person's knowledge. 31.(c) Fact Witness Depositions. The parties shall have the right to take depositions of no more than five fact (non-expert) witnesses at any time commencing 15 days after the production of documents and up until 15 days prior to the commencement of the arbitration hearing. The time available for the deposition of each fact witness shall not exceed two 8-hour days, including breaks. 31.(d) Expert Witnesses. The parties shall exchange lists of up to three expert witnesses, along with a statement of the witnesses' backgrounds and opinions, 30 days prior to the commencement of the arbitration hearing. Between the 20th and 10th day preceding the arbitration hearing, each party shall have the right to depose the other party's experts, however, the time available for the deposition of each expert witness shall not exceed two 8-hour days, including breaks. At least five business days prior to any expert's scheduled deposition, the party designating the expert shall provide the other party with copies of any reports or other documents the expert intends to offer at the arbitration hearing and all documents that have been provided to the expert by such designating party. 31.(e) Additional Discovery. Any additional discovery may occur only at the discretion of the arbitrator and allowed only upon a showing of good cause. 32. CONDUCT OF THE ARBITRATION HEARING. The arbitration hearing shall be conducted according to the discretion of the arbitrator. Judicial rules relating to the order of proof, the conduct of the hearing and the presentation and admissibility of evidence need not be followed. Any relevant information, including hearsay, may be admitted by the arbitrator regardless of its admissibility as evidence in court, but the arbitrator also shall be authorized to exclude evidence. The parties shall have the power to subpoena witnesses to attend the arbitration hearing pursuant to California Code of Civil Procedure Section 1282.6. The arbitrator shall have full power to give such directions and to make such orders in the conduct of the arbitration, including setting pre-arbitration procedures and scheduling any motions to correct or amend the arbitration award, as he or she deems just and appropriate. 33. AWARD. The arbitrator shall, within 15 calendar days after the conclusion of the arbitration hearing, issue a written award and a brief written statement of decision describing the reasons for the award, including the calculation of any compensatory damages awarded. 34. SURVIVAL. The provisions in this Exhibit shall survive and apply in all events, including, without limitation, after the breach, repudiation and/or termination of the Agreement. 35. NOTICE. Any notice or document required to be served by one party on the other party under this Exhibit shall be served in accordance with Section 18 of the Agreement. After a party appears in the arbitration proceeding through its attorney, all further service shall be made upon that party's attorney. 36. FINALITY OF AWARD. The award of the arbitrator shall be final and binding upon the parties without appeal or review except as permitted by California law. Any party may apply to any court of competent jurisdiction for confirmation and entry of judgment based on said award. In connection with any application to confirm, correct or vacate the arbitration award, any appeal of any order rendered pursuant to any such application, or any other action required to enforce the arbitration award, the prevailing party shall be entitled to recover its reasonable attorneys' fees, disbursements and costs incurred in such post-award activities. EXHIBIT I DISPUTE RESOLUTION 1. BINDING ARBITRATION. Any dispute, claim or controversy of whatever nature arising out of or relating to this Agreement, including, without limitation, any action or claim based on tort, contract, or statute, or concerning the interpretation, effect, termination, validity, performance and/or breach of any of the provisions of this Agreement, shall be resolved by final and binding arbitration administered by Judicial Arbitration & Mediation Services, Inc. ("JAMS"), located at 111 North Market Street, Suite 800, San Jose, California 95113, Telephone: (408) 288-2240 (the "Administrator"). Notwithstanding the foregoing or any other provision contained in this Exhibit, the parties shall have the right to request provisional relief from a court of competent jurisdiction pursuant to California Code of Civil Procedure Section 1281.8. 2. INITIATION. Arbitration shall be initiated in the following manner: 2.1 Timing. Unless barred by an applicable statute or period of limitations, either party may initiate an arbitration at any time after a dispute has arisen by serving upon the other party and filing with the Administrator a written Demand for Arbitration, including a general description of the nature of the claim and the nature and amount of damages and/or other relief sought (the "Demand for Arbitration"). A claim shall be forever barred if on the date the Demand for Arbitration is filed with the Administrator, the claim, if asserted in a civil action, would be barred under law by an applicable statute or period of limitations. 2.2 Response. If the responding party desires to file a response and/or counterclaim to the Demand for Arbitration, it must do so within 20 calendar days after service of the Demand for Arbitration. Any response to a counterclaim shall be filed and served within 10 calendar days after service of the counterclaim, but no such response shall be required. A failure to file a counterclaim or response will not operate to delay the arbitration proceedings. 2.3 Further Pleadings. After the filing of the Demand for Arbitration, any counterclaim, and/or any responses thereto, no further claims or counterclaims may be made in that proceeding except by order of the arbitrator made on a duly noticed motion to the arbitrator. 3. APPOINTMENT AND POWERS OF ARBITRATOR. The dispute shall be submitted to a single arbitrator chosen by the parties from a list of retired judges provided by the Administrator. The Administrator shall provide such list to the parties 20 days after the Demand for Arbitration is filed. Should the parties be unable to agree on a choice of arbitrator within 10 days after receipt of the list from the Administrator, then either party may request the Administrator to furnish a list of three names and each side may strike one name, thereby nominating the remaining person as the arbitrator. If more than one name remains, the Administrator shall choose an arbitrator from the list of remaining names. If the designated arbitrator shall die, become incapable of, unwilling to, or unable to serve or proceed with the arbitration, the Administrator shall appoint a replacement arbitrator, and such replacement arbitrator shall have all such powers as if he or she had been originally appointed as the arbitrator. Should either party refuse or neglect, after reasonable notice, to furnish the arbitrator with any papers or information demanded or to attend hearings before the arbitrator, the arbitrator is empowered by both parties to proceed with the remainder of the arbitration process set forth in this Exhibit. The arbitrator is authorized to issue an award for compensatory damages, and/or to grant any equitable remedy or relief he or she deems just and equitable and within the scope of the applicable Agreement, including, but not limited to, an injunction or order for specific performance. The arbitrator shall not have the authority to award punitive damages. 4. COSTS AND FEES. The arbitrator, in his or her discretion, shall be authorized to determine whether a party is the prevailing party, and if so, to award to that prevailing party reimbursement for its share of the costs and fees of the Administrator and the arbitrator, and reimbursement for its reasonable attorneys' fees, disbursements pursuant to California Code of Civil Procedure Section 1033.5, and costs arising from the arbitration. However, until any such order is issued, the parties shall bear equally the costs and fees of the Administrator and the arbitrator. 5. LOCATION AND DATE OF ARBITRATION HEARING. The arbitration shall be held in San Jose, California, and shall commence no later than six months following the service of the Demand For Arbitration. 6. PRE-HEARING CONFERENCES. Within 20 days of the time that the arbitrator is chosen, the arbitrator shall hold a Pre-Hearing Conference with the parties for the purpose of narrowing the issues, establishing a discovery schedule, arranging an acceptable procedure for any law and motion proceedings and in all respects arranging for the most expeditious hearing possible of the matters in dispute. 7. DISCOVERY. The parties shall have the right to conduct the following discovery: 7.1 Exchange of Documents. At the Pre-Hearing Conference, the parties shall exchange requests for production of no more than 15 categories of documents (the "Document Request List") that are relevant to the issues in the arbitration and that are to be produced by the other side. Subject to any disputes as to production, the responsive documents shall be produced by the responding party, or made available for inspection, at the requesting party's option, within 20 days of the exchange of the Document Request Lists. Any disputes as to production of documents shall be addressed to the arbitrator as promptly as possible, and in any event no more than 10 days after completion of the 20-day production period, and shall promptly and informally be resolved by the arbitrator. 7.2 Exchange of Witness Lists. Within 20 days after the production of documents, the parties shall exchange a list of: (i) any fact witnesses they intend to call at the arbitration hearing, and (ii) any other persons who may have material information about the dispute. The fact witness list also shall include a brief description of each identified person's knowledge. 7.3 Fact Witness Depositions. The parties shall have the right to take depositions of no more than five fact (non-expert) witnesses at any time commencing 15 days after the production of documents and up until 15 days prior to the commencement of the arbitration hearing. The time available for the deposition of each fact witness shall not exceed two 8-hour days, including breaks. 7.4 Expert Witnesses. The parties shall exchange lists of up to three expert witnesses, along with a statement of the witnesses' backgrounds and opinions, 30 days prior to the commencement of the arbitration hearing. Between the 20th and 10th day preceding the arbitration hearing, each party shall have the right to depose the other party's experts, however, the time available for the deposition of each expert witness shall not exceed two 8-hour days, including breaks. At least five business days prior to any expert's scheduled deposition, the party designating the expert shall provide the other party with copies of any reports or other documents the expert intends to offer at the arbitration hearing and all documents that have been provided to the expert by such designating party. 7.5 Additional Discovery. Any additional discovery may occur only at the discretion of the arbitrator and allowed only upon a showing of good cause. 8. CONDUCT OF THE ARBITRATION HEARING. The arbitration hearing shall be conducted according to the discretion of the arbitrator. Judicial rules relating to the order of proof, the conduct of the hearing and the presentation and admissibility of evidence need not be followed. Any relevant information, including hearsay, may be admitted by the arbitrator regardless of its admissibility as evidence in court, but the arbitrator also shall be authorized to exclude evidence. The parties shall have the power to subpoena witnesses to attend the arbitration hearing pursuant to California Code of Civil Procedure Section 1282.6. The arbitrator shall have full power to give such directions and to make such orders in the conduct of the arbitration, including setting pre-arbitration procedures and scheduling any motions to correct or amend the arbitration award, as he or she deems just and appropriate. 9. AWARD. The arbitrator shall, within 15 calendar days after the conclusion of the arbitration hearing, issue a written award and a brief written statement of decision describing the reasons for the award, including the calculation of any compensatory damages awarded. 10. SURVIVAL. The provisions in this Exhibit shall survive and apply in all events, including, without limitation, after the breach, repudiation and/or termination of the Agreement. 11. NOTICE. Any notice or document required to be served by one party on the other party under this Exhibit shall be served in accordance with Section 11.5 of the Agreement. After a party appears in the arbitration proceeding through its attorney, all further service shall be made upon that party's attorney. 12. FINALITY OF AWARD. The award of the arbitrator shall be final and binding upon the parties without appeal or review except as permitted by California law. Any party may apply to any court of competent jurisdiction for confirmation and entry of judgment based on said award. In connection with any application to confirm, correct or vacate the arbitration award, any appeal of any order rendered pursuant to any such application, or any other action required to enforce the arbitration award, the prevailing party shall be entitled to recover its reasonable attorneys' fees, disbursements and costs incurred in such post-award activities. EX-27 5 FINANCIAL DATA SCHEDULE
5 0000727010 Elexsys International, Inc. 1,000 6-MOS SEP-28-1996 MAR-30-1996 285 0 17253 453 8648 26758 75459 54363 48842 16797 13468 9149 0 0 9428 48842 59299 59299 48215 48215 140 (3) 633 4242 3 4239 0 0 0 4239 0.44 0.44
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