-----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, FTD3H823FoaqPCNKqdxvsL6tkjV0tokT9lurx2TnGcQFuFiGd1jwxV6fCNS2gWoS JYkxZ3gi8xEMuZiVe0/buQ== 0000076267-96-000007.txt : 19960531 0000076267-96-000007.hdr.sgml : 19960531 ACCESSION NUMBER: 0000076267-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19960303 FILED AS OF DATE: 19960530 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARK ELECTROCHEMICAL CORP CENTRAL INDEX KEY: 0000076267 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 111734643 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04415 FILM NUMBER: 96574475 BUSINESS ADDRESS: STREET 1: 5 DAKOTA DR CITY: LAKE SUCCESS STATE: NY ZIP: 11042 BUSINESS PHONE: 5163544100 MAIL ADDRESS: STREET 1: 5 DAKOTA DR CITY: LAKE SUCCESS STATE: NY ZIP: 11042 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended March 3, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________ to________ Commission file number 1-4415 Park Electrochemical Corp. (Exact name of registrant as specified in its charter) New York 11-1734643 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5 Dakota Drive, Lake Success, New York 11042 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (516) 354-4100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $.10 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange 5.5% Convertible Subordinated Notes New York Stock Exchange due 2006 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non- affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. As of close Title of Class Aggregate market value of business on Common Stock, $285,876,459* May 3, 1996 $.10 par value [cover page 1 of 2 pages] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Shares As of close Title of Class outstanding of business on Common Stock, 11,550,564 May 3, 1996 $.10 par value DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for Annual Meeting of Shareholders to be held July 17, 1996 incorporated by reference into Part III of this Report. ===================================================================== *Included in such amount are 1,060,612 shares of common stock valued at $24.75 per share and held by Jerry Shore, the Registrant's Chief Executive Officer and Chairman of the Board and a member of the Registrant's Board of Directors. [cover page 2 of 2 pages] PART I Item 1. Business. General Park Electrochemical Corp. ("Park"), through its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the "Company"), is primarily engaged in the design, production and marketing of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems. The Company is also engaged in the design, manufacture and marketing of plumbing hardware and industrial components. Park was founded in 1954 by Jerry Shore, the Company's Chairman of the Board, Chief Executive Officer and largest shareholder. Unless otherwise indicated, all information in this Report has been adjusted to give effect to the Company's two-for-one stock split in the form of a stock dividend, which was distributed August 15, 1995 to shareholders of record at the close of business on July 24, 1995. The Company's business is divided into two industry segments: (1) electronic materials and (2) plumbing and industrial components. See Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Report for information concerning the amounts of sales to unaffiliated customers, operating profit, identifiable assets, depreciation and amortization, and capital expenditures attributable to each of the Company's industry segments during its last three fiscal years. The sales, operating profit and identifiable assets of the Company's foreign operations for the last three fiscal years are also set forth in Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Such operations are conducted principally by the Company's subsidiaries in the United Kingdom, France and Singapore. The Company's foreign operations are subject to the impact of foreign currency fluctuations. See Note 1 of the Notes to Consolidated Financial Statements contained in Item 8 of this Report. Electronic Materials Operations The Company is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, such as backplanes, PC cards and semiconductor packaging systems. The Company's multilayer printed circuit materials include copper-clad laminates, prepregs and semi-finished multilayer printed circuit board panels. The Company has long-term relationships with its major customers, which include leading independent printed circuit board fabricators and major electronic equipment manufac- turers. Multilayer printed circuit boards and interconnect systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices (such as micropro- cessors and memory and logic devices) and passive components (such as resistors and capacitors). Examples of end uses of the Company's printed circuit materials range from supercomputers to laptops and from satellite switching equipment to cellular phones. The Company has developed long-term relationships with major customers as a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities. Park founded the modern day printed circuit industry in 1957 by inventing a composite material consisting of an epoxy resin substrate reinforced with fiberglass cloth which was laminated together with sheets of thin copper foil. This epoxy-glass copper-clad laminate system is still used to construct the large majority of today's advanced printed circuit products. In 1962, the Company invented the first multilayer printed circuit materials system used to construct multilayer printed circuit boards. The Company also pioneered vacuum lamination and many other manufacturing technologies used in the industry today. The Company believes it is one of the industry's technological leaders. As a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities, the Company expects to continue to take advantage of several industry trends. These trends include the increasing global demand for electronic products and technology, the increasing complexity of electronic products, the increasingly advanced electronic materials required for interconnect performance and manufacturability, the consolidation of the printed circuit board fabrication industry and the time-to-market and time-to-volume pressures requiring closer collaboration with materials suppliers. The Company believes that it is one of the world's largest manufacturers of multilayer printed circuit materials and the market leader in North America and Southeast Asia. It also believes that it is the only significant independent manufacturer of multilayer printed circuit materials in the world. The Company was the first manufacturer in the printed circuit materials industry to establish manufacturing presences in the three major global markets of North America, Europe and Asia, with facilities estab- lished in Europe in 1969 and Southeast Asia in 1986. Industry Background The electronic materials manufactured by the Company and its competitors are used to construct and fabricate complex multilayer printed circuit boards and other advanced electronic interconnect systems. Multilayer printed circuit materials consist of prepregs and copper-clad laminates, as well as semi-finished multilayer printed circuit board panels. Prepregs are chemically and electrically engineered plastic resin systems which are impregnated into and reinforced by a specially manufactured fiberglass cloth product or other woven or non-woven reinforcing fiber. This insulating dielectric substrate is .030 inch to .002 inch in thickness or less in some cases. These resins systems are usually based upon an epoxy chemistry. One or more plies of prepreg are laminated together to form an insulating dielectric substrate to support the copper circuitry patterns of a multilayer printed circuit board. Copper-clad laminates consist of one or more plies of prepreg laminated together with specialty thin copper foil laminated on the top and bottom. Copper foil is specially formed in thin sheets which may vary from .0030 inch to .0002 inch in thickness and normally have a thickness of .0014 inch or .0007 inch. The Company supplies both copper-clad laminates and prepregs to its customers, which use these products as a system to construct multilayer printed circuit boards. The printed circuit board fabricator processes copper-clad laminates to form the inner layers of a multilayer printed circuit board. The fabricator photoimages these laminates with a dry film or liquid photo- resist. After development of the photoresist, the copper surfaces of the laminate are etched to form the circuit pattern. The fabricator then assembles these etched laminates by inserting one or more plies of dielectric prepreg between each of the inner layer etched laminates and also between an inner layer etched laminate and the outer layer copper plane, and then laminating the entire assembly in a press. Prepreg serves as the insulator between the multiple layers of copper circuitry patterns found in the multilayer circuit board. When the multilayer configuration is laminated, these plies of prepreg form an insulating dielectric substrate supporting and separating the multiple inner and outer planes of copper circuitry. The fabricator drills vertical through holes or vias in the multilayer assembly and then plates the through holes or vias to form vertical conductors between the multiple layers of circuitry patterns. These through holes or vias combine with the conductor paths on the horizontal circuitry planes to create a three-dimensional electronic interconnect system. The outer two layers of copper foil are then imaged and etched to form the finished multilayer printed circuit board. The completed multilayer board is a three-dimensional interconnect system with electronic signals traveling in the horizontal planes of multiple layers of copper circuitry patterns, as well as the vertical plane through the plated holes or vias. The global market for advanced electronic products is growing as a result of technological change and frequent new product introductions. This growth is principally attributable to increased sales and more complex electronic content of newer products, such as cellular phones, pagers, personal computers and portable computing devices, and greater use of electronics in other products, such as automobiles. Further, large, almost completely untapped markets for advanced electronics equipment have emerged in such areas as India and China and other areas of the Pacific Rim. Semiconductor manufacturers have introduced successive generations of more powerful microprocessors and memory and logic devices. Electronic equipment manufacturers have designed these advanced semiconductors into more compact and often portable products. High performance computing devices in these smaller portable platforms require greater reliability, closer tolerances, higher component and circuit density and increased overall complexity. As a result, the interconnect industry has developed smaller, lighter, faster and more cost-effective interconnect systems, including advanced multilayer printed circuit boards and new types of semiconductor packaging systems such as ball-grid arrays and multi-chip modules. Advanced interconnect systems require higher technology printed circuit materials to insure the performance of the electronic system and to improve the manufacturability of the interconnect platform. The growth of the market for more advanced printed circuit materials has outpaced the market growth for standard printed circuit materials in recent years. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced electrical properties in order to support high speed computing in a miniaturized and often portable environ- ment. With the very high density circuit demands of miniaturized high performance interconnect systems, the uniformity, purity, consistency, performance predictability, dimensional stability and production tolerances of printed circuit materials have become successively more critical. High density printed circuit boards and interconnect systems often involve higher layer count multilayer circuit boards where the multiple planes of circuitry and dielectric insulating substrates are very thin (dielectric insulating substrate layers may be .002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (.003 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very narrow plated through holes or vias which electrically connect the multiple layers of circuitry planes. High density interconnect systems must utilize printed circuit materials whose dimension- al characteristics and purity are consistently manufactured to very high tolerance levels in order for the printed circuit board fabricator to attain and sustain acceptable production yields. Shorter product life cycles and competitive pressures have induced electronic equipment manufacturers to bring new products to market and increase production volume to commercial levels more quickly. These trends have highlighted the importance of front-end engineering of electronic products and have increased the level of collaboration among system designers, fabricators and printed circuit materials suppliers. As the complexity of electronic products increases, materials suppliers must provide greater technical support to interconnect systems fabricators on a timely basis regarding manufacturability and performance of new materials systems. Products and Services The Company produces a broad line of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, including backplanes, PC cards and semiconductor packaging systems. The Company also manufactures semi- finished multilayer printed circuit board panels for a select group of customers. The Company's diverse advanced printed circuit materials product line is designed to address a wide array of end-use applications and performance requirements. The Company's product line has been developed internally and through long-term development projects with its principal suppliers. The Company focuses its research and development efforts on developing industry leading product technology to meet the most demanding product requirements and has designed its product line with a focus on the higher performance, higher technology end of the materials spectrum. All of the Company's existing electronic materials products have been introduced since 1990. Most of the Company's research and development expenditures are attributable to the efforts of its electronic materials operations. In response to the rapid technological changes in the electronic materials business, these expenditures on research and product development have increased over the past several years. The Company's products include high-temperature modified epoxies, bismaleimide triazine epoxies ("BT epoxy"), non-MDA polyimides, enhanced polyimides, high performance epoxy Thermount materials ("Thermount" is a registered trademark of E.I. duPont de Nemours & Co.), cyanate esters and PTFE materials. In March 1996, the Company entered into a technical license agreement with Mitsubishi Gas Chemical Company, Inc. of Japan ("MGC"), which grants the Company a license to use MGC's technology relating to the production of BT/epoxy copper-clad laminate materials which are specially designed for the manufacture of advanced semiconductor packages, such as plastic ball grid arrays, plastic pin grid arrays and other advanced high density plastic laminate chip packages. The Company expects to supply these new plastic laminate semiconductor packaging materials to certain leading packaging and semiconductor manufacturing companies in the North American and European markets. Plastic laminate chip packages are gaining wider acceptance in the semiconductor industry for advanced chip packaging applications, particularly for high pin count and fast clock speed semiconductor packages. In addition to prepreg and copper-clad laminate printed circuit materials products, the Company also manufactures semi-finished multilayer printed circuit board panels as a value-added service for a limited number of its key customers. Production of the Company's semi-finished multilayer product involves several additional manufacturing steps beginning with the photoimaging and etching of the copper-clad laminate product into the circuitry patterns specified by the customer. These etched laminates form the inner layers of the multilayer circuit board. The etched inner layers are then laminated into a multilayer assembly with insulating dielectric prepreg inserted between the multiple etched inner layers and outer layer copper planes. The outer planes of copper foil are left in unprocessed "blank" form and the product is delivered to the customer at this stage in the process. The fabricator customer then drills and plates the through holes or vias and finishes the outer layers of circuitry patterns to complete the product. The Company has developed long-term relationships with select customers through broad-based technical support and service, as well as manufacturing proximity and responsiveness at multiple levels of the customer's organization. The Company focuses on developing a thorough understanding of its customer's business, product lines, processes and technological challenges. The Company seeks customers which are industry leaders committed to maintaining and improving their industry leadership positions and which are committed to long-term relationships with their suppliers. The Company also seeks business opportunities with the more advanced printed circuit fabricators and electronic equipment manufacturers which are interested in the full value of products and services provided by their suppliers. The Company believes its proactive and timely support in assisting its customers with the integration of advanced materials technology into new product designs further strengthens its relationships with its customers. The Company's emphasis on service and close relationship with its customers is reflected in its relatively short lead times. The Company has designed its manufacturing processes and service organizations to provide the customer with its printed circuit materials products on a just-in-time basis. The Company has located its advanced printed circuit materials manufacturing operations in strategic locations intended to serve specific regional markets. By situating its facilities in close geographical proximity to its customers, the Company is able to rapidly adjust its manufacturing processes to meet customers' new requirements and respond quickly to customers' technical needs. The Company has full technical staffs based at each of its manufacturing locations, which allows the rapid dispatch of technical personnel to a customer's facility to assist the customer in quickly solving design, process, production or manufacturing problems. Customers and End Markets The Company's customers for its advanced electronic materials include the leading independent printed circuit board fabricators and major electronic equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries located throughout the United States, Canada, Europe and the Far East. The Company seeks to align itself with the larger, more technologically-advanced and better capitalized independent printed circuit board fabricators and major electronic equipment manufacturers which are industry leaders committed to maintaining and improving their industry leadership positions and to building long-term relationships with their suppliers. The Company's selling effort typically involves several stages and relies on the talents of Company personnel at different levels, from management to sales personnel and quality engineers. The Company's strategy emphasizes the use of multiple facilities established in market areas in close proximity to its customers. During the Company's 1996 fiscal year, more than 10% of the Company's sales were made to a major domestic manufacturing concern. This concern has purchased a significant amount of product from the Company for more than three years, and the Company believes its relations with this customer are strong and that this customer will continue to make significant purchases of printed circuit materials product from the Company in the immediate future. Although the Company's electronic materials segment is not dependent on this single customer, the loss of this customer could have a material adverse effect on the business of this segment. Although no other single customer accounted for 10% or more of total sales of the Company for the 1996 fiscal year and the electronic materials segment is not dependent on any other single customer, the loss of a major customer or of a group of this segment's customers could have a material adverse effect upon the business of this segment. The Company's electronic materials segment's products are marketed by sales personnel in industrial centers in the United States, Europe and the Far East. Such personnel include both salaried employees and indepen- dent sales representatives who work on a commission basis. Manufacturing The process for manufacturing multilayer printed circuit materials is capital intensive and requires sophisticated equipment as well as clean- room environments. The key steps in the Company's manufacturing process include: the impregnation of specially designed fiberglass cloth with a resin system and the partial curing of that resin system; the assembling of laminates consisting of single or multiple plies of prepreg and copper foil in a clean-room environment; the vacuum lamination of the copper-clad assemblies under simultaneous exposure to heat, pressure and vacuum; and the finishing of the laminates to customer specifications. Prepreg is manufactured in a treater. A treater is a roll-to-roll continuous machine which sequences specially designed fiberglass cloth or other reinforcement fabric into a resin tank and then sequences the resin- coated cloth through a series of ovens which partially cure the resin system into the cloth. This partially cured product or prepreg is then sheeted or paneled and packaged by the Company for sale to customers, or used by the Company to construct its copper-clad laminates. The Company manufactures copper-clad laminates by first setting up in a clean room an assembly of one or more plies of prepreg stacked together with a sheet of specially manufactured copper foil on the top and bottom of the assembly. This assembly, together with a large quantity of other laminate assemblies, is then inserted into a large, multiple opening vacuum lamination press. The laminate assemblies are then laminated under simultaneous exposure to heat, pressure and vacuum. After the press cycle is complete, the laminates are removed from the press and sheeted, paneled and finished to customer specifications. The product is then inspected and packaged for shipment to the customer. The Company manufactures multilayer printed circuit materials at eight fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its United Kingdom facility in 1969, its first Arizona and France facilities in 1984, its Singapore facility in 1986 and its second Arizona and France facilities in 1992. The Company services the North American market principally through its United States manufacturing facilities, the European market principally through its manufacturing facilities in the United Kingdom and France, and the Asian market principally through its Singapore manufacturing facility. The Company has located its manufacturing facilities in its important markets. By maintaining full technical and engineering staffs at each of its manufacturing facilities, the Company is able to deliver fully-integrated products and services on a timely basis. During the 1996 fiscal year, the Company expanded its New York State operations to increase its production capacity for advanced printed circuit materials principally for the United States market and expanded its Tempe, Arizona operations to provide enhanced capability and capacity to produce high density, semi-finished multilayer panels and interconnect systems. It commenced commercial operations at these expanded facilities during the early part of its 1997 fiscal year. The Company is considering further expansions of its electronic materials operations in one or more additional locations during the 1997 fiscal year, particularly in the United States and Southeast Asia. All of the Company's multilayer printed circuit materials manufac- turing facilities are used for manufacturing, engineering and product development, except for the facility located in Lannemezan, France, which is principally a product research and development facility. All of the Company's printed circuit materials manufacturing facilities are ISO 9002 certified. Materials and Sources of Supply The principal materials used in the manufacture of the Company's electronic products are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. The Company attempts to develop and maintain close working relationships with suppliers of those materials who have dedicated themselves to complying with the Company's stringent specifications and technical requirements. While the Company's philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for each of these materials. However, there are a limited number of qualified suppliers of these materials, substitutes for these materials are not readily available, and, in the recent past, the industry has experienced shortages in the market for certain of these materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from one of the Company's principal suppliers or an inability to obtain essential materials could materially adversely affect the business, financial condition and results of operations of the Company. Significant increases in the cost of materials purchased by the Company could also have a material adverse effect on the Company's business, financial condition and results of operations if the Company were unable to pass such price increases through to its customers. Competition The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company's competitors are primarily divisions or subsidiaries of very large, diversified multinational manufacturers which are substantially larger and have greater financial resources than the Company and, to a lesser degree, smaller regional producers. Because the Company focuses on the higher technology segment of the electronic materials market, technological innovation, quality and service, as well as price, are significant competitive factors. The Company believes that there are approximately ten significant multilayer printed circuit materials manufacturers in the world and many of these competitors have or are developing significant presences in the three major global markets of North America, Europe and Asia. The Company believes that the multilayer printed circuit materials industry is rapidly becoming more global and that the remaining smaller regional manufacturers will find it increasingly difficult to remain competitive. The Company believes that it is currently one of the world's largest multilayer printed circuit materials manufacturers and the market leader in North America and Southeast Asia. The Company further believes it is the only significant independent manufacturer of multilayer printed circuit materials in the world today. The markets in which the Company's electronic materials operations compete are characterized by rapid technological advances, and the Company's position in these markets depends largely on its continued ability to develop technologically advanced and highly specialized products. Although the Company believes it is an industry technology leader and directs a significant amount of its time and resources toward maintaining its technological competitive advantage, there is no assurance that the Company will be technologically competitive in the future, or that the Company will continue to develop new products that are technologically competitive. Plumbing and Industrial Component Operations The Company's plumbing and industrial component segment is comprised of its plumbing, advanced composite, and industrial adhesive tape busi- nesses. The Company markets plumbing hardware products which it designs and manufactures typically from chrome and brass plated zinc and plastic. The Company also markets brass cast and plastic plumbing hardware products and components. These products are sold to original equipment manufacturers, hardware and plumbing wholesalers and home improvement centers. The Company's plumbing hardware products are designed for low cost and ease of installation and repair and also for water and energy conservation. The advanced composite business' products are utilized by the defense, aerospace and other commercial industries. The Company's specialty industrial adhesive tape business produces tapes and bonding films for a variety of applications including joining industrial components together. Marketing and Customers The Company's plumbing and industrial component customers, substantially all of which are located in the United States, include OEMs, hardware and plumbing wholesalers, home improvement centers and manufactur- ers in the defense and aerospace industry. All of such products are marketed by sales personnel including both salaried employees and independent sales representatives who work on a commission basis. Zinc and plastic plumbing hardware products are manufactured and assembled at the Company's facilities in Grand Rapids and Comstock Park, Michigan. The Company's brass cast plumbing hardware products are designed by the Company and manufactured by a prominent Mexican faucet manufacturer under a long- term contract between the Company and this manufacturer. The Company's advanced composite manufacturing facility is located in Waterbury, Connecticut. Holyoke, Massachusetts is the site of the Company's specialty adhesive tape business. While no single plumbing and industrial component customer accounted for 10% or more of the Company's total sales during the last fiscal year, the loss of a major customer or of a group of some of the largest customers of the plumbing and industrial component segment could have a material adverse effect upon this segment. Manufacturing and Sources of Supply The Company designs and manufactures its plumbing hardware to its own specifications and to the specifications of original equipment manufacturers, using combinations of materials and product designs that are developed by its personnel. The Company's product development efforts relating to its plumbing hardware business operations are directed toward the development of new decorative plumbing hardware product designs and new materials to be used in the manufacture of plumbing products. This requires market research, industrial design, engineering and testing for ease of installation and durability. The Company usually combines chrome-plated zinc and plastic moldings for its products. The principal materials used in the manufacture of the Company's plumbing hardware products consist of zinc, plastics, plating materials, and other component parts. The Company purchases these materials from several suppliers. Although satisfactory substitutes for these materials are not readily available, the Company has experienced no difficulties in obtaining such materials. The Company purchases brass castings from one supplier and the Company has a long-term contract with this supplier. In addition, the Company designs and manufactures its advanced composites and industrial tapes to its own specifications and to the specifications of its customers. Product development efforts are devoted toward the conforming of the Company's advanced composites to the specifica- tions of, and the obtaining of approvals from, the Company's customers. The materials used in the manufacture of these industrial components include chemicals, films, resins, fiberglass, plastics, and other fabricated materials and adhesives. The Company purchases these materials from several suppliers. Although satisfactory substitutes for many of these materials are not readily available, the Company has experienced no difficulties in obtaining such materials. Competition The Company has many competitors in the plumbing and industrial component segment, including some major corporations which have substantial- ly greater financial resources than the Company. The Company competes for industrial components business on the basis of product performance and development, product qualification and approval, the ability to manufacture and deliver products in accordance with customers' needs and requirements, and price. The Company's plumbing hardware business can be affected by fluctuations in the housing industry. Backlog The Company records an item as backlog when it receives a purchase order specifying the number of units to be purchased, the purchase price, specifications and other customary terms and conditions. At May 3, 1996, the unfilled portion of all purchase orders believed to be firm was approximately $18,917,000, compared to $20,381,000 at April 28, 1995. Backlog of the Company's two industry segments at May 3, 1996, compared to April 28, 1995, was as follows: May 3, 1996 April 28, 1995 Electronic Materials $ 9,747,000 $11,614,000 Plumbing and Industrial Components 9,170,000 8,767,000 Total $18,917,000 $20,381,000 Various factors contribute to the size of the Company's backlog. Accordingly, the foregoing information may not be indicative of the Company's results of operations for any period subsequent to the fiscal year ended March 3, 1996. Patents and Trademarks The Company holds several patents and trademarks or licenses thereto. In the Company's opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new, or to defend existing, patents and trademarks would have a material adverse effect on the Company. Employees At March 3, 1996, the Company had approximately 2,240 employees. Of these employees, 1,890 were engaged in the Company's electronic material operations, 330 in its plumbing and industrial components operations and 20 consisted of executive personnel and general administrative staff. Approximately 8% of the Company's employees, all of whom are engaged in the plumbing and industrial components operations, are subject to collective bargaining agreements. Management considers its labor relations to be satisfactory. Environmental Matters The Company is subject to stringent environmental regulation of its use, storage, treatment and disposal of hazardous materials and the release of emissions into the environment. The Company believes that it currently is in substantial compliance with the applicable federal, state and local environmental laws and regulations to which it is subject and that continuing compliance therewith will not have a material effect on its capital expenditures, earnings or competitive position. The Company does not currently anticipate making material capital expenditures for environ- mental control facilities for its existing manufacturing operations during the remainder of its current fiscal year or its succeeding fiscal year. However, developments, such as the enactment or adoption of even more stringent environmental laws and regulations, could conceivably result in substantial additional costs to the Company. The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties for a number of hazardous waste disposal sites or other potentially contaminated areas. Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency are jointly and severally liable for the cost of cleanup unless the EPA or such agency agrees otherwise. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at the waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect upon the Company. Item 2. Properties. The following chart indicates the significant properties owned and leased by the Company, the industry segment which uses the properties, and the location and size of each such property. All of such properties, except for the Lake Success, New York property, are used principally as manufactur- ing, warehouse and assembly facilities.
Size Owned or (Square Location Leased Use Footage) Lake Success, NY Leased Executive Offices 7,000 Walden, NY Owned Electronic Materials 51,000 Newburgh, NY Leased Electronic Materials 57,000 Fullerton, CA Leased Electronic Materials 95,000 Anaheim, CA Leased Electronic Materials 26,000 Tempe, AZ Leased Electronic Materials 86,000 Tempe, AZ Leased Electronic Materials 38,000 Tempe, AZ Leased Electronic Materials 15,000 Mirebeau, France Owned Electronic Materials 81,000 Lannemezan, France Owned Electronic Materials 29,000 Skelmersdale, England Owned Electronic Materials 54,000 Chippenham, England Leased Electronic Materials 5,000 Singapore Leased Electronic Materials 48,000 Singapore Leased Electronic Materials 10,000 Grand Rapids, MI Owned Plumbing Components 165,000 Comstock Park, MI Leased Plumbing Components 39,000 Holyoke, MA Leased Industrial Components- 24,000 Specialty Adhesive Tapes and Films Waterbury, CT Leased Industrial Components- 100,000 Advanced Composites
The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. Item 3. Legal Proceedings. (a) There are no material pending legal proceedings to which the Company is a party or to which any of its properties is subject. (b) No material pending legal proceeding was terminated during the fiscal quarter ended March 3, 1996. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Registrant. Name Title Age Jerry Shore Chairman of the Board, Chief 70 Executive Officer and a Director Brian E. Shore President and a Director 44 E. Phillip Smoot Executive Vice President and a 58 Director Paul R. Shackford Vice President and Chief 46 Financial Officer, Secretary and Treasurer Jerry Shore has served the Company in the capacities stated above for more than the past five years. Brian Shore has served as a Director of the Company for more than the past five years. Brian Shore was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994 and President effective March 4, 1996, the first day of the Company's current fiscal year. Brian Shore also served as General Counsel of the Company from April 1988 until April 1994. Mr. Smoot has served the Company in the capacities stated above for more than the past five years. Mr. Shackford became Vice President, Chief Financial Officer, Secretary and Treasurer of the Company in August 1995. Prior to that time, he served as Executive Vice President, Chief Financial Officer and Assistant Secretary of Equitable Bag Co., Inc. ("Equitable") from January 1993 and also as Treasurer from June 1993 and as Secretary from June 1994. From January 1991 to December 1992, he was Vice President-Finance and Chief Financial Officer of Equitable. There are no family relationships between the directors or executive officers of the Company, except that Brian Shore is the son of Jerry Shore. The term of office of each executive officer of the Company expires upon the election and qualification of his successor. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. The Company's Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Midwest Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sale prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock, all as adjusted for the two-for-one stock split in the form of a stock dividend distributed August 15, 1995 to shareholders of record at the close of business on July 24, 1995. For the Fiscal Year Stock Price Dividends Ended March 3, 1996 High Low Declared First Quarter 20 1/16 16 7/8 $.06 Second Quarter 31 1/2 17 1/8 $.06 Third Quarter 34 1/8 28 $.08 Fourth Quarter 37 7/8 28 3/8 $.08 For the Fiscal Year Stock Price Dividends Ended February 26, 1995 High Low Declared First Quarter 15 7/16 12 15/16 $.04 Second Quarter 17 3/8 12 13/16 $.04 Third Quarter 17 7/8 14 11/16 $.06 Fourth Quarter 17 11/16 13 5/8 $.06 As of May 3, 1996, there were 2,451 holders of record of Common Stock. The Company expects, for the immediate future, to continue to pay regular cash dividends. Item 6. Selected Financial Data. The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the consolidated financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the five fiscal years ended March 3, 1996 and is as of the end of such periods, it is derived from the consolidated financial statements for such periods and as of such dates audited by Ernst & Young LLP, independent Certified Public Accountants, for the three fiscal years ended March 3, 1996 and Deloitte & Touche LLP, independent Certified Public Accountants, for all prior periods presented. The consolidated financial statements as of March 3, 1996 and February 26, 1995 and for the three years ended March 3, 1996, together with the auditors' reports for the three years ended March 3, 1996, appear elsewhere in this Report. Item 6
Fiscal Year Ended Mar. 3, Feb. 26, Feb. 27, Feb. 28, Mar. 1, 1996 1995 1994 1993 1992 (In thousands, except per share amounts) STATEMENT OF EARNINGS INFORMATION: Net sales $312,966 $253,022 $208,410 $175,176 $165,287 Cost of sales 242,655 196,917 168,175 149,145 141,717 Gross profit 70,311 56,105 40,235 26,031 23,570 Selling, general and administrative expenses 35,236 29,995 25,930 22,865 21,250 Profit from operations 35,075 26,110 14,305 3,166 2,320 Other income (expense): Interest and other income, net 2,285 1,822 947 1,967 2,252 Interest expense (96) (431) (2,407) (2,058) (2,649) Total other income (expense) 2,189 1,391 (1,460) (91) (397) Earnings before income taxes 37,264 27,501 12,845 3,075 1,923 Income tax provision 12,366 10,156 4,783 810 608 Net earnings $ 24,898 $ 17,345 $ 8,062 $ 2,265 $ 1,315 Earnings per share: Primary $ 2.11 $ 1.59 $ 1.01 $ .25 $ .15 Fully diluted $ 2.10 $ 1.52 $ .84 $ .25 $ .15 Weighted average number of common and common equivalent shares outstanding: Primary 11,794 10,858 7,986 9,068 9,056 Fully diluted 11,860 11,570 11,454 9,068 9,056 Cash dividends per common share $ .28 $ .20 $ .16 $ .16 $ .16 BALANCE SHEET INFORMATION: Working capital $160,965 $ 55,035 $ 45,867 $ 45,811 $ 51,737 Total assets 298,975 162,051 140,750 129,009 130,734 Long-term debt 100,000 23 32,861 33,957 33,439 Stockholders' equity 134,427 112,048 61,454 60,700 62,275
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Park is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, such as backplanes, PC cards and semiconductor packaging systems. The Company's customers for its advanced printed circuit materials include leading independent circuit board fabricators and large electronic equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation indus- tries. The Company's electronic materials operations accounted for more than 86% of net sales worldwide and more than 95% of operating profit in each of the last three fiscal years. The Company's foreign electronic materials operations accounted for an average of approximately 24% of net sales worldwide for the 1994 and 1995 fiscal years and approximately 29% for the fiscal year ended March 3, 1996. The Company's sales growth during the last three fiscal years has been led by strong growth in sales by its United States and Singapore electronic materials operations. More recently, increased sales by the Company's European operations have also contributed to this growth. The Company's ongoing efforts to expand its higher technology, higher margin product lines have contributed to the growth of the Company's sales of electronic materials during this period. The Company has also improved the manufacturing efficiencies of its electronic materials business since the beginning of its 1993 fiscal year. These improvements have been the result of consolidating functions, more effective capacity utilization, reducing manufacturing waste and improving yields, improving the overall productivity of the Company's workforce, and redesigning product in order to reduce material costs. Sales volume of the Company's electronic materials segment has increased during each of the last three fiscal years. However, growth of the Company's electronic materials business was constrained during the 1996 fiscal year by the Company's available manufacturing capacity. During the 1996 fiscal year, the Company expanded its manufacturing capacity in Newburgh, New York and Tempe, Arizona, and commenced commercial operations in both locations during the early part of the 1997 fiscal year. The Company is considering further expansions of its electronic materials operations, particularly in the United States and Southeast Asia. Fiscal Year 1996 Compared with Fiscal Year 1995: The Company's electronic materials business was responsible for the improvement in the Company's results of operations for the fiscal year ended March 3, 1996. The United States and Asian markets for sophisticated printed circuit materials were strong during the 1996 fiscal year, and the Company's electronic materials operations located in these regions performed well as a result. While the market in Europe for sophisticated printed circuit materials has not been as strong as in the United States or Asia, it improved over the prior fiscal year, and the Company's European operations benefitted from this improvement. During the 1996 fiscal year, the Company's electronic materials business incurred raw material cost increases and additional costs associated with the Company's ongoing major expansion projects in Newburgh, New York and Tempe, Arizona. In addition, the electronic materials business experienced temporary inefficiencies caused by operating certain facilities at levels in excess of their designed manufacturing capacity. These cost increases and temporary operating inefficiencies adversely affected the Company's gross margins. However, the Company was able to offset such effects by improving its overall operating efficiencies, in part, by consolidating functions, by continuing to reduce manufacturing waste and improve yields, and by improving the overall productivity of its workforce. In addition, the Company redesigned product in order to reduce material costs. The Company was also able to offset these cost increases and inefficiencies through its ongoing efforts to expand its higher technology, higher margin product lines. Operating results of the Company's plumbing and industrial components business were not significant during the 1996 fiscal year. Results of Operations Sales for the fiscal year ended March 3, 1996 increased 24% to $313.0 million from $253.0 million for the fiscal year ended February 26, 1995. Sales of the electronic materials business for the 1996 fiscal year were $274.9 million, or 88% of total sales worldwide, compared with $218.3 million, or 86% of total sales worldwide, for the 1995 fiscal year. This 26% increase in sales of electronic materials was principally the result of higher volume of electronic materials shipped and an increase in sales of higher technology products. Sales of the plumbing and industrial components business for the 1996 fiscal year increased 10% to $38.1 million from $34.7 million for the 1995 fiscal year. The Company's foreign electronic materials operations accounted for $91.7 million of sales, or 29% of the Company's total sales worldwide, during the 1996 fiscal year compared with $61.9 million of sales, or 24% of total sales worldwide, during the 1995 fiscal year. Sales by the Company's foreign operations during the 1996 fiscal year increased 48% from the 1995 fiscal year. While sales by each of the Company's foreign operations were higher in the 1996 fiscal year compared with the 1995 fiscal year, the increase in sales by foreign operations was principally due to an increase in sales by the Company's Singapore operations. The expansion of the Company's Singapore manufacturing facility was completed at the end of the Company's 1995 fiscal year. The gross margin for the Company's worldwide operations was 22.5% during the 1996 fiscal year compared with 22.2% for the 1995 fiscal year. The improvement in the gross margin was attributable to the increase in sales volume over the prior fiscal year, the continuing growth in sales of higher technology, higher margin products and improved operating efficien- cies. This improvement was offset in part by higher raw material costs, costs associated with the start-up of the new facilities in Newburgh, New York and Tempe, Arizona, and inefficiencies caused by operating certain facilities at levels in excess of designed capacity. Selling, general and administrative expenses, measured as a percentage of sales, were 11.3% during the 1996 fiscal year compared with 11.9% during the 1995 fiscal year. This reduction was a function of the partially fixed nature of the selling, general and administrative expenses relative to the increase in sales. For the reasons set forth above, profit from operations for the 1996 fiscal year increased 34% to $35.1 million from $26.1 million for the 1995 fiscal year. Interest and other income, principally investment income, increased 25% to $2.3 million for the 1996 fiscal year from $1.8 million for the 1995 fiscal year. The increase in investment income was attributable to the increase in the prevailing interest rates during the current year and to the increase in cash available for investment. The Company's investments were primarily short-term taxable instruments and government securities. Interest expense for the 1996 fiscal year was minimal compared with $0.4 million during the 1995 fiscal year. During the first quarter of the prior fiscal year, the Company called its 7.25% Convertible Subordinated Debentures for redemption; as a result, nearly all of such Debentures outstanding at the beginning of the prior fiscal year were converted into Common Stock during that fiscal year's first quarter, which eliminated the Company's long-term debt and the associated interest expense. The Company's effective income tax rate for the 1996 fiscal year was 33.2% compared with 36.9% for the 1995 fiscal year. This decrease in the effective tax rate was primarily the result of favorable foreign tax rate differentials. Net earnings for the 1996 fiscal year increased 44% to $24.9 million from $17.3 million for the 1995 fiscal year. Primary and fully diluted earnings per share increased to $2.11 and $2.10, respectively, for the 1996 fiscal year from $1.59 and $1.52, respectively, for the 1995 fiscal year. This increase in net earnings and earnings per share was primarily attributable to the increase in the profit from operations, the effects of the conversion of the Debentures and the lower effective tax rate. Fiscal Year 1995 Compared with Fiscal Year 1994: The electronic materials business in the United States and Singapore continued its strong growth in the fiscal year ended February 26, 1995 which significantly improved the Company's operating results during that fiscal year. As a result of this growth, enhanced operating efficiencies and continued emphasis on higher technology products, the operating profits of the electronic materials business were sufficient to offset the impact of rising raw material costs and pricing pressures. The Company's European electronic materials operations also improved during the 1995 fiscal year as a result of strengthening in the European market for the Company's products. The Company focused its capital investments during the 1995 fiscal year principally on its electronic materials business for the purpose of enhancing capability and expanding capacity. The Company also continued to invest in its electronic materials business' leading edge technology and product development efforts. The expansion of the Company's Singapore facility was completed at the end of the Company's 1995 fiscal year. During the second half of the 1995 fiscal year, the Company's plumbing hardware business returned to modest profitability. The Company's advanced composite business' performance improved during the 1995 fiscal year under its new management team as it refocused its products towards non-military applications, such as wireless communications. The Company's specialty adhesive tape business performed well during the 1995 fiscal year, with increased sales and earnings due in part to focusing towards high- technology, high-margin products. Results of Operations Sales for the fiscal year ended February 26, 1995 increased 21% to $253.0 million from $208.4 million for the fiscal year ended February 27, 1994. Sales of the electronic materials operations for the 1995 fiscal year were $218.3 million, or 86% of total sales worldwide, compared with $182.6 million, or 88% of total sales worldwide, for the 1994 fiscal year. This 20% increase in sales of electronic materials was principally the result of higher volume of electronic materials shipped. Sales of the plumbing and industrial component business for the 1995 fiscal year increased 34% to $34.7 million from $25.8 million for the 1994 fiscal year, principally due to increased volume. The Company's foreign electronic materials operations accounted for $61.9 million of sales, or 24% of the Company's total sales worldwide, during the 1995 fiscal year compared with $46.5 million, or 22% of total sales worldwide, during the 1994 fiscal year. Sales by the Company's foreign operations during the 1995 fiscal year increased 33% from the 1994 fiscal year. While sales by the Company's foreign operations were higher in the 1995 fiscal year at each of the Company's foreign operations compared with the 1994 fiscal year, the increase in sales by foreign operations was principally due to increased sales of the Company's Singapore operations. The gross margin for the Company's worldwide operations was 22.2% for the 1995 fiscal year compared with 19.3% for the 1994 fiscal year. The gross margin improved as a result of operating efficiencies, attributable in part to the increase in sales volume, more effective capacity utilization and reduced manufacturing waste. Selling, general and administrative expenses, measured as a percentage of sales, were 11.9% during the 1995 fiscal year compared with 12.4% during the 1994 fiscal year. This reduction was a function of the partially fixed nature of the selling, general and administrative expenses relative to the increase in sales. For the reasons set forth above, profit from operations for the 1995 fiscal year increased 83% to $26.1 million from $14.3 million for the 1994 fiscal year. Interest and other income, principally investment income, increased 92% to $1.8 million during the 1995 fiscal year from $0.9 million during the 1994 fiscal year. This increase in investment income occurred because the average rate of interest earned by the Company during the 1995 fiscal year was higher than during the 1994 fiscal year and because the Company had more cash available for investment. The Company's investments were primarily short-term taxable instruments and government securities. During the 1995 fiscal year, interest expense decreased 82% to $0.4 million from $2.4 million during the 1994 fiscal year. This expense was attributable to interest on the Company's 7.25% Convertible Subordinated Debentures and, to a lesser extent, on loans carried by certain of the Company's foreign subsidiaries. The decrease in this expense was due to the call for redemption of such Debentures, nearly all of which were converted into Common Stock by May 31, 1994. The Company's effective income tax rate for the 1995 fiscal year was 36.9% compared with 37.2% for the 1994 fiscal year. The effective tax rate for the 1995 fiscal year decreased due to the impact of foreign net operating losses without tax benefit and favorable foreign tax rate differentials, offset in part by a reduction in general business credits. The Company's net earnings increased 115% in the 1995 fiscal year to $17.3 million from $8.1 million during the 1994 fiscal year. Primary and fully diluted earnings per share increased to $1.59 and $1.52, respectively, for the 1995 fiscal year compared with $1.01 and $.84, respectively, for the 1994 fiscal year. The increase in net earnings and earnings per share was attributable principally to the increase in profit from operations and the effects of the conversion of Debentures into Common Stock. Liquidity and Capital Resources: At March 3, 1996, the Company's cash and temporary investments were $143.2 million compared with $45.9 million at February 26, 1995, the end of the Company's 1995 fiscal year. The increase in the Company's cash and investment position at March 3, 1996 was attributable to the receipt of $96.8 million from the sale of the Company's 5.5% Convertible Subordinated Notes due 2006 (the "Notes") on February 28, 1996 and cash provided from operating activities in excess of investments in property, plant and equipment, as discussed below. The Company's working capital was $161.0 million at March 3, 1996 compared with $55.0 million at February 26, 1995. The increase at March 3, 1996 compared with February 26, 1995 was due to the proceeds from the sale of the Notes and increases in receivables and inventories, offset in part by higher payables. The increase in receivables at March 3, 1996 compared with February 26, 1995 was due principally to increased sales; the increase in inventories for the same period was due to increased sales and to higher purchases of raw materials to ensure adequate supply of such materials. The Company's current ratio (the ratio of current assets to current liabilities) was 3.8 to 1 at March 3, 1996 compared with 2.3 to 1 at February 26, 1995. During the 1996 fiscal year, the Company generated funds from operations of $27.4 million and expended $24.5 million for the purchase of property, plant and equipment. Cash provided by net earnings before depreciation and amortization of $34.7 million was reduced by a net increase in non-cash working capital items, resulting in $27.4 million of cash provided from operating activities. A significant portion of the 1996 fiscal year's capital expenditures related to installation of additional capacity at new electronic materials facilities in Newburgh, New York and Tempe, Arizona. These expansions will increase the Company's capacity and capability for the production of sophisticated printed circuit materials. Expenditures for property, plant and equipment were $24.5 million, $17.5 million and $9.6 million in the 1996, 1995 and 1994 fiscal years, respec- tively. The Company expects the level of capital expenditures in the 1997 fiscal year to be in the same range as in the 1996 fiscal year. The Company is currently considering further expansions of its electronic materials operations, particularly in the United States and Southeast Asia. At March 3, 1996, the Company's only long-term debt was the Notes. The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in property, plant and equipment and for general corporate purposes. Such resources, including the proceeds from the Notes, would also be available for appropriate acquisitions and other expansions of the Company's business. Factors That May Affect Future Results. The Private Securities Litigation Reform Act of 1995 provides a new "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Accordingly, the Company hereby identifies the following important factors which could cause the Company's actual results to differ materially from any such results which might be projected, forecast, estimated or budgeted by the Company in forward-looking state- ments. . The Company's business is dependent on certain aspects of the electronics industry, which is a cyclical industry and which has experienced recurring downturns. The downturns, such as occurred in the first quarter of the Company's fiscal year ending March 2, 1997, can be unexpected and have often reduced demand for, and prices of, electronic materials. . The Company's operating results are affected by a number of factors, including various factors beyond the Company's control. Such factors include economic conditions in the electronics industry, the timing of customer orders, product prices, process yields, the mix of products sold and maintenance-related shutdowns of facilities. Operating results also can be influenced by development and introduction of new products and the costs associated with the start-up of new facilities. . Rapid technological advances in semiconductors and electronic equipment have placed rigorous demands on the electronic materials manufactured by the Company and used in printed circuit board production. The Company's operating results will be affected by the Company's ability to maintain and increase its technological and manufacturing capability and expertise in this rapidly changing industry. . The electronic materials industry is intensely competitive and the Company competes worldwide in the market for materials used in the production of complex multilayer printed circuit boards. The Company's competitors are substantially larger and have greater financial resources than the Company, and the Company's operating results will be affected by its ability to maintain its competitive position in the industry. . There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of electronic materials products. Substitutes for these products are not readily available, and in the recent past there have been shortages in the market for certain of these materials. . The Company's customer base is concentrated, in part, because the Company's business strategy has been to develop long-term relation- ships with a select group of customers. During the Company's fiscal year ended March 3, 1996, the Company's ten largest customers accounted for approximately 43% of net sales. The Company expects that sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. A loss of one or more of such key customers could affect the Company's profitability. . The Company typically does not obtain long-term purchase orders or commitments. Instead, it relies primarily on continual communication with its customers to anticipate the future volume of purchase orders. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, can cause a customer to reduce or delay orders previously anticipated by the Company. . The Company, from time to time, is engaged in the expansion of certain of its manufacturing facilities for electronic materials. The anticipated costs of such expansions cannot be determined with precision and may vary materially from those budgeted. In addition, such expansions will increase the Company's fixed costs. The Company's future profitability depends upon its ability to utilize its manufacturing capacity in an effective manner. . The Company's business is capital intensive and, in addition, the introduction of new technologies could substantially increase the Company's capital expenditures. In order to remain competitive the Company must continue to make significant investments in capital equipment and expansion of operations. This may require that the Company continue to be able to access capital on terms acceptable to the Company. . The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one- time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations. . The Company's international operations are subject to risks, including unexpected changes in regulatory requirements, exchange rates, tariffs and other barriers, political and economic instability and potentially adverse tax consequences. . A portion of the sales and costs of the Company's international operations are denominated in currencies other than the U.S. dollar and may be affected by fluctuations in currency exchange rates. . The company's success is dependant upon its relationship with key management and technical personnel. . The Company's future success depends in part upon its intellectual property which the Company seeks to protect through a combination of contract provisions, trade secret protections, copyrights and patents. . The Company's production processes require the use, storage, treatment and disposal of certain materials which are considered hazardous under applicable environmental laws and the Company is subject to a variety of regulatory requirements relating to the handling of such materials and the release of emissions and effluents into the environment. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company. . The market price of the Company's securities can be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the electronic materials industry, as well as general economic conditions and other factors external to the Company. . The Company's results could be affected by changes in the Company's accounting policies and practices or changes in the Company's organization, compensation and benefit plans, or changes in the Company's material agreements or understandings with third parties. Item 8. Financial Statements and Supplementary Data. The Company's Financial Statements begin on the next page. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Park Electrochemical Corp. Lake Success, New York We have audited the accompanying consolidated balance sheets of Park Electrochemical Corp. and subsidiaries as of March 3, 1996 and February 26, 1995 and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended March 3, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park Electrochemical Corp. and subsidiaries as of March 3, 1996 and February 26, 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 3, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York April 18, 1996 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except shares and per share amounts)
March 3, February 26, 1996 1995 ASSETS Current assets: Cash and cash equivalents $ 75,970 $ 30,803 Marketable securities (Note 2) 67,243 15,107 Accounts receivable, less allowance for doubtful accounts of $1,857 and $2,490, respectively 42,821 33,172 Inventories (Note 3) 27,712 16,181 Prepaid expenses and other current assets (Note 7) 4,026 3,057 Total current assets 217,772 98,320 Property, plant and equipment, at cost, less accumulated depreciation and amortization (Note 4) 76,439 61,427 Other assets (Notes 7 and 10) 4,764 2,304 Total $298,975 $162,051 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 35,924 $ 24,616 Accrued liabilities (Note 5) 16,941 15,844 Income taxes payable 3,942 2,825 Total current liabilities 56,807 43,285 Long-term debt (Note 6) 100,000 23 Deferred income taxes (Note 7) 6,324 5,243 Deferred pension liability (Note 10) 1,417 1,452 Commitments and contingencies (Notes 10 and 11) Stockholders' equity (Notes 6, 8, 9 and 10): Preferred stock, $1 par value per share-- authorized, 500,000 shares; issued, none - - Common stock, $.10 par value per share-- authorized, 30,000,000 and 15,000,000 shares, respectively; issued, 13,580,018 shares 1,358 1,358 Additional paid-in capital 50,958 50,728 Retained earnings 93,892 72,216 Currency translation adjustments 1,328 1,545 Pension liability adjustment (1,001) (972) Unrealized losses on investments (30) (139) 146,505 124,736 Less treasury stock, at cost, 2,033,704 and 2,136,416 shares, respectively (12,078) (12,688) Total stockholders' equity 134,427 112,048 Total $298,975 $162,051 See notes to consolidated financial statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts)
53 Weeks 52 Weeks Ended Ended March 3, February 26, February 27, 1996 1995 1994 Net sales $312,966 $253,022 $208,410 Cost of sales 242,655 196,917 168,175 Gross profit 70,311 56,105 40,235 Selling, general and administrative expenses 35,236 29,995 25,930 Profit from operations 35,075 26,110 14,305 Other income (expense): Interest and other income, net 2,285 1,822 947 Interest expense (Note 6) (96) (431) (2,407) Total other income (expense) 2,189 1,391 (1,460) Earnings before income taxes 37,264 27,501 12,845 Income tax provision (Note 7) 12,366 10,156 4,783 Net earnings $ 24,898 $ 17,345 $ 8,062 Earnings per share (Note 9): Primary $2.11 $1.59 $1.01 Fully diluted $2.10 $1.52 $ .84 See notes to consolidated financial statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares and per share amounts)
Additional Currency Pension Unrealized Common Stock Paid-in Retained Translation Liability Losses on Treasury Stock Shares Amount Capital Earnings Adjustments Adjustment Investments Shares Amount Balance, February 28, 1993 10,354,902 $1,036 $16,732 $50,312 $ 109 $ (398) $ - 1,270,922 $ (7,091) Net earnings 8,062 Exchange rate changes 68 Change in pension liability adjustment (750) Stock options exercised 184 (87,250) 499 Conversion of debentures 52,748 5 528 Cash dividends ($.16 per share) (1,276) Purchase of treasury stock 1,117,612 (6,566) Balance, February 27, 1994 10,407,650 1,041 17,444 57,098 177 (1,148) - 2,301,284 (13,158) Net earnings 17,345 Exchange rate changes 1,368 Change in pension liability adjustment 176 Market revaluation (139) Stock options exercised 696 (212,700) 1,220 Conversion of debentures 3,172,368 317 32,588 Cash dividends ($.20 per share) (2,227) Purchase of treasury stock 47,832 (750) Balance, February 26, 1995 13,580,018 1,358 50,728 72,216 1,545 (972) (139) 2,136,416 (12,688) Net earnings 24,898 Exchange rate changes (217) Change in pension liability adjustment (29) Market revaluation 109 Stock options exercised 230 (102,726) 610 Cash dividends ($.28 per share) (3,222) Purchase of treasury stock 14 - Balance, March 3, 1996 13,580,018 $1,358 $50,958 $93,892 $1,328 $(1,001) $ (30) 2,033,704 $(12,078) See notes to consolidated financial statements. /TABLE PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
53 Weeks 52 Weeks Ended Ended March 3, February 26, February 27, 1996 1995 1994 Cash flows from operating activities: Net earnings $ 24,898 $ 17,345 $ 8,062 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,849 8,951 8,733 Provision for doubtful accounts receivable (495) (44) (3) (Gain) loss on sale of marketable securities (38) 17 (61) Provision for deferred income taxes 1,425 355 (52) Accrued interest in connection with Debenture conversion - 389 - Other, net 64 (89) 282 Changes in operating assets and liabilities: (Increase) in accounts receivable (9,277) (3,536) (2,773) (Increase) decrease in inventories (11,671) 249 (1,908) (Increase) decrease in prepaid expenses and other current assets (1,057) (77) 89 (Increase) decrease in other assets (42) 25 164 Increase (decrease) in accounts payable 11,409 (620) 5,265 Increase in accrued liabilities 1,108 3,719 3,247 Increase in income taxes payable 1,260 277 1,007 Net cash provided by operating activities 27,433 26,961 22,052 Cash flows from investing activities: Purchases of property, plant and equipment, net (24,510) (17,523) (9,627) Purchases of marketable securities (74,881) (11,161) (200,404) Proceeds from sales of marketable securities 22,952 19,827 200,309 Net cash used in investing activities (76,439) (8,857) (9,722) Cash flows from financing activities: Convertible notes offering 100,000 - - Convertible notes issuance costs (3,250) - - Repayments of borrowings - (84) (64) Dividends paid (3,222) (2,227) (1,276) Proceeds from exercise of stock options 697 1,499 683 Purchase of treasury stock - (750) (6,566) Other 4 (100) - Net cash provided by (used in) financing activities 94,229 (1,662) (7,223) Increase in cash and cash equivalents before effect of exchange rate changes 45,223 16,442 5,107 Effect of exchange rate changes on cash and cash equivalents (56) 226 22 Increase in cash and cash equivalents 45,167 16,668 5,129 Cash and cash equivalents, beginning of year 30,803 14,135 9,006 Cash and cash equivalents, end of year $ 75,970 $ 30,803 $ 14,135 See notes to consolidated financial statements.
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three years ended March 3, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Park Electrochemical Corp. ("Park"), through its subsidiaries (collectively, the "Company"), is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems. The Company's multilayer printed circuit board materials include copper-clad laminates, prepregs and semi-finished multilayer printed circuit board panels. Multilayer printed circuit boards and interconnect systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices and passive components. Examples of end uses of the Company's printed circuit board materials range from supercomputers to laptops and from satellite switching equipment to cellular phones. a. Principles of Consolidation - The consolidated financial statements include the accounts of Park and its subsidiaries, all of which are wholly-owned. All significant intercompany balances and transactions have been eliminated. b. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. c. Accounting Period - The Company's fiscal year is the 52 or 53 week period ending the Sunday nearest to the last day of February. The 1996, 1995 and 1994 fiscal years ended on March 3, 1996, February 26, 1995 and February 27, 1994, respectively. Fiscal 1996 included 53 weeks; fiscal 1995 and 1994 each included 52 weeks. d. Marketable Securities - All marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Realized gains and losses, amortization of premiums and discounts, and interest and dividend income are included in other income. The cost of securities sold is based on the specific identification method. e. Inventories - Inventories are stated at the lower of cost (first-in, first-out method) or market. f. Depreciation and Amortization - Depreciation and amortization are computed principally by the straight-line method over the estimated useful lives of the related assets or, with respect to leasehold improvements, the term of the lease, if shorter. g. Deferred Charges - Costs incurred in connection with the issuance of debt financing are deferred and included in other assets and amortized, using the effective interest method, over the respective debt repayment period. h. Income Taxes - Deferred income taxes are provided for temporary differences in the reporting of certain items, primarily depreciation, for income tax purposes as compared with financial accounting purposes. United States ("U.S.") Federal income taxes have not been provided on the undistributed earnings (approximately $17,600,000 at March 3, 1996) of the Company's foreign subsidiaries, since it is management's practice and intent to reinvest such earnings in the operations of these subsidiaries. i. Stock Based Compensation - The Company grants to certain employees stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for such grants. j. Foreign Currency Translation - Assets and liabilities of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency are translated into U.S. dollars at year-end exchange rates and income and expense items are translated at average exchange rates for the period. Gains and losses resulting from translation are recorded as currency translation adjustments in stockholders' equity. k. Consolidated Statements of Cash Flows - The Company considers all money market securities and investments with maturities at the date of purchase of 90 days or less to be cash equivalents. Supplemental cash flow information:
Fiscal Year 1996 1995 1994 Cash paid during the year for: Interest $ - $ 42,000 $2,352,000 Income taxes 9,701,000 9,712,000 3,960,000
2. MARKETABLE SECURITIES The following is a summary of available-for-sale securities:
Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value March 3, 1996: U.S. Treasury and other government securities $50,602,000 $32,000 $ 62,000 $50,572,000 U.S. corporate debt securities 16,680,000 7,000 22,000 16,665,000 Total debt securities 67,282,000 39,000 84,000 67,237,000 Equity securities 6,000 - - 6,000 $67,288,000 $39,000 $ 84,000 $67,243,000 February 26, 1995: U.S. Treasury and other government securities $12,019,000 $ - $235,000 $11,784,000 U.S. corporate debt securities 3,000,000 - 5,000 2,995,000 Total debt securities 15,019,000 - 240,000 14,779,000 Equity securities 303,000 25,000 - 328,000 $15,322,000 $25,000 $240,000 $15,107,000
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective February 28, 1994. The cumulative effect of the adoption of SFAS No. 115 was not significant. The gross realized gains on sales of available-for-sale securities totalled $50,000 for 1996 and $76,000 for 1994, and the gross realized losses totalled $12,000, $17,000 and $15,000 for 1996, 1995 and 1994, respectively. The amortized cost and estimated fair value of the debt and marketable equity securities at March 3, 1996, by contractual maturity, are shown below:
Estimated Fair Cost Value Due in one year or less $56,917,000 $56,859,000 Due after one year through five years 10,365,000 10,378,000 67,282,000 67,237,000 Equity securities 6,000 6,000 $67,288,000 $67,243,000
3. INVENTORIES
March 3, February 26, 1996 1995 Raw materials $13,040,000 $ 5,215,000 Work-in-process 4,280,000 2,997,000 Finished goods 9,674,000 7,446,000 Manufacturing supplies 718,000 523,000 $27,712,000 $16,181,000
4. PROPERTY, PLANT AND EQUIPMENT
March 3, February 26, 1996 1995 Land, buildings and improvements $ 27,054,000 $ 21,353,000 Machinery, equipment, furniture and fixtures 121,661,000 103,822,000 148,715,000 125,175,000 Less accumulated depreciation and amortization 72,276,000 63,748,000 $ 76,439,000 $ 61,427,000
Depreciation and amortization expense relating to property, plant and equipment amounted to $9,382,000, $8,501,000 and $8,188,000 for fiscal 1996, 1995 and 1994, respectively. Interest expense capitalized to property, plant and equipment amounted to $109,000 for fiscal 1994. 5. ACCRUED LIABILITIES
March 3, February 26, 1996 1995 Payroll and commissions $ 5,040,000 $ 4,641,000 Taxes, other than income taxes 1,014,000 1,230,000 Other 10,887,000 9,973,000 $16,941,000 $15,844,000
6. LONG-TERM DEBT
March 3, February 26, 1996 1995 5.5% Convertible Subordinated Notes $100,000,000 $ - Other - 29,000 100,000,000 29,000 Less current portion (included in accrued liabilities) - 6,000 $100,000,000 $23,000
On February 28, 1996, the Company issued $100,000,000 principal amount of 5.5% Convertible Subordinated Notes due 2006 (the "Notes") with interest payable semiannually on March 1 and September 1 of each year, commencing September 1, 1996. The Notes are unsecured and subordinated to other long-term debt and are convertible at the option of the holder at any time prior to maturity, unless previously redeemed or repurchased, into shares of the Company's common stock at $42.188 per share, subject to adjustment under certain conditions. The Notes are not redeemable at the option of the Company prior to March 1, 1999; at any time on or after such date, the Notes will be redeemable at the option of the Company, in whole or in part, initially at 102.75% of the principal amount of such Notes redeemed and thereafter at prices declining to 100% on March 1, 2001, together with accrued interest. At March 3, 1996, the fair value of the Notes approximated the principal amount of the Notes. On June 12, 1986, the Company issued $35,000,000 principal amount of 7.25% Convertible Subordinated Debentures due 2006 (the "Debentures"). On and prior to May 31, 1994, $33,381,000 principal amount of Debentures were converted into 3,225,116 shares of the Company's common stock and $1,619,000 principal amount of Debentures were either purchased on the open market or redeemed by the Company. If the conversion of the Debentures, which were converted into common stock in fiscal 1995, had occurred as of the beginning of the 1995 fiscal year, primary earnings per share for fiscal 1995 would have approximated fully diluted earnings per share for that period. Foreign lines of credit totalled $5,400,000 at March 3, 1996, all of which remains available to the subsidiaries. 7. INCOME TAXES The income tax provision includes the following:
Fiscal Year 1996 1995 1994 Current: Federal $ 9,980,000 $ 8,798,000 $4,300,000 State and local 961,000 1,003,000 535,000 10,941,000 9,801,000 4,835,000 Deferred: Federal 655,000 50,000 396,000 State and local 60,000 40,000 (145,000) Foreign 710,000 265,000 (303,000) 1,425,000 355,000 (52,000) $12,366,000 $10,156,000 $4,783,000
The Company's effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following: Fiscal Year 1996 1995 1994 Statutory U.S. Federal tax rate 35.0% 35.0% 35.0% State and local taxes, net of Federal benefit 1.8 2.5 2.0 Effect of foreign net operating losses (.1) .5 4.6 Foreign tax rate differentials (4.5) (2.0) (.9) General business credits (.2) (.5) (2.8) Other, net 1.2 1.4 (.7) 33.2% 36.9% 37.2% The Company has foreign net operating loss carryforwards of approximately $16,800,000 which was primarily acquired through a business combination, none of which relates to goodwill or other intangible assets. Approximately $5,600,000 of the foreign net operating loss carryforwards expire in varying amounts from fiscal 1997 through fiscal 1999; the remainder have an indefinite expiration. At March 3, 1996 and February 26, 1995, current deferred tax assets of $1,082,000 and $1,099,000, respectively, which are primarily attributable to expenses not currently deductible for tax purposes, are included in other current assets. Long-term deferred tax assets of $0 and $319,000 are net of valuation reserves of approximately $5,900,000 and $6,200,000 at March 3, 1996 and February 26, 1995, respectively, which are primarily attributable to foreign net operating loss carryforwards, and are included in other assets. The long-term deferred tax liabilities consist primarily of temporary differences relating to depreciation. 8. STOCKHOLDERS' EQUITY a. Stock Split and Number of Authorized Shares - On July 12, 1995, the Company's Board of Directors voted a two-for-one stock split in the form of a 100% common stock dividend. The stock dividend was distributed August 15, 1995, to shareholders of record on July 24, 1995. All share and per share data for prior periods have been retroactively restated to reflect the stock split. In addition, on July 12, 1995, the Company's stockholders approved an increase in the number of authorized shares of common stock from 15,000,000 to 30,000,000 shares. b. Stock Options - Under the stock option plans approved by the Company's stockholders, key employees may be granted options to purchase shares of common stock exercisable at prices not less than the fair market value at the date of grant. Options become exercisable 25% one year from the date of grant, with an additional 25% exercisable each succeeding year. The options expire 10 years from the date of grant. On July 14, 1992, the Company's stockholders approved the adoption of a 1992 stock option plan (the "1992 Plan") pursuant to which options to acquire 600,000 shares of the Company's common stock are available for grant to key employees. The purchase price for common stock to be acquired, upon the exercise of options, will be no less than 100% of the fair market value of such stock at the date the options are granted. The 1992 Plan will expire in March, 2002. Information with respect to the Company's stock option plans follows: Range of Outstanding Options Exercise Prices Granted Exercisable Balance, February 28, 1993 $ 5.50 - $ 8.59 421,418 195,350 Options becoming exercisable 5.50 - 7.43 - 73,104 Granted 7.38 - 7.44 181,300 - Exercised 5.50 - 8.59 (87,250) (87,250) Cancelled 5.50 - 7.43 (24,000) (7,600) Balance, February 27, 1994 5.50 - 8.59 491,468 173,604 Options becoming exercisable 5.50 - 7.44 - 112,682 Granted 13.13 - 17.00 139,600 - Exercised 5.50 - 8.59 (112,700) (112,700) Cancelled 5.50 - 13.13 (13,650) (6,526) Balance, February 26, 1995 5.50 - 17.00 504,718 167,060 Options becoming exercisable 5.50 - 17.00 - 140,999 Granted 18.31 - 27.19 124,000 - Exercised 5.50 - 13.13 (102,726) (102,726) Cancelled 5.50 - 18.13 (6,374) (1,944) Balance, March 3, 1996 $ 5.50 - $27.19 519,618 203,389 At March 3, 1996, 136,356 stock options were available for future grant under the 1992 Plan. c. Treasury Stock - The Company repurchased 14, 24 and 12 shares of its common stock under authorizations of the Board of Directors during fiscal 1996, 1995 and 1994, respectively. On March 9, 1993, in a privately negotiated transaction with an unaffiliated third party, the Company repurchased 1,117,600 shares of its common stock for $6,566,000. The purchase was made outside the Company's stock repurchase program. Pursuant to a grant approved by the Company stockholders dated July 24, 1985, an officer of the Company exercised options on November 22, 1994 to purchase 100,000 shares of the Company's common stock. As permissible under the terms of the option agreement, the exercise price was paid by surrendering 47,808 shares of the Company's common stock (which was held as a long-term investment by the officer) to the Company, valued at $15.6875 per share, the market price at that time. d. Stockholders' Rights Plan - On February 2, 1989, the Company adopted a stockholders' rights plan designed to protect stockholder interests in the event the Company is confronted with coercive or unfair takeover tactics. Under the terms of the plan, as amended on July 12, 1995, each share of the Company's common stock held of record on February 15, 1989 or issued thereafter received one right. In the event that a person has acquired, or has the right to acquire, 15% (25% in certain cases) or more of the then outstanding common stock of the Company (an "Acquiring Person") or tenders for 15% or more of the then outstanding common stock of the Company, such rights will become exercisable, unless the Board of Directors otherwise determines. Upon becoming exercisable as aforesaid, each right will entitle the holder thereof to purchase one one-hundredth of a share of Series A Preferred Stock for $75, subject to adjustment (the "Purchase Price"). In the event that any person becomes an Acquiring Person, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of the Company's common stock as shall equal the then current Purchase Price divided by 50% of the then market price per share of the Company's common stock. In addition, if after a person becomes an Acquiring Person, the Company engages in any of certain business combination transactions as specified in the plan, the Company will take all action to ensure that, and will not consummate any such business combination unless, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of common stock of the other party to the transaction for each right held by such holder as shall equal the then current Purchase Price divided by 50% of the then market price per share of such other party's common stock. The Company may redeem the rights for a nominal consideration at any time, and after any person becomes an Acquiring Person, but before any person becomes the beneficial owner of 50% or more of the outstanding common stock of the Company, the Company may exchange all or part of the rights for shares of the Company's common stock at a one-for-one exchange ratio. Unless redeemed, exchanged or exercised earlier, all rights expire on July 12, 2005. e. Reserved Common Shares - At March 3, 1996, 2,370,342 shares of common stock were reserved for issuance upon conversion of the Notes and 655,974 shares were reserved for issuance upon exercise of stock options. 9. EARNINGS PER SHARE Primary earnings per share are computed based on the weighted average number of common and common equivalent shares outstanding during the period. The weighted average number of common and common equivalent shares used to compute earnings per share are as follows:
Fiscal Year 1996 1995 1994 Primary 11,794,000 10,858,000 7,986,000 Fully diluted 11,860,000 11,570,000 11,454,000
10. EMPLOYEE BENEFIT PLANS a. Profit Sharing Plan - Park and certain of its subsidiaries have a noncontributory profit sharing retirement plan covering their regular full-time employees. The plan may be modified or terminated at any time, but in no event may any portion of the contributions revert to the Company. The Company's contributions under the plan amounted to $2,329,000, $2,297,000 and $1,513,000 for fiscal 1996, 1995 and 1994, respectively. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code. In addition, the Company sponsors a 401(k) savings plan; commencing in fiscal 1996, the contributions of employees of certain subsidiaries were partially matched by the Company, amounting to $499,000 in fiscal 1996. b. Pension Plans - A subsidiary of the Company has two pension plans covering its union employees. The pension plans are noncontributory defined benefit plans. The Company's funding policy is to contribute annually the amounts necessary to satisfy applicable funding standards. In accordance with SFAS No. 87, the Company records its unfunded pension liability related to its two defined benefit pension plans, which amounted to $1,417,000 and $1,452,000 at March 3, 1996 and February 26, 1995, respectively. The effect on the Company's consolidated financial statements in recording the liability is to recognize an asset (included in other assets) of $416,000 and $480,000 at March 3, 1996 and February 26, 1995, respectively, and to record a corresponding reduction of stockholders' equity of $1,001,000 and $972,000 at those same dates. Net pension cost includes the following components:
Fiscal Year 1996 1995 1994 Service cost--benefits earned during the period $ 51,000 $ 65,000 $ 48,000 Interest cost on projected benefit obligation 299,000 279,000 276,000 Return on plan assets--actual (400,000) (24,000) (40,000) Net amortization and deferral 354,000 9,000 (39,000) Net periodic pension cost $304,000 $329,000 $245,000
The funded status of the pension plans follows:
March 6, February 26, 1996 1995 Accumulated benefit obligation (including vested benefit obligation of $4,028,000 and $3,665,000, respectively) $4,043,000 $3,671,000 Projected benefit obligation $4,043,000 $3,671,000 Plan assets at fair value 2,616,000 1,997,000 Excess of projected benefit obligation over plan assets 1,427,000 1,674,000 Unrecognized net loss (1,001,000) (976,000) Unrecognized prior service cost (237,000) (268,000) Unrecognized initial net obligation being amortized over 15 years (179,000) (208,000) Accrued pension liability $ 10,000 $ 222,000
The projected benefit obligation was determined using an assumed discount rate of 7.5% and 8.25% for fiscal 1996 and 1995, respectively, and the assumed long-term rate of return on plan assets was 8% for both fiscal years. Projected wage increases are not applicable as benefits pursuant to the plans are based upon years of service without regard to levels of compensation. At March 3, 1996, plan assets were invested in U.S. government securities, corporate debt securities, common stocks, mutual funds and money market funds. 11. COMMITMENTS AND CONTINGENCIES a. Lease Commitments - The Company conducts certain of its operations from leased facilities which include several manufacturing plants, warehouses and offices, and land leases. The leases on facilities are for terms of up to 10 years, the latest of which expires in 2005. Many of the leases contain renewal options for periods ranging from one to ten years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2013 and this land lease contains renewal options of up to 35 years. These noncancelable operating leases have the following payment schedule: Fiscal Year Amount 1997 $ 1,893,000 1998 1,859,000 1999 1,434,000 2000 1,319,000 2001 1,030,000 Thereafter 3,681,000 $11,216,000 Rental expense, inclusive of real estate taxes and other costs, amounted to $2,259,000, $2,226,000 and $2,142,000 for fiscal 1996, 1995 and 1994, respectively. b. Environmental Contingencies - The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties for a number of hazardous waste disposal sites or other potentially contaminated areas. Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency are jointly and severally liable for the cost of cleanup unless the EPA or such agency agrees otherwise. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. Included in cost of sales are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be estimated. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect upon the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental matters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period. 12. BUSINESS SEGMENTS The Company has two major business segments: electronic materials and plumbing and industrial components. The Company's electronic materials products are marketed primarily to major independent printed circuit board fabricators and to large electronic original equipment manufacturers ("OEMs") that are located throughout the United States, Canada, Europe and the Far East. The Company's plumbing and industrial components customers, the majority of which are located in the United States, include OEMs, hardware and plumbing wholesalers, home improvement centers and aerospace and defense manufacturers. Financial information concerning the Company's business segments follows (in thousands):
Fiscal Year 1996 1995 1994 Sales to unaffiliated customers: Electronic materials $274,903 $218,288 $182,559 Plumbing and industrial components 38,063 34,734 25,851 Net sales $312,966 $253,022 $208,410 Operating profit(1): Electronic materials $ 37,699 $ 28,710 $ 18,597 Plumbing and industrial components 1,466 1,226 (1,244) Total operating profit 39,165 29,936 17,353 General corporate expense (4,090) (3,826) (3,048) Interest and other income, net 2,285 1,822 947 Interest expense (96) (431) (2,407) Total other income (expense) 2,189 1,391 (1,460) Earnings before income taxes $ 37,264 $ 27,501 $ 12,845 Identifiable assets(2): Electronic materials $146,549 $104,478 $ 91,786 Plumbing and industrial components 13,260 12,588 9,516 159,809 117,066 101,302 Corporate assets 139,166 44,985 39,448 Total assets $298,975 $162,051 $140,750 Depreciation and amortization: Electronic materials $ 9,013 $ 8,133 $ 7,910 Plumbing and industrial components 813 793 737 9,826 8,926 8,647 Corporate depreciation 23 25 86 Total depreciation and amortization $ 9,849 $ 8,951 $ 8,733 Capital expenditures: Electronic materials $ 23,852 $ 16,302 $ 9,193 Plumbing and industrial components 689 1,472 266 24,541 17,774 9,459 Corporate capital expenditures 21 30 23 Total capital expenditures $ 24,562 $ 17,804 $ 9,482 (1) Operating profit is comprised of total operating revenues, less costs and expenses other than interest expense, general corporate expense and income taxes. (2) Identifiable assets consist of those assets which are used by the segments. Corporate identifiable assets consist primarily of cash, cash equivalents and marketable securities.
Intersegment sales and sales between geographic areas were not significant. Financial information regarding the Company's foreign operations, which are conducted principally in the United Kingdom, France and Singapore, follows (in thousands): Fiscal Year 1996 1995 1994 Sales to unaffiliated customers $91,686 $61,919 $46,491 Sales to U.S. affiliates(1) 2,564 2,992 - $94,250 $64,911 $46,491 Operating income (loss) $ 5,955 $ 1,531 $(3,252) Income (loss) before income taxes $ 6,122 $ 1,535 $(3,242) Identifiable assets $58,002 $44,150 $38,477 (1) Sales to U.S. affiliates are accounted for at cost and are eliminated in consolidation.
13. RISKS AND UNCERTAINTIES a. Customers - Sales to a major domestic manufacturing concern, which were principally made by the electronic materials segment, were 17.1%, 21.8% and 25.3% of the Company's consolidated sales for fiscal 1996, 1995 and 1994, respectively. The Company believes its relations with this customer to be very satisfactory and further believes this customer will continue to make significant purchases in the immediate future. Although the Company's electronic materials segment is not dependent on this single customer, the loss of this customer could have a material adverse effect on the business of this segment. Furthermore, while no other customer accounts for 10% or more of the total sales of the Company in fiscal 1996 and the Company is not dependent on any other single customer, the loss of a major customer or of a group of customers within each significant business segment could have a material adverse effect on the Company's business. b. Sources of Supply - The principal materials used in the manufacture of the Company's electronic materials products are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. Although there are a limited number of qualified suppliers of these materials, the Company has nevertheless identified alternate sources of supply for each of the aforementioned materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from a principal supplier could adversely affect the electronic materials segment's business. Furthermore, substitutes for the aforesaid materials are not readily available and an inability to obtain essential materials, if prolonged, could materially adversely affect the business of the electronic materials segment. 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) [CAPTION] Quarter First Second Third Fourth (In thousands, except per share amounts) Fiscal 1996: Net sales $75,412 $69,937 $81,866 $85,751 Gross profit 17,717 15,209 18,397 18,988 Net earnings 6,024 5,366 6,467 7,041 Earnings per share: Primary $.51 $.45 $.55 $.59 Fully diluted $.51 $.45 $.55 $.59 Weighted average common and common equivalent shares outstanding: Primary 11,708 11,801 11,857 11,881 Fully diluted 11,708 11,829 11,857 12,002 Fiscal 1995: Net sales $62,769 $58,795 $64,834 $66,624 Gross profit 13,247 12,520 14,774 15,564 Net earnings 3,670 3,756 4,779 5,140 Earnings per share: Primary $.39 $.33 $.42 $.45 Fully diluted $.34 $.33 $.41 $.44 Weighted average common and common equivalent shares outstanding: Primary 9,416 11,344 11,374 11,432 Fully diluted 11,464 11,544 11,658 11,610
Earnings per share is computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for the years. ******* Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information called for by this Item (except for information as to the Company's executive officers, which information appears elsewhere in this Report) is incorporated by reference to the Company's definitive proxy statement for the 1996 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 11. Executive Compensation. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 1996 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 1996 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions. The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 1996 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A. PART IV Item 14. Exhibits, Financial Statement Page Schedules, and Reports on Form 8-K. (a) Documents filed as a part of this report (1) Financial Statements: The following Consolidated Financial Statements of the Company are included in Part II, Item 8: Report of Ernst & Young LLP, independent auditors 24 Balance sheets 25 Statements of earnings 26 Statements of stockholders' equity 27 Statements of cash flows 28 Notes to consolidated financial statements (1-14) 29 (2) Financial Statement Schedules: Schedule II - Valuation and qualifying accounts 50 All other schedules have been omitted because they are inapplicable or not required, or the information is included elsewhere in the financial statements or notes thereto. (3)Exhibits: Exhibit Number Description 3.01 Restated Certificate of Incorporation, as amended (Reference is made to Exhibit 3.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 27, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 3.02 By-Laws, as amended (Reference is made to Exhibit 3(i) of the Company's Current Report on Form 8-K dated January 23, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 4.01 Amended and Restated Rights Agreement, dated as of July 12, 1995, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company's Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Amendment No. 1 on Form 8-A/A to the Company's Registration Statement on Form 8-A filed on August 10, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 4.02 Form of Indenture, dated as of February 1, 1996, between the Company and The Chase Manhattan Bank, N.A., as Trustee, relating to the Company's 5.5% Convertible Subordinated Notes due 2006 (Reference is made to Exhibit 1.02 to Amendment No. 1 to the Company's Form S-3 Registration Statement, Registration No. 333- 00213, as filed with the Securities and Exchange Commission on February 1, 1996, which is incorporated herein by reference.) Information concerning Registrant's long-term debt is set forth in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Other than the Indenture filed as Exhibit 4.02 hereto, no instrument defining the rights of holders of such long-term debt relates to securities having an aggregate principal amount in excess of 10% of the consolidated assets of Registrant and its subsidiaries; therefore, in accordance with paragraph (iii) of Item 4 of Item 601(b) of Regulation S-K, the other instruments defining the rights of holders of long-term debt are not filed herewith. Registrant hereby agrees to furnish a copy of any such other instruments to the Securities and Exchange Commission upon request. 10.01 Lease dated December 12, 1989 regarding real property located at 1100 East Kimberly Avenue, Anaheim, California between Nelco Products, Inc. and James Emmi and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. 10.02 Lease dated December 12, 1989 regarding real property located at 1107 East Kimberly Avenue, Anaheim, California between Nelco Products, Inc. and James Emmi and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. 10.03 Lease Agreement dated August 16, 1983 and Exhibit C, First Addendum to Lease, regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California between Nelco Products, Inc. and TCLW/Fullerton. Exhibit Number Description 10.03(a) Second Addendum to Lease dated January 26, 1987 between Nelco Products, Inc. and TCLW/Fullerton to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) regarding real prop- erty located at 1421 E. Orangethorpe Avenue, Fullerton, Califor- nia. (Reference is made to Exhibit 10.03(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.03(b) Third Addendum to Lease dated January 7, 1991 and Fourth Addendum to Lease dated January 7, 1991 between Nelco Products, Inc. and TCLW/Fullerton to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) regarding real property located at 1411, 1421 and 1431 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3,1991, Commission file No. 1-4415, which is incorporated herein by reference.) 10.03(c) Fifth Addendum to Lease dated July 5, 1995 between Nelco Products, Inc. and TCLW/Fullerton (See Exhibit 10.03 hereto) regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California. 10.04 Lease dated February 15, 1983 regarding real property located at 1130 West Geneva Drive, Tempe, Arizona between Nelco Products, Inc. and CMD Southwest, Inc. 10.04(a) First Amendment to Lease dated December 10, 1992 regarding real property located at 1130 West Geneva Drive, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest Inc., and novation substituting Nelco Technology, Inc. for Nelco Products, Inc. (Reference is made to Exhibit 10.04(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.05 Lease Agreement, dated May 26, 1982 regarding real property located at 4 Gul Crescent, Jurong, Singapore between Nelco Products Pte. Ltd. (lease was originally entered into by Kiln Technique (Private) Limited, which subsequently assigned this lease to Nelco Products Pte. Ltd. and the Jurong Town Corporation. (Reference is made to Exhibit 10.05 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.05(a) Deed of Assignment, dated April 17, 1986 between Nelco Products Pte. Ltd., Kiln Technique (Private) Limited and Paul Ma, Richard Law, and Michael Ng, all of Peat Marwick & Co., of the Lease Agreement dated May 26, 1982 between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore. (Reference is made to Exhibit 10.05(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.06(a) Amended and Restated 1982 Stock Option Plan of the Company. (Reference is made to Exhibit 10.06(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) Exhibit Number Description 10.06(b) 1992 Stock Option Plan of the Company. (Reference is made to Exhibit 10.06(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(a) Amended and Restated Employment Agreement dated February 28, 1994 between Park and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1- 4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(b) Amendment No. 1 dated March 1, 1995 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07(b) hereto) between Park and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.08 Lease dated April 15, 1988 regarding real property located at 172 East Aurora Street, Waterbury, Connecticut between FiberCote Industries, Inc. (lease was initially entered into by USP Composites, Inc., which subsequently changed its name to FiberCote Industries, Inc.) and Geoffrey Etherington, II. (Reference is made to Exhibit 10.08 of the Company's Annual Report on form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.08(a) Amendment to Lease dated December 21, 1992 to Lease dated April 15, 1988 regarding real property located at 172 East Aurora Street, Waterbury, Connecticut between FiberCote Industries, Inc. and Geoffrey Etherington II. (Reference is made to Exhibit 10.08(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09 Lease dated March 14, 1988 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Products, Inc. and CMD Southwest One. (Reference is made to Exhibit 10.09 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(a) First Amendment to Lease dated December 10, 1992 to Lease dated March 14, 1988 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest One, and novation substituting Nelco Technology, Inc. for Nelco Products, Inc. (Reference is made to Exhibit 10.09(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(b) Second Amendment to Lease dated March 24, 1995 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest One. Exhibit Number Description 10.09(c) Third Amendment to Lease dated January 18, 1996 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest One. 10.10 Lease dated October 1, 1991 regarding real property located at 25 North Park, N.E., Comstock Park, Michigan between Zin-Plas Corporation and Philip L. Johnson d/b/a Johnson Development Company. (Reference is made to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.11 Lease dated August 31, 1989 regarding real property located at 1104 West Geneva Drive, Tempe, Arizona between Nelco Technology, Inc. and Cemanudi Associates. 10.11(a) First Amendment to Lease dated October 21, 1994 to Lease dated August 31, 1989 regarding real property located at 1104 West Geneva Drive, Tempe, Arizona between Nelco Technology, Inc. and Cemanudi Associates. (Reference is made to Exhibit 10.11(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated hereby by reference.) 10.12 Lease dated March 24, 1995 between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. 10.12(a) First Amendment to Lease dated January 18, 1996 between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. 10.13 Lease dated December 12, 1990 between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1991, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14 Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(a) Extension of Lease dated May 13, 1986 to Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1- 4415, which is incorporated herein by reference.) Exhibit Number Description 10.14(b) Second Extension of Lease dated May 30, 1991 to Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(c) Amendment to Second Extension of Lease dated May 19, 1994 to Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(d) 1995 Extension to Amendment to Second Extension of Lease dated October 19, 1995 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. 10.15 Lease dated January 8, 1992 between Nelco Technology, Inc. and CMD Southwest, Inc. regarding real property located at 1135 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference.) 10.16 Lease Assignation, dated April 18, 1991 between New England Laminates (UK) Limited and Tweedbank Circuit Supplies Limited, of the Lease Agreement dated October 20, 1986 between Tweedbank Circuit Supplies Limited and the Scottish Development Agency regarding real property located at Block 2 and Unit 2 of Block 8, Tweedbank Industrial Estate, Galashiels, Scotland. (Reference is made to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference.) 10.17 Sublease Agreement dated April 27, 1992 between New England Laminates (U.K.) Limited and Mill Book Company Limited regarding real property located at Bumpers Farm Industrial Estate, Brunel Way, Chippenham, England. (Reference is made to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.18 Tenancy Agreement dated October 8, 1992 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.18 of the Company's Annual Report on Form 10- K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.19 Lease Contract dated February 26, 1988 between the New York State Department of Transportation and the Edgewater Stewart Company regarding real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.19(a) Assignment and Assumption of Lease dated February 16, 1995 between New England Laminates Co., Inc. and The Edgewater Stewart Company regarding the assignment of the Lease Contract (see Exhibit 10.19 hereto) for the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.19(b) Lease Amendment No. 1 dated February 17, 1995 between New England Laminates Co., Inc. and the New York State Department of Transportation regarding the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.20 Employment Agreement, dated March 18, 1996, between Park and E. Phillip Smoot. (This exhibit is a management contract or compensatory plan or arrangement.) 11.01 Computation of fully-diluted earnings per share. 22.01 Subsidiaries of the Company. 24.01 Consent of Ernst & Young LLP. 27.01 Financial Data Schedule (b) Reports on Form 8-K filed during the fiscal quarter ended March 3, 1996. Report on Form 8-K dated January 23, 1996, Commission File No. 1-4415, reporting in Item 5 that on January 23, 1996, the Board of Directors of Park adopted amendments to its By-Laws, which among other things, (i) increase from 33 1/3% to 80% the percentage of the issued and outstanding shares of stock of the Company required to call special meetings of stockholders, (ii) eliminate the ability of stockholders to remove directors without cause, and (iii) require stockholders to provide the Company with advance notice of their intention to make nominations of directors or bring new business at annual meetings of stockholders. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 29, 1996 PARK ELECTROCHEMICAL CORP. By: Jerry Shore, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date Chairman of the Board Jerry Shore and Director (principal executive officer) May 29, 1996 Vice President (principal Paul R. Shackford financial and accounting officer) May 29, 1996 Director E. Phillip Smoot May 29, 1996 Director Brian E. Shore May 29, 1996 Director Anthony Chiesa May 29, 1996 Director Lloyd Frank May 29, 1996 Director Norman M. Schneider May 29, 1996 Schedule II PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Column A Column B Column C Column D Column E Balance at Charged to Other Balance at Beginning Cost and Accounts Translation End Description of Period Expenses Written Off Adjustment of Period (A) ALLOWANCE FOR DOUBTFUL ACCOUNTS: 53 weeks ended March 3, 1996 $2,490,000 $ (495,000) $ (128,000) $ (10,000) $1,857,000 52 weeks ended February 26, 1995 $2,673,000 $ (44,000) $ (186,000) $ 47,000 $2,490,000 52 weeks ended February 27, 1994 $2,977,000 $ (3,000) $ (317,000) $ 16,000 $2,673,000 (A) Uncollectible accounts, net of recoveries.
================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ EXHIBITS filed with FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 3, 1996 ___________________ PARK ELECTROCHEMICAL CORP. ================================================= Exhibit Number Description 3.01 Restated Certificate of Incorporation, as amended (Reference is made to Exhibit 3.01 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 27, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 3.02 By-Laws, as amended (Reference is made to Exhibit 3(i) of the Company's Current Report on Form 8-K dated January 23, 1996, Commission File No. 1-4415, which is incorporated herein by reference.) 4.01 Amended and Restated Rights Agreement, dated as of July 12, 1995, between the Company and Registrar and Transfer Company, as Rights Agent, relating to the Company's Preferred Stock Purchase Rights. (Reference is made to Exhibit 1 to Amendment No. 1 on Form 8-A/A to the Company's Registration Statement on Form 8-A filed on August 10, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 4.02 Form of Indenture, dated as of February 1, 1996, between the Company and The Chase Manhattan Bank, N.A., as Trustee, relating to the Company's 5.5% Convertible Subordinated Notes due 2006 (Reference is made to Exhibit 1.02 to Amendment No. 1 to the Company's Form S-3 Registration Statement, Registration No. 333- 00213, as filed with the Securities and Exchange Commission on February 1, 1996, which is incorporated herein by reference.) Information concerning Registrant's long-term debt is set forth in Note 6 of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Other than the Indenture filed as Exhibit 4.02 hereto, no instrument defining the rights of holders of such long-term debt relates to securities having an aggregate principal amount in excess of 10% of the consolidated assets of Registrant and its subsidiaries; therefore, in accordance with paragraph (iii) of Item 4 of Item 601(b) of Regulation S-K, the other instruments defining the rights of holders of long-term debt are not filed herewith. Registrant hereby agrees to furnish a copy of any such other instruments to the Securities and Exchange Commission upon request. 10.01 Lease dated December 12, 1989 regarding real property located at 1100 East Kimberly Avenue, Anaheim, California between Nelco Products, Inc. and James Emmi and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. 10.02 Lease dated December 12, 1989 regarding real property located at 1107 East Kimberly Avenue, Anaheim, California between Nelco Products, Inc. and James Emmi and letter dated December 29, 1994 from Nelco Products, Inc. to James Emmi exercising its option to extend such Lease. 10.03 Lease Agreement dated August 16, 1983 and Exhibit C, First Addendum to Lease, regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California between Nelco Products, Inc. and TCLW/Fullerton. Exhibit Number Description 10.03(a) Second Addendum to Lease dated January 26, 1987 between Nelco Products, Inc. and TCLW/Fullerton to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) regarding real prop- erty located at 1421 E. Orangethorpe Avenue, Fullerton, Califor- nia. (Reference is made to Exhibit 10.03(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.03(b) Third Addendum to Lease dated January 7, 1991 and Fourth Addendum to Lease dated January 7, 1991 between Nelco Products, Inc. and TCLW/Fullerton to Lease Agreement dated August 16, 1983 (see Exhibit 10.03 hereto) regarding real property located at 1411, 1421 and 1431 E. Orangethorpe Avenue, Fullerton, California. (Reference is made to Exhibit 10.03(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 3,1991, Commission file No. 1-4415, which is incorporated herein by reference.) 10.03(c) Fifth Addendum to Lease dated July 5, 1995 between Nelco Products, Inc. and TCLW/Fullerton (See Exhibit 10.03 hereto) regarding real property located at 1411 E. Orangethorpe Avenue, Fullerton, California. 10.04 Lease dated February 15, 1983 regarding real property located at 1130 West Geneva Drive, Tempe, Arizona between Nelco Products, Inc. and CMD Southwest, Inc. 10.04(a) First Amendment to Lease dated December 10, 1992 regarding real property located at 1130 West Geneva Drive, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest Inc., and novation substituting Nelco Technology, Inc. for Nelco Products, Inc. (Reference is made to Exhibit 10.04(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.05 Lease Agreement, dated May 26, 1982 regarding real property located at 4 Gul Crescent, Jurong, Singapore between Nelco Products Pte. Ltd. (lease was originally entered into by Kiln Technique (Private) Limited, which subsequently assigned this lease to Nelco Products Pte. Ltd. and the Jurong Town Corporation. (Reference is made to Exhibit 10.05 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.05(a) Deed of Assignment, dated April 17, 1986 between Nelco Products Pte. Ltd., Kiln Technique (Private) Limited and Paul Ma, Richard Law, and Michael Ng, all of Peat Marwick & Co., of the Lease Agreement dated May 26, 1982 between Kiln Technique (Private) Limited and the Jurong Town Corporation regarding real property located at 4 Gul Crescent, Jurong, Singapore. (Reference is made to Exhibit 10.05(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.06(a) Amended and Restated 1982 Stock Option Plan of the Company. (Reference is made to Exhibit 10.06(a) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) Exhibit Number Description 10.06(b) 1992 Stock Option Plan of the Company. (Reference is made to Exhibit 10.06(b) of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(a) Amended and Restated Employment Agreement dated February 28, 1994 between Park and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1- 4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.07(b) Amendment No. 1 dated March 1, 1995 to the Amended and Restated Employment Agreement dated February 28, 1994 (see Exhibit 10.07(b) hereto) between Park and Jerry Shore. (Reference is made to Exhibit 10.07(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference. This exhibit is a management contract or compensatory plan or arrangement.) 10.08 Lease dated April 15, 1988 regarding real property located at 172 East Aurora Street, Waterbury, Connecticut between FiberCote Industries, Inc. (lease was initially entered into by USP Composites, Inc., which subsequently changed its name to FiberCote Industries, Inc.) and Geoffrey Etherington, II. (Reference is made to Exhibit 10.08 of the Company's Annual Report on form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.08(a) Amendment to Lease dated December 21, 1992 to Lease dated April 15, 1988 regarding real property located at 172 East Aurora Street, Waterbury, Connecticut between FiberCote Industries, Inc. and Geoffrey Etherington II. (Reference is made to Exhibit 10.08(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09 Lease dated March 14, 1988 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Products, Inc. and CMD Southwest One. (Reference is made to Exhibit 10.09 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(a) First Amendment to Lease dated December 10, 1992 to Lease dated March 14, 1988 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest One, and novation substituting Nelco Technology, Inc. for Nelco Products, Inc. (Reference is made to Exhibit 10.09(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.09(b) Second Amendment to Lease dated March 24, 1995 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest One. Exhibit Number Description 10.09(c) Third Amendment to Lease dated January 18, 1996 regarding real property located at 1117 West Fairmont, Tempe, Arizona between Nelco Technology, Inc. and CMD Southwest One. 10.10 Lease dated October 1, 1991 regarding real property located at 25 North Park, N.E., Comstock Park, Michigan between Zin-Plas Corporation and Philip L. Johnson d/b/a Johnson Development Company. (Reference is made to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.11 Lease dated August 31, 1989 regarding real property located at 1104 West Geneva Drive, Tempe, Arizona between Nelco Technology, Inc. and Cemanudi Associates. 10.11(a) First Amendment to Lease dated October 21, 1994 to Lease dated August 31, 1989 regarding real property located at 1104 West Geneva Drive, Tempe, Arizona between Nelco Technology, Inc. and Cemanudi Associates. (Reference is made to Exhibit 10.11(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated hereby by reference.) 10.12 Lease dated March 24, 1995 between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. 10.12(a) First Amendment to Lease dated January 18, 1996 between Nelco Technology, Inc. and CMD Southwest Inc. regarding real property located at 1131 West Fairmont, Tempe, Arizona. 10.13 Lease dated December 12, 1990 between Neltec, Inc. and NZ Properties, Inc. regarding real property located at 1420 W. 12th Place, Tempe, Arizona. (Reference is made to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 1991, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14 Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(a) Extension of Lease dated May 13, 1986 to Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1- 4415, which is incorporated herein by reference.) Exhibit Number Description 10.14(b) Second Extension of Lease dated May 30, 1991 to Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(c) Amendment to Second Extension of Lease dated May 19, 1994 to Indenture of Lease dated November 1, 1984 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. (Reference is made to Exhibit 10.14(c) of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 1994, Commission File No. 1-4415, which is incorporated herein by reference.) 10.14(d) 1995 Extension to Amendment to Second Extension of Lease dated October 19, 1995 between Dielectric Polymers, Inc. and Holyoke Supply Company, Inc. regarding real property located at 218 Race Street, Holyoke, Massachusetts. 10.15 Lease dated January 8, 1992 between Nelco Technology, Inc. and CMD Southwest, Inc. regarding real property located at 1135 West Geneva Drive, Tempe, Arizona. (Reference is made to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference.) 10.16 Lease Assignation, dated April 18, 1991 between New England Laminates (UK) Limited and Tweedbank Circuit Supplies Limited, of the Lease Agreement dated October 20, 1986 between Tweedbank Circuit Supplies Limited and the Scottish Development Agency regarding real property located at Block 2 and Unit 2 of Block 8, Tweedbank Industrial Estate, Galashiels, Scotland. (Reference is made to Exhibit 10.16 of the Company's Annual Report on Form 10-K for the fiscal year ended March 1, 1992, Commission File No. 1-4415, which exhibit is incorporated herein by reference.) 10.17 Sublease Agreement dated April 27, 1992 between New England Laminates (U.K.) Limited and Mill Book Company Limited regarding real property located at Bumpers Farm Industrial Estate, Brunel Way, Chippenham, England. (Reference is made to Exhibit 10.17 of the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) 10.18 Tenancy Agreement dated October 8, 1992 between Nelco Products Pte. Ltd. and Jurong Town Corporation regarding real property located at 36 Gul Lane, Jurong Town, Singapore. (Reference is made to Exhibit 10.18 of the Company's Annual Report on Form 10- K for the fiscal year ended February 28, 1993, Commission File No. 1-4415, which is incorporated herein by reference.) Exhibit Number Description 10.19 Lease Contract dated February 26, 1988 between the New York State Department of Transportation and the Edgewater Stewart Company regarding real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19 of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.19(a) Assignment and Assumption of Lease dated February 16, 1995 between New England Laminates Co., Inc. and The Edgewater Stewart Company regarding the assignment of the Lease Contract (see Exhibit 10.19 hereto) for the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(a) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.19(b) Lease Amendment No. 1 dated February 17, 1995 between New England Laminates Co., Inc. and the New York State Department of Transportation regarding the real property located at 15 Governor Drive in the Stewart International Airport Industrial Park, New Windsor, New York. (Reference is made to Exhibit 10.19(b) of the Company's Annual Report on Form 10-K for the fiscal year ended February 26, 1995, Commission File No. 1-4415, which is incorporated herein by reference.) 10.20 Employment Agreement, dated March 18, 1996, between Park and E. Phillip Smoot. (This exhibit is a management contract or compensatory plan or arrangement.) 11.01 Computation of fully-diluted earnings per share. 22.01 Subsidiaries of the Company. 24.01 Consent of Ernst & Young LLP. 27.01 Financial Data Schedule (b) Reports on Form 8-K filed during the fiscal quarter ended March 3, 1996. Report on Form 8-K dated January 23, 1996, Commission File No. 1-4415, reporting in Item 5 that on January 23, 1996, the Board of Directors of Park adopted amendments to its By-Laws, which among other things, (i) increase from 33 1/3% to 80% the percentage of the issued and outstanding shares of stock of the Company required to call special meetings of stockholders, (ii) eliminate the ability of stockholders to remove directors without cause, and (iii) require stockholders to provide the Company with advance notice of their intention to make nominations of directors or bring new business at annual meetings of stockholders. EX-10.01 2 Exhibit 10.01 STANDARD INDUSTRIAL LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Parties. This Lease, dated, for reference purposes only, December 12, 1989, is made by and between James Emmi (herein called "Lessor") and Nelco Products Inc. (herein called "Lessee"). 2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Orange, State of California, commonly known as 1100 East Kimberly Avenue, Anaheim, CA 92801 and described as approximately 12,800 square foot industrial building on approximately 30,000 square fee of land. Said real property including the land and all improvements therein, is herein called the "Premises". 3. Term. 3.1 Term. The term of this Lease shall be for 60 months commencing on June 21, 1990 and ending on June 20, 1995 unless sooner terminated pursuant to any provision hereof. 3.2 Delay in Possession. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder, provided further, however, that if such written notice of lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminated and be of no further force or effect. 3.3 Early Possession. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $4400.00, in advance, on the 21 day of each month of the term hereof, as rent for monthly rental rate shall increase or decrease as per C.P.I. adjustment as defined in addendum (A-1) as well as tax and insurance adjustments. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other person or at such other places as Lessor may designate in writing. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof $ N/A as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all of any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for manufacturing, warehousing and related services or any other use which is reasonably comparable and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not given to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee or Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air-conditioning, heating, and leading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sale cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. Maintenance, Repairs and Alterations. 7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2 and 9 and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good order, condition and repair the foundations, exterior walls and the exterior roof of the Premises. Lessor shall not, however, be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs, Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 Lessee's Obligations. (a) Subject to the provisions of Paragraph 6, 7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surface of exterior walls, ceilings, windows, doors, plate glass, and skylights, located within the Premises, and all landscaping, driveways, parking lots, fences and signs located in the Premises and all sidewalks and parkways adjacent to the Premises. (b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the premises in good operating condition. 7.3 Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, except for nonstructural alterations not exceeding $2,500 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so, from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) (#1) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. (d) (#2) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). 8. Insurance; Indemnity. 8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and all other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $500,000 per occurrence. 8.3 Property Insurance. Lessor 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, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy or rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. 8.4 Payment of Premium Increase. (a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. IN the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $1703.00. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000,000 procured under paragraph 8.2. (b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis. (c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part. 8.5. Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair, is less than 50% of the fair market value of such building as a whole immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the fair market value of such building as a whole immediately prior to such damage or destruction. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. 9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraph 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. 9.3 (#3) Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5 Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.59(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) (#4) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.7 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. Real Property Taxes. 10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises; provided, however, that Lessee shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1990-1991. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis. 10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. The term "real property tax" shall also include any tax, fee levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax", or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, lessee shall pay a reasonable proportion to be determined by Lessor or all charges jointed metered with other premises. 12. Assignment and Subletting. 12.1 Lessors's Consent Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 Attorney's Fees. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. Defaults; Remedies. 13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) (#5) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statues such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (d) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. 101 or any successor statue thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. 13.2 Remedies. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 13.4 Late Charges. (#6) Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance or such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary. 13.5 Impounds. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due before delinquency of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. 14. Condemnation. (#7) If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten 910) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situation on the Premises. (#8) Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under the threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. Broker's Fee. (a) Upon execution of this Lease by both parties, Lessor shall pay to N/A Licensed real estate broker(s), a fee as set forth in a separate agreement between lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $____, for brokerage services rendered by said broker(s) to Lessor in this transaction. (b) Lessor further agrees that if Lessee exercises any Option as defined in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or any subsequently granted option which is substantially similar to an Option granted to Lessee under this Lease, or if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or if Lessee remains in possession of the Premises after the expiration of the term of this Lease after having failed to exercise an Option, or if said broker(s) are the procuring cause of any other lease or safe entered into between the parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, then as to any of said transactions, Lessor shall pay said broker(s) a fee in accordance with the schedule of said broker(s) in effect at the time of execution of this Lease. (c) Lessor agrees to pay said fee not only on behalf of Lessor but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Said broker shall be a third party beneficiary of the provisions of this Paragraph 15. 16. Estoppel Certificate. (a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is 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 Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification, except as may be presented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. (#9) The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest. Lessor herein named (and in cases of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time is of the essence. 21. Additional Rent. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. Subordination. (#10) (a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgages, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall given written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien or any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fees. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. Lessor's Access. (#11) Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises and ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. (#12) Lessee shall not pace any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right, without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. Options. 39.1 Definition. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 Options Personal. Options granted to Lessee in this Lease are personal to Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The options herein granted to Lessee are not assignable separate and apart from this Lease. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured. 40. Multiple Tenant Building. In the event that the Premises are part of a larger building or group of buildings ten Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties. 42. Easements. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the Use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protect" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Addendum. Attached hereto is an addendum or addenda containing paragraphs A-1 through A-3 which constitutes a part of this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. The parties hereto have executed this Lease on the dates specified immediately adjacent to their respective signatures. Executed at 1411 E. Orangethorpe Ave., Fullerton, CA 92631, by Ron Hart - President, Nelco Products, Inc. Address 1009 Dolphin Terrace, Corona del Mar, CA 92625, by James Emmi - Owner Modification To Lease Building Lease between James Emmi, Lessor and Nelco, Lessee Dated December 12, 1989 1100 E. Kimberly Avenue, Anaheim, CA #1 - 7.3 (c) Last sentence to read: In addition, Lessor may require Lessee to pay Lessor's reasonable attorneys fees and costs in participating in such action if Lessor shall decide it is to Its best interest to do so. #2 - 7.3 (d) Last sentence to read: Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, including that which is affixed to the Premises shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). #3 - 9.3 First sentence to read: Subject to the provisions of Paragraphs 9.4. 9.5, and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by negligent or willful act of Lessee (in which event Lessee shall make the repair at Lessee's expense to the extent caused by the negligence or willful act of Lessee...... #4 - 9.6 M First sentence to read: If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not complete such repairs within 90 days of written notice of such occurrence of damage, then Lessee may terminate or cancel this lease by written notice to Lessor. #5 - 13.1 (b) First sentence to read: The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three business days after written notice thereof from Lessor to Lessee. #6 - 13.4 Add to end of paragraph: To the extent Lesser is entitled to any other recovery for damages, and late coverage payment which has already been made shall be credited against the amount of such damages. #7 - 14 Second sentence to read: Any of the floor area of the building on the Premises..... #8 - 14 Delete the sentence: Delete: No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. #9 - 17 Add to end of first sentence: shall be delivered to grantee conditioned upon the acceptance of the new owners of the terms and provisions of this lease. #10 - 30 Change second sentence to read: Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in material default so long as Lessee shall pay the rent and be in substantial compliance with all provisions of this Lease....... #11 - 32 Add to first sentence: Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times after providing Lessee with 24 hour prior notice for the purpose of inspecting the same, showing ..... #12 - 34 Add the sentence: All signs currently in place are deemed to have Lessor's prior consent. Ron Hart - Nelco Products, Inc. James Emmi - Owner ADDENDUM TO BUILDING LEASE BETWEEN JAMES EMMI, LESSOR AND NELCO LESSEE DATED DECEMBER 12, 1989 1100 E. KIMBERLY AVENUE, ANAHEIM, CA A1. CONSUMER PRICE INDEX ADJUSTMENT: The monthly rental will be increased in the same proportion as the percentage of increase of the Los Angeles/Long Beach/Anaheim area C.P.I. as determined by the U.S. Department of Labor Statistics. The starting base for the C.P.I. index will be the index for the month of April 1990 which will be stipulated at 133.25. The C.P.I. adjustment will be made effective on each of the 2nd, 4th, 6th, 8th and 10th anniversary of the effective starting date of the lease (June 21, 1990). The bi-annual adjustment will be made every two years thereafter through the lease option periods if exercised. The C.P.I. index used for each period will be the published index for the month of April preceding the effective adjustment date. In no case will the rate increase be more than 10% per annum. A2. ALTERATIONS As provided for in Item 7.3, the building's original configuration and improvements shall be deemed to be the condition of the building when first occupied by the Lessee under previous leases. Any changes or modifications having been done subsequent to the original occupancy shall be subject to change back to original condition before any termination of lease at the option of Lessor. Normal wear and tear is excepted. This building is presently occupied by Lessee and is acceptable as is. The Lessee is hereby given approval to install a "Treater" similar to the one in the 1107 E. Kimberly building under the terms and conditions as specified in the lease. A3. OPTIONS TO EXTEND LEASE PERIOD. The Lessee is hereby granted the option to extend this lease for an additional 5 years, June 21, 1995 to June 20, 2000 under the same terms and conditions as the first 5 years, providing that the Lessee has substantially complied with all the obligations of said lease for the first 5 years. Rental rate will continue to be adjusted as stipulated by C.P.I. adjustment, and tax and insurance adjustments as provided for in lease. The Lessee is hereby granted the option to renew this lease for an additional 5 year period, June 21, 2000 to June 20, 2005. The rental rate for this period will be determined by agreement between the Lessor and Lessee and shall be equal to 90% of the average rental rates in effect at the time of Lessee's notice of intention to renew. Average rental rates will be determined by prevailing and available rental rates in the Fullerton/Anaheim area for a minimum of 6 or more buildings of comparable size and location. In order to exercise the option to extend or renew this lease, the Lessee must notify Lessor of his intention to exercise his option before January 1, of the year of the start of option period. Ron Hart - Nelco Products, Inc. James Emmi - Owner December 29, 1994 Mr. James Emmi 1009 Dolphin Terrace Corona del Mar, CA 92625 VIA CERTIFIED MAIL Dear Mr. Emmi, Writing to you in my dual capacity as Vice President of Nelco Products, Inc., this letter serves as formal notice on behalf of Nelco Products, Inc., of their intention to exercise the June 12, 1995, options to extend the leases of both 1100 and 1107 E. Kimberly Avenue, Anaheim, CA, in accord with paragraphs A3 in the Addendums dated December 12 1989, to the Leases also dated December 12, 1989. The options thus exercised will run until June 20, 2000. We extend our best wishes for the New Year. Sincerely, NELCO, INTERNATIONAL CORPORATION Lee H. Newton Vice President Finance copy: Ron Hart, Nelco Products Inc. Phil Smoot, Nelco International Corporation Allen Levine, Park Electrochemical Corp. EX-10.02 3 Exhibit 10.02 STANDARD INDUSTRIAL LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. Parties. This Lease, dated, for reference purposes only, December 12, 1989, is made by and between James Emmi (herein called "Lessor") and Nelco Products Inc. (herein called "Lessee"). 2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, that certain real property situated in the County of Orange, State of California, commonly known as 1107 East Kimberly Avenue, Anaheim, CA 92801 and described as approximately 13,200 square foot industrial building on approximately 30,000 square fee of land. Said real property including the land and all improvements therein, is herein called the "Premises". 3. Term. 3.1 Term. The term of this Lease shall be for 60 months commencing on June 21, 1990 and ending on June 20, 1995 unless sooner terminated pursuant to any provision hereof. 3.2 Delay in Possession. Notwithstanding said commencement date, if for any reason Lessor cannot deliver possession of the Premises to Lessee on said date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Lessee hereunder or extend the term hereof, but in such case, Lessee shall not be obligated to pay rent until possession of the Premises is tendered to Lessee; provided, however, that if Lessor shall not have delivered possession of the Premises within sixty (60) days from said commencement date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder, provided further, however, that if such written notice of lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease hereunder shall terminated and be of no further force or effect. 3.3 Early Possession. If Lessee occupies the Premises prior to said commencement date, such occupancy shall be subject to all provisions hereof, such occupancy shall not advance the termination date, and Lessee shall pay rent for such period at the initial monthly rates set forth below. 4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments of $5600.00, in advance, on the 21 day of each month of the term hereof, as rent for monthly rental rate shall increase or decrease as per C.P.I. adjustment as defined in addendum (A-1) as well as tax and insurance adjustments. Rent for any period during the term hereof which is for less than one month shall be a pro rata portion of the monthly installment. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other person or at such other places as Lessor may designate in writing. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof $ N/A as security for Lessee's faithful performance of Lessee's obligations hereunder. If Lessee fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Lessor may use, apply or retain all or any portion of said deposit for the payment of any rent or other charge in default or for the payment of any other sum to which Lessor may become obligated by reason of Lessee's default, or to compensate Lessor for any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all of any portion of said deposit, Lessee shall within ten (10) days after written demand therefor deposit cash with Lessor in an amount sufficient to restore said deposit to the full amount hereinabove stated and Lessee's failure to do so shall be a material breach of this Lease. If the monthly rent shall, from time to time, increase during the term of this Lease, Lessee shall thereupon deposit with Lessor additional security deposit so that the amount of security deposit held by Lessor shall at all times bear the same proportion to current rent as the original security deposit bears to the original monthly rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said deposit separate from its general accounts. If Lessee performs all of Lessee's obligations hereunder, said deposit, or so much thereof as has not theretofore been applied by Lessor shall be returned, without payment of interest or other increment for its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest hereunder) at the expiration of the term hereof, and after Lessee has vacated the Premises. No trust relationship is created herein between Lessor and Lessee with respect to said Security Deposit. 6. Use. 6.1 Use. The Premises shall be used and occupied only for manufacturing, warehousing and related services or any other use which is reasonably comparable and for no other purpose. 6.2 Compliance with Law. (a) Lessor warrants to Lessee that the Premises, in its state existing on the date that the Lease term commences, but without regard to the use for which Lessee will use the Premises, does not violate any covenants or restrictions of record, or any applicable building code, regulation or ordinance in effect on such Lease term commencement date. In the event it is determined that this warranty has been violated, then it shall be the obligation of the Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such violation. In the event Lessee does not given to Lessor written notice of the violation of this warranty within six months from the date that the Lease term commences, the correction of same shall be the obligation of the Lessee or Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of no force or effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation effect if, prior to the date of this Lease, Lessee was the owner or occupant of the Premises, and, in such event, Lessee shall correct any such violation at Lessee's sole cost. (b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable statutes, ordinances, rules, regulations, orders, covenants and restrictions of record, and requirements in effect during the term or any part of the term hereof, regulating the use by Lessee of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste or a nuisance or, if there shall be more than one tenant in the building containing the Premises, shall tend to disturb such other tenants. 6.3 Condition of Premises. (a) Lessor shall deliver the Premises to Lessee clean and free of debris on Lease commencement date (unless Lessee is already in possession) and Lessor further warrants to Lessee that the plumbing, lighting, air- conditioning, heating, and leading doors in the Premises shall be in good operating condition on the Lease commencement date. In the event that it is determined that this warranty has been violated, then it shall be the obligation of Lessor, after receipt of written notice from Lessee setting forth with specificity the nature of the violation, to promptly, at Lessor's sale cost, rectify such violation. Lessee's failure to give such written notice to Lessor within thirty (30) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force or effect if prior to the date of this Lease, Lessee was the owner or occupant of the Premises. (b) Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Lease commencement date or the date that Lessee takes possession of the Premises, whichever is earlier, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and any covenants or restrictions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee's business. 7. Maintenance, Repairs and Alterations. 7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2 and 9 and except for damage caused by any negligent or intentional act or omission of Lessee, Lessee's agents, employees, or invitees in which event Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good order, condition and repair the foundations, exterior walls and the exterior roof of the Premises. Lessor shall not, however, be obligated to paint such exterior, nor shall Lessor be required to maintain the interior surface of exterior walls, windows, doors or plate glass. Lessor shall have no obligation to make repairs under this Paragraph 7.1 until a reasonable time after receipt of written notice of the need for such repairs, Lessee expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Lessee the right to make repairs at Lessor's expense or to terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 7.2 Lessee's Obligations. (a) Subject to the provisions of Paragraph 6, 7.1 and 9, Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises and every part thereof (whether or not the damaged portion of the Premises or the means of repairing the same are reasonably or readily accessible to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surface of exterior walls, ceilings, windows, doors, plate glass, and skylights, located within the Premises, and all landscaping, driveways, parking lots, fences and signs located in the Premises and all sidewalks and parkways adjacent to the Premises. (b) If Lessee fails to perform Lessee's obligations under this Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option enter upon the Premises after 10 days' prior written notice to Lessee (except in the case of emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and the cost thereof together with interest thereon at the maximum rate then allowable by law shall be due and payable as additional rent to Lessor together with Lessee's next rental installment. (c) On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee shall leave the air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing on the premises in good operating condition. 7.3 Alterations and Additions. (a) Lessee shall not, without Lessor's prior written consent make any alterations, improvements, additions, or Utility Installations in, on or about the Premises, except for nonstructural alterations not exceeding $2,500 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $2,500 in cumulative cost, Lessee shall make no change or alteration to the exterior of the Premises nor the exterior of the building(s) on the Premises without Lessor's prior written consent. As used in this Paragraph 7.3 the term "Utility Installation" shall mean carpeting, window coverings, air lines, power panels, electrical distribution systems, lighting fixtures, space heaters, air conditioning, plumbing and fencing. Lessor may require that Lessee remove any or all of said alterations, improvements, additions or Utility Installations at the expiration of the term, and restore the Premises to their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Lessor against any liability for mechanic's and materialmen's liens and to insure completion of the work. Should Lessee make any alterations, improvements, additions or Utility Installations without the prior approval of Lessor, Lessor may require that Lessee remove any or all of the same. (b) Any alterations, improvements, additions or Utility Installations in, or about the Premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so, from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. (c) (#1) Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. (d) (#2) Unless Lessor requires their removal, as set forth in Paragraph 7.3(a), all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixtures of Lessee), which may be made on the Premises, shall become the property of Lessor and remain upon and be surrendered with the Premises at the expiration of the term. Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). 8. Insurance; Indemnity. 8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor against any liability arising out of the use, occupancy or maintenance of the Premises and all other areas appurtenant thereto. Such insurance shall be in an amount not less than $500,000 per occurrence. The policy shall insure performance by Lessee of the indemnity provisions of this Paragraph 8. The limits of said insurance shall not, however, limit the liability of Lessee hereunder. 8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force during the term of this Lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto in an amount not less than $500,000 per occurrence. 8.3 Property Insurance. Lessor 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, but not Lessee's fixtures, equipment or tenant improvements in an amount not to exceed the full replacement value thereof, as the same may exist from time to time, providing protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood (in the event same is required by a lender having a lien on the Premises) special extended perils ("all risk", as such term is used in the insurance industry) but not plate glass insurance. In addition, the Lessor shall obtain and keep in force, during the term of this Lease, a policy or rental value insurance covering a period of one year, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. 8.4 Payment of Premium Increase. (a) Lessee shall pay to Lessor, during the term hereof, in addition to the rent, the amount of any increase in premiums for the insurance required under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period, as hereinafter defined, whether such premium increase shall be the result of the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, or general rate increases. IN the event that the Premises have been occupied previously, the words "Base Period" shall mean the last twelve months of the prior occupancy. In the event that the Premises have never been previously occupied, the premiums during the "Base Period" shall be deemed to be the lowest premiums reasonably obtainable for said insurance assuming the most nominal use of the Premises. Provided, however, in lieu of the Base Period, the parties may insert a dollar amount at the end of this sentence which figure shall be considered as the insurance premium for the Base Period: $2227.00. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000,000 procured under paragraph 8.2. (b) Lessee shall pay any such premium increases to Lessor within 30 days after receipt by Lessee of a copy of the premium statement or other satisfactory evidence of the amount due. If the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall also deliver to Lessee a statement of the amount of such increase attributable to the Premises and showing in reasonable detail, the manner in which such amount was computed. If the term of this Lease shall not expire concurrently with the expiration of the period covered by such insurance, Lessee's liability for premium increases shall be prorated on an annual basis. (c) If the Premises are part of a larger building, then Lessee shall not be responsible for paying any increase in the property insurance premium caused by the acts or omissions of any other tenant of the building of which the Premises are a part. 8.5. Insurance Policies. Insurance required hereunder shall be in companies holding a "General Policyholders Rating" of at least B plus, or such other rating as may be required by a lender having a lien on the Premises, as set forth in the most current issue of "Best's Insurance Guide". Lessee shall deliver to Lessor copies of policies of liability insurance required under Paragraph 8.1 or certificates evidencing the existence and amounts of such insurance. No such policy shall be cancelable or subject to reduction of coverage or other modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Paragraph 8.3. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is less than 50% of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Partial Damage" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair, is less than 50% of the fair market value of such building as a whole immediately prior to such damage or destruction. (b) "Premises Total Destruction" shall herein mean damage or destruction to the Premises to the extent that the cost of repair is 50% or more of the fair market value of the Premises immediately prior to such damage or destruction. "Premises Building Total Destruction" shall herein mean damage or destruction to the building of which the Premises are a part to the extent that the cost of repair is 50% or more of the fair market value of such building as a whole immediately prior to such damage or destruction. (c) "Insured Loss" shall herein mean damage or destruction which was caused by an event required to be covered by the insurance described in paragraph 8. 9.2 Partial Damage - Insured Loss. Subject to the provisions of paragraph 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is an Insured Loss and which falls into the classification of Premises Partial Damage or Premises Building Partial Damage, then Lessor shall, at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or tenant improvements, as soon as reasonably possible and this Lease shall continue in full force and effect. 9.3 (#3) Partial Damage - Uninsured Loss. Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to cancel and terminate this Lease, as of the date of the occurrence of such damage. In the event Lessor elects to give such notice of Lessor's intention to cancel and terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give such notice within such 10-day period this Lease shall be cancelled and terminated as of the date of the occurrence of such damage. 9.4 Total Destruction. If at any time during the term of this Lease there is damage, whether or not an Insured Loss, (including destruction required by any authorized public authority), which falls into the classification of Premises Total Destruction or Premises Building Total Destruction, this Lease shall automatically terminate as of the date of such total destruction. 9.5 Damage Near End of Term. (a) If at any time during the last six months of the term of this Lease there is damage, whether or not an Insured Loss, which falls within the classification of Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.59(a), in the event that Lessee has an option to extend or renew this Lease, and the time within which said option may be exercised has not yet expired, Lessee shall exercise such option, if it is to be exercised at all, no later than 20 days after the occurrence of an Insured Loss falling within the classification of Premises Partial Damage during the last six months of the term of this Lease. If Lessee duly exercises such option during said 20 day period, Lessor shall, at Lessor's expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option during said 20 day period, then Lessor may at Lessor's option terminate and cancel this Lease as of the expiration of said 20 day period by giving written notice to Lessee of Lessor's election to do so within 10 days after the expiration of said 20 day period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor or Lessee repairs or restores the Premises pursuant to the provisions of this Paragraph 9, the rent payable hereunder for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any damage suffered by reason of any such damage, destruction, repair or restoration. (b) (#4) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence such repair or restoration within 90 days after such obligations shall accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor written notice of Lessee's election to do so at any time prior to the commencement of such repair or restoration. In such event this Lease shall terminate as of the date of such notice. 9.7 Termination - Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's security deposit as has not theretofore been applied by Lessor. 9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which relate to termination of leases when leased property is destroyed and agree that such event shall be governed by the terms of this Lease. 10. Real Property Taxes. 10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as defined in paragraph 10.3, applicable to the Premises; provided, however, that Lessee shall pay, in addition to rent, the amount, if any, by which real property taxes applicable to the Premises increase over the fiscal real estate tax year 1990-1991. Such payment shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount of such increase and the computation thereof. If the term of this Lease shall not expire concurrently with the expiration of the tax fiscal year, Lessee's liability for increased taxes for the last partial lease year shall be prorated on an annual basis. 10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in real property tax if assessed solely by reason of additional improvements placed upon the Premises by Lessee or at Lessee's request. 10.3 Definition of "Real Property Tax". As used herein, the term "real property tax" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed on the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, as against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, as against Lessor's right to rent or other income therefrom, and as against Lessor's business of leasing the Premises. The term "real property tax" shall also include any tax, fee levy, assessment or charge (i) in substitution of, partially or totally, any tax, fee levy, assessment or charge hereinabove included within the definition of "real property tax," or (ii) the nature of which was hereinbefore included within the definition of "real property tax", or (iii) which is imposed for a service or right not charged prior to June 1, 1978, or, if previously charged, has been increased since June 1, 1978, or (iv) which is imposed as a result of a transfer, either partial or total, of Lessor's interest in the Premises or which is added to a tax or charge hereinbefore included within the definition of real property tax by reason of such transfer, or (v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 10.4 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. (b) If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, lessee shall pay a reasonable proportion to be determined by Lessor or all charges jointed metered with other premises. 12. Assignment and Subletting. 12.1 Lessors's Consent Required. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent, which Lessor shall not unreasonably withhold. Lessor shall respond to Lessee's request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void, and shall constitute a breach of this Lease. 12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any corporation which controls, is controlled by or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all the assets of Lessee as a going concern of the business that is being conducted on the Premises, provided that said assignee assumes, in full, the obligations of Lessee under this Lease. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease even if after such assignment or subletting the terms of this Lease are materially changed or altered without the consent of Lessee, the consent of whom shall not be necessary. 12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or assignment shall release Lessee of Lessee's obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee. Lessor may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Lessee, without notifying Lessee, or any successor of Lessee, and without obtaining its or their consent thereto and such action shall not relieve Lessee of liability under this Lease. 12.4 Attorney's Fees. In the event Lessee shall assign or sublet the Premises or request the consent of Lessor to any assignment or subletting or if Lessee shall request the consent of Lessor for any act Lessee proposes to do then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection therewith, such attorneys fees not to exceed $350.00 for each such request. 13. Defaults; Remedies. 13.1 Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) (#5) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statues such Notice to Pay Rent or Quit shall also constitute the notice required by this subparagraph. (c) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such failure shall continue for a period of 30 days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than 30 days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commenced such cure within said 30-day period and thereafter diligently prosecutes such cure to completion. (d) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. 101 or any successor statue thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days. Provided, however, in the event that any provision of this paragraph 13.1(d) is contrary to any applicable law, such provision shall be of no force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of them, was materially false. 13.2 Remedies. In the event of any such material default or breach by Lessee, Lessor may at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default or breach: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee's default including, but not limited to, the cost of recovering possession of the Premises; expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and any real estate commission actually paid; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the term after the time of such award exceeds the amount of such rental loss for the same period that Lessee proves could be reasonably avoided; that portion of the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the unexpired term of this Lease. (b) Maintain Lessee's right to possession in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the maximum rate then allowable by law. 13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying wherein Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 13.4 Late Charges. (#6) Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance or such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any other provision of this Lease to the contrary. 13.5 Impounds. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due before delinquency of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums. 14. Condemnation. (#7) If the Premises or any portion thereof are taken under the power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the building on the Premises, or more than 25% of the land area of the Premises which is not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing only within ten 910) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situation on the Premises. (#8) Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under the threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any award for loss of or damage to Lessee's trade fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 15. Broker's Fee. (a) Upon execution of this Lease by both parties, Lessor shall pay to N/A Licensed real estate broker(s), a fee as set forth in a separate agreement between lessor and said broker(s), or in the event there is no separate agreement between Lessor and said broker(s), the sum of $____, for brokerage services rendered by said broker(s) to Lessor in this transaction. (b) Lessor further agrees that if Lessee exercises any Option as defined in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or any subsequently granted option which is substantially similar to an Option granted to Lessee under this Lease, or if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or if Lessee remains in possession of the Premises after the expiration of the term of this Lease after having failed to exercise an Option, or if said broker(s) are the procuring cause of any other lease or safe entered into between the parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, then as to any of said transactions, Lessor shall pay said broker(s) a fee in accordance with the schedule of said broker(s) in effect at the time of execution of this Lease. (c) Lessor agrees to pay said fee not only on behalf of Lessor but also on behalf of any person, corporation, association, or other entity having an ownership interest in said real property or any part thereof, when such fee is due hereunder. Any transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Said broker shall be a third party beneficiary of the provisions of this Paragraph 15. 16. Estoppel Certificate. (a) Lessee shall at any time upon not less than ten (10) days' prior written notice from Lessor execute, acknowledge and deliver to Lessor a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is 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 Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises. (b) At Lessor's option, Lessee's failure to deliver such statement within such time shall be a material breach of this Lease or shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification, except as may be presented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance or such failure may be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser designated by Lessor such financial statements of lessee as may be reasonably required by such lender or purchaser. Such statements shall include the past three years' financial statements of Lessee. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. (#9) The term "Lessor" as used herein shall mean only the owner or owners at the time in question of the fee title or a lessee's interest in a ground lease of the Premises, and except as expressly provided in Paragraph 15, in the event of any transfer of such title or interest. Lessor herein named (and in cases of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor's obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor's successors and assigns, only during their respective periods of ownership. 18. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-due Obligations. Except as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law from the date due. Payment of such interest shall not excuse or cure any default by Lessee under this Lease, provided, however, that interest shall not be payable on late charges incurred by Lessee nor on any amounts upon which late charges are paid by Lessee. 20. Time of Essence. Time is of the essence. 21. Additional Rent. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be rent. 22. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the real estate broker listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor the Lessor or any employees or agents of any of said persons has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the term of this Lease except as otherwise specifically stated in this Lease. 23. Notices. Any notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, and if given personally or by mail, shall be deemed sufficiently given if addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee. 24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach by Lessee of the same or any other provision. Lessor's consent to, or approval of any act, shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 25. Holding Over. If Lessee, with Lessor's consent, remains in possession of the Premises or any part thereof after the expiration of the term hereof, such occupancy shall be a tenancy from month to month upon all the provisions of this Lease pertaining to the obligations of Lessee, but all options and rights of first refusal, if any granted under the terms of this Lease shall be deemed terminated and be of no further effect during said month to month tenancy. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions. Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Paragraph 17, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. Subordination. (#10) (a) This Lease, at Lessor's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part and to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgages, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall given written notice thereof to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate an attornment, a subordination or to make this Lease prior to the lien or any mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to execute such documents within 10 days after written demand shall constitute a material default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute such documents in accordance with this paragraph 30(b). 31. Attorney's Fees. If either party or the broker named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his reasonable attorney's fees to be paid by the losing party as fixed by the court. The provisions of this paragraph shall inure to the benefit of the broker named herein who seeks to enforce a right hereunder. 32. Lessor's Access. (#11) Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises and ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the term hereof place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. (#12) Lessee shall not pace any sign upon the Premises without Lessor's prior written consent except that Lessee shall have the right, without the prior permission of Lessor to place ordinary and usual for rent or sublet signs thereon. 35. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent of one party is required to an act of the other party, such consent shall not be unreasonably withheld. 37. Guarantor. In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing and performing all of the covenants and provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. The individuals executing this Lease on behalf of Lessor represent and warrant to Lessee that they are fully authorized and legally capable of executing this Lease on behalf of Lessor and that such execution is binding upon all parties holding an ownership interest in the Premises. 39. Options. 39.1 Definition. As used in this paragraph the word "Options" has the following meaning: (1) the right or option to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (2) the option or right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (3) the right or option to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises or the right or option to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor or the right of first offer to purchase other property of Lessor. 39.2 Options Personal. Options granted to Lessee in this Lease are personal to Lessee and may not be exercised or be assigned, voluntarily or involuntarily, by or to any person or entity other than Lessee, provided, however, the Option may be exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of this Lease. The options herein granted to Lessee are not assignable separate and apart from this Lease. 39.3 Multiple Options. In the event that Lessee has any multiple options to extend or renew this Lease a later option cannot be exercised unless the prior option to extend or renew this Lease has been so exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the time commencing from the date Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said notice of default is cured, or (ii) during the period of time commencing on the day after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligation is paid, or (iii) at any time after an event of default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) in the event that Lessor has given to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each of such defaults, or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month period prior to the time that Lessee intends to exercise the subject option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of 30 days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified in paragraph 13.1(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to diligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more notices of default under paragraph 13.1(b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.1(c), whether or not the defaults are cured. 40. Multiple Tenant Building. In the event that the Premises are part of a larger building or group of buildings ten Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care and cleanliness of the building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the building. The violations of any such rules and regulations shall be deemed a material breach of this Lease by Lessee. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of Lessee, its agents and invitees from acts of third parties. 42. Easements. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, rights, dedications, Maps and restrictions do not unreasonably interfere with the Use of the Premises by Lessee. Lessee shall sign any of the aforementioned documents upon request of Lessor and failure to do so shall constitute a material breach of this Lease. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protect" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said entity. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Addendum. Attached hereto is an addendum or addenda containing paragraphs A-1 through A-3 which constitutes a part of this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. The parties hereto have executed this Lease on the dates specified immediately adjacent to their respective signatures. Executed at 1411 E. Orangethorpe Ave., Fullerton, CA 92631, by Ron Hart - President, Nelco Products, Inc. Address 1009 Dolphin Terrace, Corona del Mar, CA 92625, by James Emmi - Owner Modification To Lease Building Lease between James Emmi, Lessor and Nelco, Lessee Dated December 12, 1989 1100 E. Kimberly Avenue, Anaheim, CA #1 - 7.3 (c) Last sentence to read: In addition, Lessor may require Lessee to pay Lessor's reasonable attorneys fees and costs in participating in such action if Lessor shall decide it is to Its best interest to do so. #2 - 7.3 (d) Last sentence to read: Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment, including that which is affixed to the Premises shall remain the property of Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2(c). #3 - 9.3 First sentence to read: Subject to the provisions of Paragraphs 9.4. 9.5, and 9.6, if at any time during the term of this Lease there is damage which is not an Insured Loss and which falls within the classification of Premises Partial Damage or Premises Building Partial Damage, unless caused by negligent or willful act of Lessee (in which event Lessee shall make the repair at Lessee's expense to the extent caused by the negligence or willful act of Lessee...... #4 - 9.6 M First sentence to read: If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not complete such repairs within 90 days of written notice of such occurrence of damage, then Lessee may terminate or cancel this lease by written notice to Lessor. #5 - 13.1 (b) First sentence to read: The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of three business days after written notice thereof from Lessor to Lessee. #6 - 13.4 Add to end of paragraph: To the extent Lesser is entitled to any other recovery for damages, and late coverage payment which has already been made shall be credited against the amount of such damages. #7 - 14 Second sentence to read: Any of the floor area of the building on the Premises..... #8 - 14 Delete the sentence: Delete: No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. #9 - 17 Add to end of first sentence: shall be delivered to grantee conditioned upon the acceptance of the new owners of the terms and provisions of this lease. #10 - 30 Change second sentence to read: Notwithstanding such subordination, Lessee's right to quiet possession of the Premises shall not be disturbed if Lessee is not in material default so long as Lessee shall pay the rent and be in substantial compliance with all provisions of this Lease....... #11 - 32 Add to first sentence: Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times after providing Lessee with 24 hour prior notice for the purpose of inspecting the same, showing ..... #12 - 34 Add the sentence: All signs currently in place are deemed to have Lessor's prior consent. Ron Hart - Nelco Products, Inc. James Emmi - Owner ADDENDUM TO BUILDING LEASE BETWEEN JAMES EMMI, LESSOR AND NELCO LESSEE DATED DECEMBER 12, 1989 1100 E. KIMBERLY AVENUE, ANAHEIM, CA A1. CONSUMER PRICE INDEX ADJUSTMENT: The monthly rental will be increased in the same proportion as the percentage of increase of the Los Angeles/Long Beach/Anaheim area C.P.I. as determined by the U.S. Department of Labor Statistics. The starting base for the C.P.I. index will be the index for the month of April 1990 which will be stipulated at 133.25. The C.P.I. adjustment will be made effective on each of the 2nd, 4th, 6th, 8th and 10th anniversary of the effective starting date of the lease (June 21, 1990). The bi-annual adjustment will be made every two years thereafter through the lease option periods if exercised. The C.P.I. index used for each period will be the published index for the month of April preceding the effective adjustment date. In no case will the rate increase be more than 10% per annum. A2. ALTERATIONS As provided for in Item 7.3, the building's original configuration and improvements shall be deemed to be the condition of the building when first occupied by the Lessee under previous leases. Any changes or modifications having been done subsequent to the original occupancy shall be subject to change back to original condition before any termination of lease at the option of Lessor. Normal wear and tear is excepted. This building is presently occupied by Lessee and is acceptable as is. A3. OPTIONS TO EXTEND LEASE PERIOD. The Lessee is hereby granted the option to extend this lease for an additional 5 years, June 21, 1995 to June 20, 2000 under the same terms and conditions as the first 5 years, providing that the Lessee has substantially complied with all the obligations of said lease for the first 5 years. Rental rate will continue to be adjusted as stipulated by C.P.I. adjustment, and tax and insurance adjustments as provided for in lease. The Lessee is hereby granted the option to renew this lease for an additional 5 year period, June 21, 2000 to June 20, 2005. The rental rate for this period will be determined by agreement between the Lessor and Lessee and shall be equal to 90% of the average rental rates in effect at the time of Lessee's notice of intention to renew. Average rental rates will be determined by prevailing and available rental rates in the Fullerton/Anaheim area for a minimum of 6 or more buildings of comparable size and location. In order to exercise the option to extend or renew this lease, the Lessee must notify Lessor of his intention to exercise his option before January 1, of the year of the start of option period. Ron Hart - Nelco Products, Inc. James Emmi - Owner December 29, 1994 Mr. James Emmi 1009 Dolphin Terrace Corona del Mar, CA 92625 VIA CERTIFIED MAIL Dear Mr. Emmi, Writing to you in my dual capacity as Vice President of Nelco Products, Inc., this letter serves as formal notice on behalf of Nelco Products, Inc., of their intention to exercise the June 12, 1995, options to extend the leases of both 1100 and 1107 E. Kimberly Avenue, Anaheim, CA, in accord with paragraphs A3 in the Addendums dated December 12 1989, to the Leases also dated December 12, 1989. The options thus exercised will run until June 20, 2000. We extend our best wishes for the New Year. Sincerely, NELCO, INTERNATIONAL CORPORATION Lee H. Newton Vice President Finance copy: Ron Hart, Nelco Products Inc. Phil Smoot, Nelco International Corporation Allen Levine, Park Electrochemical Corp. EX-10.03 4 Exhibit 10.03 LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between TCLW/Fullerton, a general partnership, hereinafter referred to as "Landlord," and Nelco Products, Inc., a Delaware Corporation, hereinafter referred to as "Tenant": WITNESSETH: 1. Premises and Term. In consideration of the obligation of Tenant to pay rent as herein provided, and in consideration of the other terms, provisions and covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby takes from Landlord, certain premises consisting of space within a building described as follows: Approximately 36,462 square feet at 1411 Orangethorpe, Fullerton, California within the County of Orange, State of California, and more particularly described on Exhibit "A" attached hereto and incorporated herein by this reference (hereinafter referred to as the "premises"). TO HAVE AND TO HOLD the same for a term commencing on the "commencement date" (as hereinafter defined) and ending 59 months thereafter (provided, however, that in the event the commencement date other than the first day of a calendar month, said term shall extend for said number of months in addition to the remainder of the calendar month following the commencement date), unless earlier terminated in accordance with the provisions of this lease. A. The "commencement date" shall be November 1, 1993. Tenant acknowledges that it has inspected and accepts the premises, and specifically the buildings and improvements comprising the same, in their present condition as suitable for the purpose for which the premises are leased. Taking of possession by Tenant shall be deemed conclusively to establish that said buildings and other improvements are in good and satisfactory condition as of when possession was taken. Tenant hereby waives the benefit of California Civil Code 1941. Tenant further acknowledges that no representations as to the repair of the premises, nor premises to alter, remodel or improve the premises have been made by Landlord, unless such are expressly set forth in this lease. 2. Base Rent and Security Deposit. A. Tenant agrees to pay as rental for the premises to Landlord or order, without deduction or set off, for the entire term hereof, Twelve Thousand Three Hundred Ninety Seven and 00/100 dollars ($12,397.00) per month. One such monthly installment shall be due and payable on the date hereof and a like monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the commencement date recited above during the hereby demised term, except that the rental payment for any fractional calendar month at the commencement or end of the lease term shall be prorated. All costs and expenses which are the responsibility of Tenant also constitute "rent." In the event Tenant fails to pay any installment of rent hereunder (1), to help defray the additional cost to Landlord for processing such late payments. Tenant shall pay to Landlord on demand a late charge in an amount equal to (2) of such installment. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. B. In addition, Tenant agrees to deposit with Landlord on the date hereof the sum of Twenty Four Thousand Seven Hundred Ninety Four and 00/100 dollars ($24,794.00), which sum shall be held by Landlord, (3) for interest, as security for the performance of Tenant's covenants and obligations under this lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or provided by law, use such funds to the extent necessary to make good any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by such event of default; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the security deposit to its original amount. Although the security deposit shall be deemed the property of Landlord, any remaining balance of such deposit shall be returned by Landlord to Tenant at such time after termination or expiration of this lease that all of Tenant's obligations under this lease have been fulfilled (4). 3. Use. The demised premises shall be used only for the purpose of (5) receiving, storing, shipping and selling (other than retail) for interest, materials and merchandise made and/or distributed by Tenant and for such other lawful purposes as may be incidental thereto. Under no circumstances shall the premises be used for gambling or the retail sale of alcoholic beverages, whether or not those uses may be lawful. Outside storage is prohibited without Landlord's prior written consent. Tenant shall at its own cost and expense obtain any and all licenses and permits necessary for any such use. Tenant shall comply with all governmental laws, ordinances and regulations applicable to the premises or use thereof, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with, the premises, all at (6). Without limiting the generality of the foregoing, and subject to paragraph 6, Tenant shall at its own cost and expense install and construct all physical improvements to the premises, interior and exterior, required by any Federal, State or local building code or other law or regulation enacted after the date on which this lease is executed by Tenant, or after said date determined retroactively to apply to the premises, (7) made necessary by the nature of Tenant's use of the premises. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the building in which the premises are situated or unreasonably interfere with their use of their respective premises. Tenant shall not place a load upon the floor of the premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable. Tenant will not permit the premises to be used for any purpose which would render the insurance thereon void or the insurance risk more hazardous. If at any time during the term of this lease the State Board of Insurance or other insurance authority disallows any of Landlord's sprinkler credits or imposes an additional penalty or surcharge in Landlord's insurance premiums because of Tenant's original or subsequent placement or use of storage racks or binds, Tenant's method of storage, the nature of Tenant's inventory or any other act of Tenant, Tenant agrees to pay, as additional rental, the increase (between fire walls) in Landlords insurance premiums, and, upon demand by Landlord, to correct at Tenant's expense the cause of such disallowance, penalty or surcharge to the satisfaction of the particular insurance authority. Additionally, Tenant shall pay to any other tenants in the building in which the premises are situated, upon demand, any increases in such other tenant's insurance premiums or charges caused by the acts of Tenant. 4. Taxes. A. Tenant agrees to pay before they become delinquent all general and special, ad valorem and specific taxes, excises, assessments, and governmental charges of any kind and nature whatsoever (hereinafter collectively referred to as the "taxes") lawfully levied or assessed against the land, building, grounds, parking areas, driveways, sidewalks and/or alleys on or around the premises. Tenant shall furnish to Landlord, not later than twenty (20) days before the date any such taxes becoming delinquent, official receipts of the appropriate taxing authority or other evidence satisfactory to Landlord evidencing payment thereof. If Tenant should fail to pay any taxes, assessments, or governmental charges required to be paid by Tenant hereunder, in addition to any other remedies provided herein, Landlord may, if it so elects, pay such taxes, assessments, and governmental charges. Any sums so paid by Landlord shall be deemed to be additional rent due and payable on demand by Landlord. B. In the event the premises constitute a portion of a multiple occupancy building, Tenant agrees to pay to Landlord, as additional rent, (8), the amount of Tenant's "proportionate share" of the "taxes" referred to in subparagraph A, above. Tenant's "proportionate share," as used in this lease, shall mean a fraction, the numerator of which is the square footage of the premises and the denominator or which is the square footage of the building containing the premises. C. If at any time during the term of this lease there shall be levied, assessed or imposed on Landlord, by any governmental entity, any general or special, ad valorem or specific, capital levy, excise or other tax, assessment, levy or charge directly on the rental received under this lease, and/or any license fee, excise or franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rentals, and/or any transfer, transaction, or similar tax, assessment, levy or charge based directly or indirectly upon the transaction represented by this lease, and/or any occupancy, use, per capita or other tax, assessment, levy or charge based directly or indirectly upon the use or occupancy of the premises, then all such taxes, assessments, levies and charges shall be deemed to be included within the term "taxes" for the purposes of this paragraph 4 (9). D. Tenant may, alone or along with any other tenants of said building, at its or their sole cost and expense, in its or their own name(s) and/or in the name of Landlord, dispute and contest and "taxes" by appropriate proceedings diligently conducted in good faith, but only after Tenant and all other tenants, if any, joining with Tenant in such contest, have deposited with Landlord the amount so contested and unpaid, or their proportionate shares thereof, as the case may be, which shall be held by Landlord without obligation for interest until the termination of the proceedings, at which time the amount(s) deposited shall be applied by Landlord toward the payment of the items held valid (plus any court costs, interest, penalties and other liabilities associated with the proceedings), and Tenant's share of any excess shall be returned to Tenant. Tenant further agrees to pay to Landlord, upon demand, Tenant's share (as among all tenants who participated in the contest) of all court costs, interest, penalties, and other liabilities relating to such proceedings. Tenant hereby indemnifies and agrees to hold Landlord harmless from and against any cost, damage or expense (including attorneys' fees) in connection with any such proceedings. E. Any payment to be made pursuant to this paragraph 4 with respect to the tax year in which this lease commences or terminates shall bear the same ratio to the payment which would be required to be made for the full tax year as that part of such tax year covered by the term of this lease bears to a full tax year. (10) 5. Repairs and Maintenance. A. Tenant shall, at its own cost and expense keep and maintain the premises in good condition, promptly making all necessary repairs and replacements, interior and exterior, non-structural, ordinary and extraordinary, including but not limited to, windows, glass and plate glass, doors, any special office entry, walls and finish work, floors and floor covering, roof, foundation, downspouts, gutters heating and air conditioning systems, dock boards, truck doors, dock bumpers, ramps, paving, plumbing work and fixtures, termite and pst extermination, regular removal of trash and debris, regular mowing of any grass, caring for shrubs, trimming, weed removal and general landscape maintenance, including rail spur areas, maintaining the parking areas, driveways, alleys, sidewalks, and the whole of the premises in a clean and sanitary condition, maintaining any spur track serving the premises (Tenant agrees to sign a joint maintenance agreement with the railroad company servicing the premises, if requested by the railroad company), and providing guard and alarm service. Tenant shall, at its own cost and expense, repaint the exterior walls, overhead doors, canopies, entries, headrails, gutters and other exposed parts of the building which reasonably require periodic repainting to prevent deterioration or to maintain aesthetic standards. Tenant shall maintain trash receptacles within the building on the premises. B. The cost of maintenance and repair or any common party wall (any wall, divider, partition or any other structure separating the premises from any adjacent premises occupied by other tenants) shall be shared equally by Tenant and the tenant occupying adjacent premises. Tenant shall not damage any party wall or disturb the integrity and support provided by any party wall and shall, at its sole cost and expense, promptly repair any damage or injury to any party wall caused by Tenant or its employees, agents or invitees. C. In the event the premises constitute a portion of a multiple occupancy building, Tenant and its employees, customers and invitees shall have the nonexclusive right to use, in common with the other parties occupying said building, the parking areas, driveways and alleys adjacent to said building, subject to such reasonable rules and regulations as Landlord may from time to time prescribe. Further, in such event, Landlord (11) to perform the paving and landscape maintenance, exterior painting and common sewage line plumbing and any other responsibilities which are otherwise Tenant's obligations under subparagraph A above, and Tenant shall, in lieu of the obligations set forth under subparagraph A above with respect to such items, be liable for its proportionate share (as defined in subparagraph 4B, above) of the cost and expense of the care for the grounds around the building, including but not limited to, exterior repainting and common sewage line plumbing; provided, however, that Landlord shall have the right to require Tenant to pay such other reasonable proportion of said costs as may be determined by Landlord in its sole discretion; and further provided that if Tenant or any other particular tenant of the building can be clearly identified as being responsible for obstruction or stoppage of the common sanitary sewage line, then Tenant, if Tenant is responsible, or such other responsible tenant, shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall at Landlord's option either (i) pay when due (but not more frequently than monthly) its share, determined as aforesaid, of such costs and expenses along with the other tenants of the building directly to the persons performing such work, or (ii) reimburse Landlord upon demand (but not more frequently than monthly), as additional rent, for the amounts of its share as aforesaid of such costs and expenses in the event Landlord elects to perform or cause to be performed such work. D. N/A. E. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all heating and air conditioning systems and equipment within the premises. The maintenance contractor must be approved by Landlord. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective within thirty (30) days of the date Tenant takes possessio of the premises. All guarantees/warranties provided with the heating and air conditioning systems will be recognized within this program. (12) 6. Alterations. A. Tenant shall not make any alterations, additions or improvements to the premises including but not limited to roof and wall penetrations without the prior written consent of Landlord (13). Tenant may, without the consent of Landlord, but at its own cost and expense and in a good workmanlike manner make such minor alterations, additions or improvements or erect, remove or alter such partitions, or erect such shelves, bins, machinery and trade fixtures as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such building or improvements, and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. All alterations, additions, improvements and partitions erected by Tenant shall be and remain the property of Tenant during the term of this lease and Tenant shall, unless Landlord otherwise elects as hereinafter provided, remove all alterations, additions, improvements and partitions erected by Tenant and restore the premises to their original condition by the date of termination or expiration of this lease; provided, however, that if Landlord so elects prior to termination or expiration of this lease, such alterations, additions, improvements and partitions shall become the property of Landlord as of the date of termination or expiration of this lease and shall be delivered up to the Landlord with the premises. All shelves bins, machinery and trade fixtures installed by Tenant may be removed by Tenant prior to the termination or expiration of this lease if Tenant so elects, and shall be removed if required by Landlord; upon any such removal Tenant shall restore the premises to their original condition. All such removals and restoration shall be accomplished in a good and workmanlike manner so as not to damage the primary structure or structural qualities of the buildings and other improvements situated on the premises. (14) B. Before commencing any work relating to alterations, additions and improvements affecting the premises, Tenant shall notify Landlord in writing of the expected date of commencement thereof. Landlord shall then have the right at any time and rom time to time to post and maintain on the premises such notices as Landlord deems necessary to protect the premises and Landlord from mechanics' liens, materialmen's liens or any other liens. At any time Tenant either desires or is required to make any repairs, alterations, additions, improvements or utility installations pertaining to the premises, Landlord may require Tenant, at Tenant's sole cost and expense, to obtain and provide to Landlord a lien and completion bond in a form and by a surety acceptable to Landlord in an amount equal to the estimate cost of (15) such improvements, to insure Landlord against liability for mechanics' and materialmen's liens and to insure completion of the work. 7. Signs. (16) Tenant shall have the right to install signs upon the exterior of said buildings (17) and subject to any applicable governmental laws, ordinances, regulations and other requirements. Tenant shall remove all such signs by the termination or expiration of this lease. Such installations and removals shall be made in such manner as to avoid injury or defacement of the building and other improvements, and Tenant shall repair any injury or defacement, including without limitation discoloration, caused by such installation and/or removal. 8. Inspection. Landlord and Landlord's agents and representatives shall have the right to enter and inspect the premises at any reasonably time during business hours, for the purpose of ascertaining the condition of the premises or in order to make such repairs as may be required or permitted to be made by Landlord under the terms of this lease. During the period that is six (6) months prior to the end of the term hereof, Landlord and Landlord's agents and representatives shall have the right to enter the premises at any reasonable time during business hours for the purpose of showing the premises and shall have the right to erect on the premises a suitable sign indicating the premises are available. (18) shall arrange to meet with (19) for a joint inspection of the premises at the time of vacating. 9. Utilities. Tenant shall pay for all water, gas, heat, light, telephone, sewer, sprinkler charges and other utilities and services used on or from the premises, together with any taxes, penalties, surcharges or the like pertaining thereto and any maintenance charges for utilities and shall furnish all electric light bulbs and tubes. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion as determined by Landlord of all charges jointly metered with other premises. Landlord shall in no event be liable for any interruption or failure of utility services on the premises. 10. Assignment and Subletting. A. Tenant shall not have the right to assign this lease or to sublet the whole or any part of the premises, or allow, for valuable consideration, the occupancy of all or any part of the premises by another, without the prior written consent of Landlord (20). Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent herein specified and for compliance with all of its other obligations under the terms, provisions and covenants of this lease. Upon the occurrence of an "event of default" as hereinafter defined, if the premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided, or provided by law, may at its option collect directly from such assignee or subtenant all rents becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or release of Tenant from the further performance of Tenant's obligations hereunder. B. In the event Tenant desires to sublet the premises, or any portion thereof, or assign this lease, Tenant shall give written notice thereof to Landlord setting forth the name of the proposed subtenant or assignee, the term, use, rental rate and other particulars of the proposed subletting or assignment, including without limitation (21) satisfactory to Landlord that the proposed subtenant or assignee will immediately occupy and thereafter use the entire premises (or any sublet portion thereof) for the remaining term of this lease (or for the entire term of the sublease, if shorter). In addition to Landlord's approval right pursuant to subparagraph 10A above, Landlord shall have the option, i the event of any proposed assignment or subletting (22) to cancel this lease as of the date the subletting or assignment described in Tenant's notice is to be effective. The option shall be exercised, if at all, by Landlord giving Tenant written notice thereof within sixty (60) days following Landlord's receipt of Tenant's written request. Upon any such cancellation Tenant shall pay to Landlord all amounts, as estimated by Landlord, payable by Tenant to such termination date, with respect to taxes, insurance, repairs, maintenance, restoration and other obligations, costs or charges which are the responsibility of Tenant hereunder. Further, upon any such cancellation Landlord and Tenant shall have no further obligations or liabilities to each other under this lease, except with respect to obligations or liabilities which accrue hereunder as of such cancellation date (in the same manner as if such cancellation date were the date originally fixed for the expiration of the term hereof). Without limitation, Landlord may lease the premises to the prospective subtenant or assignee, without liability to the Tenant. Landlord's failure to exercise said cancellation right as herein provided shall not be construed as Landlord's consent to the proposed subletting or assignment. C. Landlord shall have the right to assign any of its rights and obligations under this lease. (23) 11. Fire and Casualty Damage. A. Landlord agrees to maintain standard fire and extended coverage insurance covering the building of which the premises are a part in an amount not less than 80% (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clauses of the policy) of the "replacement cost" thereof as such term is defined in the Replacement Cost Endorsement to be attached thereto, insuring against the perils of Fire, (24), Lightning, Extended Coverage, Vandalism and Malicious Mischief, extended by Special Extended Coverage Endorsements to insure against all other Risks of Direct Physical Loss, and Earthquake and Flood, such coverages and endorsements to be as defined, provided and limited in the standard bureau forms prescribed by the insurance regulatory authority for the state in which the premises are situated for use by insurance companies admitted in such state for the writing of such insurance on risks located within such state. Subject to the provisions of subparagraphs 11B and 11E, below, such insurance shall be for the sole benefit of Landlord and under its sole control. Tenant agrees to pay to Landlord, as additional rent, Landlord's cost of maintaining such insurance on said building (or in the event the premises constitute a portion of a multiple occupancy building, Tenant's full proportionate share [as defined in subparagraph 4B above] of such cost). Said payments shall be made to Landlord within ten (10) days after presentation to Tenant of Landlord's statement setting forth the amount due. Any payment to be made pursuant to this subparagraph A with respect to the year in which this lease commences or terminates shall bear the same ratio to the payment which would be required to be made for the full year as the part of such year covered by the term of this lease bears to a full year. (25) B. If the buildings situated upon the premises should be damaged or destroyed by any peril covered by the insurance to be provided by Landlord under subparagraph 11A above, Tenant shall give immediate notice thereof to Landlord and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair such buildings to substantially the condition in which they existed prior to such damage or destruction, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additional and other improvements which may have been placed in, on or about the premises by Tenant and except that Tenant shall pay to Landlord, upon demand, any applicable deductible amount specified under Landlord's insurance. The rent payable hereunder shall in no event abate by reason of any damage or destruction. (26) C. (27) D. Tenant covenants and agrees to maintain insurance on all alterations, additions, partitions and improvements erected by or on behalf of Tenant in, on or about the premises in an amount not less than 80% (or such greater percentage as may be necessary to comply with the provisions of any co-insurance clause of the policy) of the "replacement cost" thereof, as such term is defined in the Replacement cost Endorsement to be attached thereto. Such insurance shall insure against the perils and be in form, including stipulated endorsements, as provided in subparagraph 11A hereof. Such insurance shall be for the sole benefit of Tenant and under its sole control. All such policies shall b procured by Tenant from responsible insurance companies satisfactory to Landlord. Certified copies of policies of such insurance, together with receipt evidencing payment of the premiums therefor, shall be delivered to Landlord prior to the commencement date of this lease. Not less than fifteen (15) days prior to the expiration date of any such policies, certified copies of renewals thereof (bearing notations evidencing the payment of renewal premiums) shall be delivered to Landlord. Such policies shall further provide that no less than thirty (30) days written notice shall be given to Landlord before such policy may be cancelled or changed to reduce insurance provided thereby. E. Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Landlord's interest in the premises requires that the insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this lease by delivering written notice of termination to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. (28) F. Landlord and Tenant hereby each release the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible; provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each of Landlord and Tenant agrees that it will request its insurance carriers to include in its policies such a clause or endorsement. If extra cost shall be charged therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its election, may pay the same, but shall not be obligated to do so. 12. Liability. Tenant does hereby indemnify and agree to forever save and hold harmless Landlord from and against any and all damages, claims, losses, demands, costs, expenses (including reasonable attorneys' fees and costs), obligations, liens, liabilities, actions and causes of action, threatened or actual, which Landlord may suffer or incur arising out of or in connection with Tenant's obligations under this lease, including without limitation, Tenant's use of the premises, the conduct of Tenant's business, any activity, work or things done, permitted or suffered by Tenant in or about the premises. Tenant's nonobservance or nonperformance of any law, ordinance or regulations, or any negligence of the Tenant or any of Tenant's agents, contractors employees, guests licensees and invitees. Tenant further agrees that in case of any claim, demand, action or proceeding against Landlord, Tenant, upon notice from Landlord shall defend Landlord at Tenant's expense. In the event Tenant does not provide a defense against any and all such claims, demands, liens, liabilities, actions or causes of action, threatened or actual, then Tenant will, in addition to the above, pay Landlord the attorneys' fees, legal expenses and costs incurred by Landlord in providing or preparing such defense and Tenant agrees to cooperate with Landlord in such defense, including, but not limited to, the providing of affidavits and testimony upon request of Landlord. Tenant shall obtain at its cost and keep in full force during the term of the lease a policy of Combined Single Limit Bodily Injury and Property Damage Insurance insuring Landlord and Tenant against any liability arising out of the use, occupancy or maintenance of the premises and all areas appurtenant thereto by Tenant. Such insurance shall be in an amount not less than (29). The policy shall contain cross liability endorsements and shall insure performance by Tenant of the foregoing indemnity provisions of this lease. The limits of said insurance shall not, however, limit the liability of Tenant hereunder. 13. Condemnation. A. If the whole or any substantial part of the premises should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and the taking would prevent or materially interfere with the use of the premises for the purpose for which they are then being used, this lease shall terminate (30) and the rent shall be abated during the unexpired portion of this lease, effective when the physical taking of such premises shall occur (31). B. If part of the premises shall be taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, and this lease is not terminated as provided in subparagraph A, above, this lease shall not terminate but the rent payable hereunder during the unexpired portion of this lease shall be reduced in the same ratio as the square footage of the premises taken bears to the total square footage of the premises. C. This paragraph 13 shall be Tenant's sole and exclusive remedy in the event of any such taking or purchase in lieu thereof. Landlord shall be entitled to any and all compensation, damages, income, rents, awards (except for an award specified by the condemning authority for Tenant's unamortized portion of its improvements (32) if any) or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall have no claim against Landlord for the value of any unexpired term of this lease. Tenant hereby waives the benefits of California Code of Civil Procedure 1265.130. 14. Holding Over. Tenant will, at the termination or expiration of this lease by lapse of time or otherwise, yield up immediate possession to Landlord. In the event of any holding over by Tenant after the expiration or termination of this lease, unless the parties hereto otherwise agree in writing, the hold over tenancy shall be subject to termination by Landlord at any time upon not less than seven (7) days advance written notice, and all of the other terms and provisions of this lease shall be applicable during that period, except that Tenant shall pay Landlord from time to time upon demand, as rental for the period of any hold over, an amount equal to one and one-half (1 1/2) the rental which would have been payable by Tenant had the hold over period been a part of the original term of this lease, computed on a daily basis for each day during which such possession is withheld. In the event of any such hold over, Tenant agrees to vacate and deliver the premises to Landlord within seven (7) days after Tenant's receipt of notice from Landlord to vacate. No holder over by Tenant whether with or without consent of Landlord, shall operate to extend this lease except as otherwise expressly provided. 15. Quiet Enjoyment. Landlord covenants that it now has, or will acquire before Tenant takes possession of the premises, good title to the premises, excepting the lien for current taxes not yet due, such mortgages or deeds of trust as are permitted by the terms of this lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other matters of record. Landlord represents and warrants that it has full right and authority to enter into this lease and that Tenant, upon paying the rental herein set forth and performing its other covenants and agreements herein set forth, shall peaceable and quietly have, hold and enjoy the premises for the term hereof without hindrance or molestation from Landlord, subject to the terms and provisions of this lease. Landlord agrees to make reasonable efforts to protect Tenant from interference or disturbance by other tenants or third persons, however, Landlord shall not be liable for any such interference or disturbance, nor shall Tenant be released from any of the obligations of this lease because of such interference or disturbance. 16. Events of Default. The following events shall be deemed to be "events of default" by Tenant under this lease: (a) Tenant shall fail to pay any installment of the rent herein reserved when due, or any payment with respect to taxes hereunder when due, or any other payment or reimbursement to Landlord required herein when due, and such failure shall continue for a period of (33) from the date such payment was due. (b) Tenant shall become insolvent, or shall make a transfer in fraud of creditors, or shall make an assignment for the benefit of creditors. (c) Tenant shall file a petition under any section or chapter of the National Bankruptcy Act, as amended or under any similar law or statute of the United State or any state thereof; or Tenant shall be adjudged bankrupt or insolvent in proceedings filed against Tenant thereunder. (d) A receiver or trustee shall be appointed for all or substantially all of the assets of Tenant. (e) Tenant shall desert any substantial portion of the premises. (f) Tenant shall fail to comply with any term, provision or covenant of this lease (other than the foregoing in this paragraph 16), and shall not cure such failure within (34). 17. Remedies. If any event of default occurs, Landlord may at any time thereafter, with or without notice or demand, except as stated hereafter, and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such event of default; (a) Enter upon and take possession of the premises. IN such event, Landlord shall have the right to remove all persons and property from the premises and store such property in a public warehouse or elsewhere at the cost and risk of and for the account of Tenant, and all such persons shall quit and surrender possession of the premises to Landlord, Tenant hereby waives all claims for damages which may be caused by the entry of Landlord and taking possession of the premises or removing and storing the furniture and property and hereby agrees to indemnify and save Landlord harmless from any loss, costs, damages or liability occasioned thereby, and no such entry shall be considered or construed to be a forcible entry. Should Landlord elect to enter, as herein provided, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice provided by law, Landlord may terminate this lease pursuant to paragraph (b) hereof. (b) Terminate Tenant's right to possession of the premises at any time. Acts of maintenance, efforts to relet the premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord may recover from Tenant (i) the worth at the time of the award of the unpaid rent that had been earned at the time of termination of Tenant's right to possession of the premises; (ii) the worth at the time of the award of the amount by which the unpaid rent that would have been earned after the date of termination of Tenant's right to possession until the time of award exceeds the amount of the loss of rent for the same period that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent for the same period that Tenant proves could have been reasonably avoided; and (iv) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth at the time of the award," as used in (i) and (ii) of this paragraph, is to be computed by allowing interest at the rate of ten percent (10%) per annum. "The worth at the time of the award" as referred to in (iii) of this paragraph is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus 1%. (c) Continue this lease in full force and effect, and this lease will continue in effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due. (d) Cure the default at Tenant's cost. If Landlord at any time, by any reason of Tenant's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord upon demand by Landlord. The sum, together with late charges, as provided in paragraph 2, above, of this lease, shall be additional rent. (e) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. 19. Mortgages. (35) 20. Landlord's Default. A. In the event Landlord should become in default in any payments due and payable on any such mortgage described in paragraph 19 hereof, Tenant is authorized and empowered after giving Landlord five (5) days prior written notice of such default and Landlord's failure to cure such default, to pay any such delinquent items for and on behalf of Landlord, and the amount of any item so paid by Tenant for or on behalf of Landlord, together with any interest or penalty required to be paid in connection therewith, shall be payable on demand by Landlord to Tenant; provided, however, that Tenant shall not be authorized and empowered to make any payment under the terms of this paragraph 20 unless the item paid shall be superior to Tenant's interest hereunder, in the event Tenant pays any mortgage debt in full, in accordance with this paragraph, it shall, at its election, be entitled to the mortgage security by assignment or subrogation. 21. Tenant's Remedies. Except as otherwise specifically provided in this lease, Tenant hereby waives and relinquishes any right which Tenant may have to terminate this lease or withhold rent on account of any damage, condemnation, destruction or state of disrepair of the premises (including, without limiting the generality of the foregoing, those rights under California Civil Code 1932(2), 1933(4), 1941 and 1942). 22. Mechanic's Liens. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the premises, or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this instrument. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the premises on which any lien is or can be validly and legally asserted against its leasehold interest in the premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the premises or under the terms of this lease. Tenant will not permit any mechanics' lien or liens to be placed upon the premises or any building or improvement thereon during the term hereof, and in case of the filing of any such lien Tenant will promptly pay same. If any such lien shall remain in force and effect for twenty (20) days after written notice thereof from Landlord to Tenant, Landlord shall have the right and privilege at Landlord's option of paying and discharging the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and applicable late charge, shall be so additional rent hereunder due from Tenant to Landlord and shall be repaid to Landlord immediately on rendition of bill therefor. Notwithstanding the foregoing, Tenant shall have the right to contest any such lien in good faith and with all due diligence so long as any such contest, or action taken in connection therewith, protects the interest of Landlord and Landlord's mortgagee in the premises and Landlord and any such mortgagee are, by the expiration of said twenty (20) days period, furnished proof of such protection, and indemnification by Tenant against any loss, cost or expense related to any such lien and the contest thereof, satisfactory to Landlord and any such mortgagee. 23. Sale by Landlord. In the event the original Landlord hereunder, or any successor owner of the premises, shall sell or convey the premises, Tenant agrees to attorn to such new owner. In the event of such sale, Landlord shall transfer to the new owner the balance of any security deposit remaining after lawful deductions and, after notice to Tenant (36) shall be relieved of all future liability with respect to such security deposit. 24. Attorneys' Fees. If either Landlord or Tenant commences or engages in, or threatens to commence or engage in, an action by or against the other party arising out of or in connection with this lease or the premises, including but not limited to any action for recovered of rental due and unpaid (37) to recover possession or for damages for breach of this lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and other costs incurred in connection with the action and in preparation for said action. (38) 25. Further Documents. Upon Landlord's request, Tenant agrees to modify this lease to meet the requirements of a lender selected by Landlord who demands such modification as a condition precedent to granting a loan and placing a deed of trust upon the building or land of which the premises is a part, provided such modification does not (1) increase the minimum rent or percentage rent; (2) alter the term of lease or any extended term; or (3) materially adversely affect Tenant's estate or right under this lease. 26. Waiver. The waiver by (39) of any term, covenant, agreement or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant, agreement or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of this lease be construed to waive or to lessen the right of (40) to insist upon the performance by (41) in strict accordance with all of the provisions of this lease. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver or any preceding breach by Tenant of any provisions, covenant, agreement or condition of this lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. 27. Notices. Each provision of this instrument or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivery of any notice or the making of any payment by Landlord to Tenant or with reference to the sending, mailing or delivery of any notice or the making of any payment by Tenant to Landlord shall be deemed to be complied with when and if the following steps are taken: (a) All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address hereinbelow set forth or at such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. (b) All payments required to be made by Landlord to Tenant hereunder shall be payable to Tenant at the address hereinbelow set forth, or at such other address within the continental United States as Tenant may specify from time to time by written notice delivered in accordance herewith. (c) Any notice or document required or permitted to be delivered hereunder shall be deemed to be delivered whether actually received or not (42) deposited in the United States Mail, postage prepaid, Certified or Registered Mail, addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith: LANDLORD: TENANT: TCLW/Fullerton Nelco Products, Inc. a general partnership a Delaware Corporation 17941 Fitch 1411 Orangethorpe Irvine, California Fullerton, California (43) If and when included within the term "Landlord," as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address (44) for the receipt of notices and payments to Landlord; if and when included within the term "Tenant," as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant," respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice. 28. Entire Agreement. This lease contains the entire agreement between the parties respecting the lease of the premises to Tenant. 29. Time of the Essence. Time is of the essence of this lease. 30. Miscellaneous. A. Words of any gender used in this lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. B. The terms, provisions and covenants and conditions contained in this lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due amortization of such party to enter into this lease. C. The captions inserted in this lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this lease, or any provision hereof, or in any way affect the interpretation of this lease. D. (45) E. This lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto. F. All obligations of Tenant (46) hereunder not fully performed as of the expiration or earlier termination of the term of this lease shall survive the expiration or earlier termination of the term hereof, including without limitation all payment obligations with respect to taxes and insurance and all obligations concerning the condition of the premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the premises. Landlord and Tenant shall jointly inspect the premises and Tenant shall pay to Landlord any amount estimated by Landlord as necessary to put the premises, including without limitation all heating and air conditioning systems and equipment therein, in good (47). Tenant shall also, prior to vacating the premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for real estate taxes and insurance premiums for the year in which the lease expires or terminates. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied, as the case may be (48). Any security deposit held by Landlord shall be credited against the amount payable by Tenant under this paragraph 30F. G. If any clause or provision of this lease is illegal, invalid or unenforceable under present or future laws effective during the term of this lease, then and in that event, it is the intention of the parties hereto that the remainder of this lease shall not be affected thereby, and it is also the intention of the parties to this lease that in lieu of each clause of provision of this lease that is illegal, invalid or unenforceable, there be added as a part of this lease contract a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provisions as may be possible and be legal, valid and enforceable. H. Because the premises are on the open market and are presently being shown, this lease shall be treated as an offer with the premises being subject to prior lease and such offer subject to withdrawal or non- acceptance by Landlord or to other use of the premises without notice, and this lease shall not be valid or binding unless and until the lease is accepted by Landlord in writing and a fully executed copy is delivered to both parties hereto. I. Paragraph I and Exhibit "A" of this lease notwithstanding, the "premises," and Tenant's estate under this lease, do not include any right, title or interest in water, oil, gas or other hydrocarbons, or other mineral rights, all of which are excepted and reserved to Landlord with the sole and exclusive right in Landlord to sell, lease, assign or otherwise transfer the same, but without any right of Landlord or any such transferee to enter upon the surface of the property described in said Exhibit "A" during the term of this lease except as otherwise expressly provided elsewhere in this lease. J. All references in this lease to "the date hereof" or similar references shall be deemed to refer to the last date, i point of time, on which all parties hereto have executed this lease. 31. Additional Provisions. Those additional provisions set forth in Exhibit "C" attached hereto are hereby incorporated by this reference as if fully set forth herein. (49-54) IN WITNESS WHEREOF, this lease is, EXECUTED BY LANDLORD, this 16th day of August, 1983. TCLW/Fullerton Crow Fullerton By: Clifton K. Chang General Partner Executed by Tenant, this 22nd day of August, 1983. NELCO PRODUCTS, INC. By: E.P. Smoot President EXHIBIT "C" TO LEASE-DATED AUGUST 16, 1983 BETWEEN NELCO PRODUCTS, INC., AS ("TENANT") AND TCLW/FULLERTON, AS("LANDLORD"): 1. before the end of the ten (10) day grace period in paragraph 16 (a) of the Lease. 2. five percent (5%) 3. in an interest bearing account 4. Provided Tenant is not in default of the Lease, $12,397.00 of the security deposit plus interest thereon shall be released to Tenant on September,30, 1984 5. manufacturing, 6. Provided that such required improvements are not necessary by nature of Tenant's use of the premises, then: 1) If the costs are less than $10,000.00, Landlord and Tenant shall each bear one-half the cost of such improvements. 2) If the costs exceed $10,000.00, then Landlord shall have the option of paying the cost or terminating the Lease. 3) If the Landlord elects to terminate the Lease, Tenant shall have the choice of paying the cost of improvements or terminating the Lease. 4) In the event neither Landlord or Tenant elects to pay the cost, then Lease shall terminate when the appropriate government authority forces Tenant to move out of the facility. 5) In the event Tenant and Landlord mutually agree to contest the installation of such improvements, then the cost of contesting the governmental regulation shall be split up to $10,000.00. 7. provided such improvements are 8. not earlier than fifteen (15) nor later than five (5) days before each semi-annual delinquency date. 9. Notwithstanding the foregoing, Tenant shall not be liable for the payment of any federal, state, county or municipal income or franchise taxes or an taxes or license fees imposed on the collection of rent or measured by the amount of rent, unless such taxes or fees are a substitution in whole or in part for real estate taxes. 10. Tenant shall bear the cost of tax increases due to improvements within its space, and Tenant shall not bear the cost of tax increases from improvements for other tenants in the building. To the extent taxes increase due to ownership changes, then Landlord shall bear the cost of such tax increases to the end of the current least term or option period, after which the increases shall be Tenant's responsibility in the next lease option period. 11. assumes the duty 12. Notwithstanding anything to the contrary contained in subparagraph 1A and this paragraph 5, Landlord shall repair or cause to be repaired all structural portions of the building during the lease term, and during the first two years of the lease term (a) the common sewage line and the common water line and, (b) the roof of the building, unless the need for any of the foregoing repairs is caused by Tenant, in which event Tenant shall be solely responsible for such repairs. 13. , Landlord's consent not to be unreasonably withheld, and such consent or dissent to be provided within five (5) working days of delivery of plans and specifications for such improvements. 14. Landlord shall elect in writing at time of approval tenant improvements need to be removed by Tenant upon expiration or termination of the lease. 15. labor and materials of 16. Landlord shall establish and enforce a uniform sign criteria for all occupants of the building. 17. in accordance with Landlord's uniform sign criteria. 18. Landlord 19. Tenant 20. Such consent is not to be unreasonably withheld and shall be given or denied fifteen (15) days after receipt of all documentation relating to such consent. Tenant shall have the right, without Landlord's consent, to assign this lease a ("Permitted Assignment") to a corporation with which it may merge, to any parent of Tenant or any subsidiary of Tenant's parent, or to a purchaser of substantially all of Tenant's assets or stock, provided that such parent or purchaser has a net worth at the effective date of the assignment that is equal to or greater than the net worth of Park Electrochemical Corporation on the date hereof, and provided that Tenant notifies Landlord of the assignment before the effective date thereof, and the assignee assumes in writing Tenant's obligations hereunder." 21. evidence. 22. other than to a "Permitted Assignee" or subletting of seventy percent (70%) or more of the premises 23. but Landlord shall remain liable for all obligations to be performed by Landlord before the effective date of the assignment. 24. Rental Insurance 25. Landlord's policy shall name Tenant and the holder of any indebtedness secured by Landlord's interest in the building, as their interests may appear, as additional insureds, but all losses shall be adjusted by and proceeds payable to Landlord. In addition to a statement for the amount due, Landlord shall deliver to Tenant for photocopies of the insurance policy or certificate of insurance and premium notice covered by the statement. 26. except that the rent shall be abated by the prorata portion of the premises destroyed. 27. If the buildings situated upon the premises should be damaged or destroyed by a casualty other than a peril covered by the insurance to be provided by Landlord under subparagraph 11A above, either party ("terminating party") may elect to terminate this Lease by so notifying the other party ("non-terminating party") within sixty (60) days after the date of damage or destruction, and this Lease shall be terminated on the date that Tenant vacates the premises which shall be within thirty (30) days after notice, unless the non-terminating party notifies terminating party within thirty (30) days after delivery of the notice of termination that the non-terminating party elects to rebuild, repair and replace the buildings. Should the non-terminating party so elect, it shall proceed in accordance with the requirements of subparagraph 11B. 28. Landlord shall not exercise any right to apply the insurance proceeds to the indebtedness unless required to do so by the Lender or agreed to by Tenant. 29. $3,000,000.00 30. at the option of either party 31. "Substantial part" shall be deemed to be twenty five percent (25%) or more of the premises. 32. trade fixtures, removal and location costs, and goodwill, 33. ten (10) 34. thirty (30) days after written notice thereof to Tenant of such longer period as may be reasonably required to cure such default so long as Tenant proceeds at all times with due diligence to complete the cure 35. Tenant agrees upon the request of Landlord to subordinate this Lease and its rights hereunder to any first or second mortgage or first or second deed of trust (hereinafter for convenience called "loan") and to execute at any time and from time to time such documents as may be required to effectuate such subordination; provided that (i) such documents do not require Tenant to waive or modify any of its material rights under this Lease and (ii) contain provisions that reasonably assure Tenant that Tenant's possession will not be disturbed so long as Tenant is not in default under this Lease, including a provision that the owner, holder or beneficiary of the loan and its successors and assigns, including a purchaser at foreclosure sale or sale in lieu of foreclosure, and Tenant's successors and assigns, each will accept the attornment of Tenant and recognize this Lease, and that Tenant's quiet enjoyment and peaceful possession of the premises and rights and privileges appertaining thereto shall not be disturbed. 36. and the written assumption of Landlord's obligations by the new owner. 37. for declaratory relief, 38. If either party ('secondary party') becomes involved in any action, threatened or actual, by or against anyone not a party to this Lease but arising by reason or related to any act or omission of the other party ('primary party') or its representatives, agents, employees, licensees or invitees, the primary party agrees to pay the secondary party's reasonable attorney's fees and other costs incurred in connection with the action and in preparation for the action. 39. either Landlord or Tenant ("Waiver") 40. Waiver 41. the other party 42. seventy two hours after 43. (d) Copies of notices to Tenant shall be sent concurrently to Park Electrochemical, 475 Northern Boulevard, Great Neck, New York 11021, Attention: President. 44. within the continental United States. 45. At any time and from time to time within fifteen (15) days after request by either party, the other party shall execute and deliver to the requesting party, or to such other recipient as the notice shall direct, a statement certifying that this Lease is unmodified and in full force and effect, or, if there have been modifications, that it is in full force and effect as modified in the manner specified in the statement, that there are no defenses or offsets claimed by the party making such statement other than those specified therein, and any other such matters reasonable requested. The statement shall also state the dates to which the rent and any other charges have been paid in advance. The statement shall also state the dates to which the rent and any other charges have been paid in advance. The statement shall be such that it can be relied on by any person specified in the request. 46. and Landlord 47. good, clean and leasable condition 48. Provided that Tenant is not then in default hereunder, Landlord shall refund to Tenant at the expiration or earlier termination of this lease all sums received by Landlord from Tenant which are allocable to the period following the expiration or termination date. 49. Tenant Improvements Landlord shall provide: a) 800 Amp 480/277 Volt Power with 110 Volt transformer. b) One (1) grade level door sufficiently wide to accommodate two (2) trucks. c) One (1) truck well sufficiently wide enough to accommodate two (2) trucks. d) $95,731 tenant improvement allowance to be used for 4,000 square feet of build-to-suit offices. Tenant improvement reimbursement shall be made thirty (30) days after delivery of paid invoice for approved tenant improvements. Tenant may take possession of the premises rent free for purposes of installing tenant improvements, subject to all provisions of this lease except paragraphs 2 and 4. e) Two (2") waterline f) Four (4") sewerline 50. Rental Adjustments a) Each option period shall be subject to an adjustment based upon a Consumer Price Index with a ceiling factor: Base Adjustment Ceiling Base Date Date Factor Rent(NNN) 10-1-83 10-1-88 1.40 $12,178.00 10-1-83 4-1-91 1.60 $12,178.00 10-1-93 4-1-96 1.20 10-1-93 Rent 10-1-93 10-1-98 1.40 10-1-93 Rent 10-1-93 4-1-03 1.60 10-1-93 Rent The ceiling factor multiplied by the base rent shall be the maximum adjusted rent for that period. b) The adjusted rent shall be calculated as follows: i) At the Adjustment date. the base rent shall be multiplied by a fraction, the numerator of which is the "Index" on the Adjustment Date and the denominator of which is the "Basic Index". The sum so derived shall be the monthly rental payable during the following thirty (30) month period unless the Lease terminates earlier. ii) As used in the foregoing, "Index" shall mean the average of the following two indexes published by the Bureau of Labor Statistics, United States Department of Labor (1967:100): (i) the Consumer Price Index for Urban Wage Earners and Clerical Workers for the Los Angeles-Long Beach-Anaheim Metropolitan Area (known as "CPI-W" and (ii) the Consumer Price Index for all Urban Consumers for the Los Angeles-Long Beach-Anaheim Metropolitan Area (known as "CPI-U"). "Basic Index" shall mean the Index most recently published prior to the Base Date. If the Index as now constituted, compiled, and published, shall be revised or cease to be compiled and published during the term hereof, then the Bureau of Labor Statistics shall be requested to furnish a statement converting the Basic Index to a figure that would be comparable in another Index published by the Bureau of Labor Statistics and such other Index shall be used in computing the adjustment in Rent provided herein. Should the parties not be able to secure such appropriate conversion or adjustment, they shall agree on some other Index serving the same purpose to adjust the Rent as provided herein. 51. Option to Extend While this lease is in full force and effect provided that Tenant is not in default of any of the terms, covenants and conditions thereof, Tenant shall have the right or option to extend the original term of this Lease for three (3) further terms of sixty (60) months. Such extension or renewal of the original term shall be on the same terms, covenants and conditions as provided for in the original term except that: a) The initial monthly rental during the first option period shall be based upon the Index as described in Paragraph 50 of the Exhibit C with a ceiling. b) The initial monthly rental during the second option period shall be based upon the fair market rental value of equivalent properties, of equivalent size, in equivalent areas. c) The initial monthly rental during the third option period shall be based upon the Index described in paragraph 2 of the Addendum. d) No further renewal options shall apply. e) A rental escalation shall apply in the period beginning month thirty one (31) of each option period. The escalation shall be described in paragraph 50 of Exhibit C. Notice of Tenant's intention to exercise the option must be given to Landlord in writing at least one hundred eighty (180) days prior to the expiration of the original or then existing term of this Lease. This option is not assignable except to a permitted assignee as defined in paragraph 10 A of the Lease. In the event Landlord and Tenant do not agree in writing on a fair market rate within fifteen (15) days after exercise of the option for the second option period or do not agree in writing on a single appraiser within twenty five (25) days after such exercise, then: a) Each shall appoint an Appraiser within thirty five (35) days after the exercise of option. b) In the event the two Appraisers are unable to agree on a fair market rate within forty five (45) days after exercise of the option, then the two Appraisers, shall jointly appoint a third Appraiser by the forty fifth (45th) day after the exercise of option. c) The average of the two closest appraisals shall be deemed to be the fair market rental value which shall be determined by the seventieth (70th) day after the exercise of option. d) Subject to paragraph (g), Landlord and Tenant shall each pay the costs of its selected Appraiser and one-half the cost of the third rental appraiser. e) Tenant shall either: (i) Accept the fair market determination and execute and deliver a lease amendment within ninety (90) days after the exercise of option or, (ii) Decline the determination of fair market and cancel the option to lease, in which case Tenant shall pay all fees of Appraisal, including Landlord's and that of the neutral Appraiser. Failure to deliver an executed lease amendment shall mean Tenant has elected alternative (ii) herein. In no event, however, will the monthly rent payable under this Lease as adjusted in the above described method ever be less than the monthly rent payable in the period prior to the adjustment. 52. Consent Except when provided to the contrary in this Lease, whenever one party's consent, approval or permission is required or desired by the other party in connection with this Lease, such consent, approval or permission shall not be unreasonably withheld or delayed. 53. Parking Landlord shall designate sixty one (61) parking spaces for Tenant's exclusive use in that portion of the common area that is marked in yellow on Exhibit A. 54. Adjacent Space If Landlord decides to offer space contiguous to Tenant's premises for lease during the lease term, Landlord shall first offer such space to Tenant for lease, and Tenant shall have the right to lease such space on rental rates and terms that are mutually satisfactory within ten days next following Tenant's receipt of such offer. If terms that are mutually satisfactory cannot be agreed upon within such ten day period, Landlord shall then be free to offer for lease or lease such space to any other party on terms acceptable to Landlord. EX-10.03(C) 5 Exhibit 10.03(c) FIFTH ADDENDUM TO LEASE This Fifth Addendum to Lease is to be attached to and forms a part of the lease (which together with any amendments, modifications and extensions thereof is hereinafter called the Lease), made on the 16th day of August, 1983, by and between TCLW/Fullerton, a California general partnership ("Landlord") and Nelco Products, Inc., a Delaware corporation ("Tenant") covering the premises known as 141 1 (including 1421, 143 1, and the Appleton Space as later defined in this Addendum) E. Orangethorpe Avenue, Fullerton, California. Where provisions of this Fifth Addendum conflict with those of the Lease or prior Addenda, those of this Fifth Addendum shall supersede: 1. Extension Term: The Lease is hereby extended for a further term of nine (9) years to commence on the I st day of October, 1994 and to end on the 30th day of September, 2003, on the condition that Landlord and Tenant comply with all the provisions of the covenants and agreements contained in the Lease. 2. Expansion: Tenant presently occupies a 71,862 square foot portion of the Premises under the existing lease dated August 16, 1983, as amended. Adjacent to the space presently occupied by Tenant under the existing lease is a space of 22,840 square feet occupied by Appleton Electric Company (the Appleton Space). Appleton's lease is scheduled to expire on October 31, 1994, but may hold over for a limited period of time. The Appleton Space together with the space presently occupied by Tenant shall comprise the Premises covered by the Lease as amended, with a total of 94,702 square feet (the entire building). Landlord will begin construction of the tenant improvements as soon as possible, and will use its best efforts to deliver the Appleton space to Tenant not later than July 15, 1995. Landlord will at Landlord's expense install the tenant improvements described in Exhibit A. The work shall be done in a diligent manner. 3. Rent: Base Rent for the period from October 1, 1994 until the delivery of the Appleton Space to Tenant shall be $31,835 per month. On the later of August 1, 1995 or the date on which the Appleton Space is delivered to Tenant, the Base Rent shall increase to $41,952 per month, except that Base Rent with respect to the Appleton Space ($10,118.12 per month) shall be abated for the first 60 days beginning on the later of August 1, 1995 or the date on which the Appleton Space is delivered to Tenant. Base Rent shall increase to $45,741 per month on October 1, 1998. On October 1, 2001, Base Rent shall increase (but not decrease) to 95% of "Market Rental Value", ,- calculated in accordance with the following: (a) On October 1, 2001 the Base Rent shall be adjusted to 95% of the "Market Rental Value" of the property as follows: 1) Four months prior to the Market Rental Value (MRV) Adjustment Date described above, Landlord and Tenant shall meet to establish an agreed upon new MRV for the specified term. If agreement cannot be reached, then: I) Landlord and Tenant shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the parties, or ii) Both Landlord and Tenant shall each immediately select and pay the appraiser or broker of their choice to establish a MRV within the next 30 days. If, for any reason, either one of the appraisals is not completed within the next 30 days, as stipulated, then the appraisal that is completed at that time shall automatically become the new MRV. If both appraisals are completed and the two appraisers/brokers cannot agree on a reasonable average MRV then they shall immediately select a third mutually acceptable appraiser/broker to establish a third MRV within the next 30 days. The average of the two appraisals closest in value shall then become the new MRV. The costs of the third appraisal will be split equally between the parties. 2) In any event, the new MRV shall not be less than $45,741.00, the rent payable for September, 2001. (b) Upon the establishment of each New Market Rental Value as described in paragraph 3 (a) : 1) the monthly rental sum so calculated for each term as specified in paragraph 3 (a) will become the new Base Rent for the purpose of calculating any further Market Rental Value Adjustment or Cost of Living Adjustments, pursuant to paragraph 4 below. 4. Option To Extend: Landlord hereby grants to Tenant the option to extend the term of this Lease for one additional 60 month period commencing when the prior term expires upon each and all of the following terms and conditions: (a) Tenant gives to Landlord, and Landlord actually receives on a date which is prior to the date that the option period would commence (if exercised) by at least 6 and not more than 9 months, a written notice of the exercise of the option to extend this Lease for said additional term, time being of essence. If said notification of the exercise of said option is not so given and received, the option shall automatically expire; said option may only be exercised if: (1) There is no default by Tenant of any provision in the Lease: (2) All of the terms and conditions of this Lease except where specifically modified by this option shall apply; (b) Market Rental Value Adjustment (MRV) (1) If the option to extend is exercised and becomes effective, then on October 1, 2003 the Base Rent shall be adjusted to 95% of the "Market Rental Value" in accordance with the format set forth in Paragraph 3 of this Fifth Addendum to Lease but not less than the rent payable during September of 2003. This "Market Rental Value" shall become the new base rent for purposes of Paragraph 4 (c) (1) below. The Base Rent during the option period shall be adjusted using the method indicated below: (1) Cost of Living Adjustment (COL) (I) On April 1, 2006 the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for CPIU (All Urban Consumers), for Los Angeles, Anaheim and Riverside. All items (1982-1984 = 100), herein referred to as C.P.I." (ii) The Base Rent payable shall be calculated as follows: the Base Rent payable on March 1, 2006, shall be multiplied by a fraction the numerator of which shall be the C.P.I. of the calendar month 2 (two) months prior to the month (s) specified in this paragraph 4 during which the adjustment is to take effect, and the denominator of which shall be the C.P.I. of the calendar month which is two (2) months prior to October 1, 2003. The sum so calculated shall constitute the new Base Rent hereunder, but in no event, shall any such new Base Rent be less than 103% or more than 107% of the rent payable for the month immediately preceding the date for rent adjustment. (iii) In the event the compilation and/or publication of the C.P.I. shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the C.P.I, shall be used to make such calculation. In the event that Landlord and Tenant cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the C.P.I., shall be used to make such calculation. In the event that Landlord and Tenant cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitrators shall be paid equally by Landlord and Tenant. (d) All other options provided for in previous lease documents are superseded. 5. Security Deposit: The Security Deposit shall continue unchanged as set forth in the Lease and prior addenda. 6. Parking. Tenant shall have the use of 152 parking spaces. 7. Tenant's Proportionate Share: Tenant's Proportionate Share as referenced in Paragraph 60 of the Lease shall be increased to 100%. 8. Hazardous Substances: The following excerpt from the American Industrial Real Estate Association Standard Industrial/Commercial Single- Tenant Lease-Net form (1990)("AIR Lease Form") shall become part of the lease documents; the term "Lessor" shall mean Landlord and 6.2 Hazardous Substances. (a) Reportable Uses Require Consent. The term *by Lessee "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to the use or presence of any Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefrom or therefor, including, but not limited to, the installation (and removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding give * to, or received * from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees and lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 Lessee's Compliance with Law. Except as otherwise provided in this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Law," which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions or record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in the Lease(a)) shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused or materially contributed to by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 9. Maintenance and Repairs: The following excerpt from the AIR Lease Form shall become part of the lease documents; the term "Lessor" shall mean Landlord and "Lessee" shall mean Tenant. 7. Maintenance; Repairs. 7.1 Lessee's Obligations. **Lessee shall, at Lessee's sole cost and expenses and at all times, keep the Premises and every part thereof in good order, condition and repair, and non-structural (whether or not such portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, about, or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises, the elements surrounding same, or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. If Lessee occupies the Premises for seven (7) years or more Lessor may require Lessee to repaint the exterior of the buildings on the Premises as reasonably required, but not more frequently than once every seven (7) years. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any, located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance.*** **(a) Subject to the provisions of Paragraph 12 of Exhibit C to Lease dated 8-16-83 and paragraphs 11 (fire and casualty damage) and 13 (condemnation), *** Notwithstanding the preceding, Lessor shall continue providing the same services that it has provided prior to this Fifth Addendum, such services to be handled in accordance with the same billing procedure. The Parties hereto have signed this extension agreement this 5th day of July 1995. LANDLORD: TCLW/Fullerton, a By: Fullerton Industrial Properties, II California general partnership Managing General Partner By: Laskey-Weil II, general partner By: Laskey-Weil Co., general Partner By: Martin H. Weil Trustee of Weil Family Trust Its: General Partner Date: 7/5/95 TENANT: NELCO PRODUCTS, INC. a Delaware corporation By: Ron Hart Its: President Date: 6/30/95 EX-10.04 6 Exhibit 10.04 LEASE THIS INDENTURE, made this 15 day of February, A.D. 1983, by and between CMD SOUTHWEST, INC., an Arizona corporation, (hereinafter, for convenience, referred to as the "Lessor"), party of the first part and NELCO PRODUCTS, INC., a corporation organized and existing by and pursuant to the laws of the state of Delaware and will promptly qualify to do business in the State of Arizona, (hereinafter, for convenience, referred to as the "Lessee"), party of the second part; WITNESSETH: ARTICLE I THE LEASED PREMISES, FIXTURES AND EQUIPMENT: SEC. 101 THE LEASED PREMISES. That the Lessor, for and in consideration of TEN DOLLARS ($10.00), to it in hand paid by the Lessee, the receipt whereof is hereby acknowledged; and in consideration of the agreements, conditions, covenants and obligations to be kept, fulfilled, observed or performed by the Lessee, does hereby demise and lease, and the Lessee does hereby take and rent from the Lessor, in "As Is" condition (except as is otherwise set forth herein), and upon the terms herein set forth, approximately Fifty-one Thousand Nine Hundred Eighty-one (51,981) square feet of land, more specifically described on Exhibit "All attached hereto, which Exhibit is by this reference expressly made a part hereof, together with a building located thereon containing approximately Twenty-two Thousand Three Hundred Thirty-eight (22,338) square feet respectively and including all easements, improvements, tenements, appurtenances, hereditaments, fixtures, rights and privileges thereto belonging, or in any way appertaining and subject to any, restrictions. easements and encroachments as described herein and to any zoning ordinances, laws, rules or regulations of any Public Authority, now or hereafter in effect, relating to or affecting the Demised Premises; including, without limitation, all those indicated on Exhibit "A" and Schedule "6". The Demised Premises are commonly known as 1130 W. Geneva Drive, Tempe, Arizona 85282. SEC. 102:1. BUILDING FIXTURES AND EQUIPMENT. All fixtures, machinery and equipment which are necessary to the general operation and maintenance of the Demised Premises and which are now in the Demised Premises, shall be the property of the Lessor, whether owned by Lessor at the commencement of the term, subsequently purchased by Lessor, or required to be purchased by Lessee in accordance with the provisions of this Lease. Without in any way limiting the generality of the aforegoing, all electric power panels, lighting fixtures, plumbing, heating and air-conditioning equipment presently located in the Demised Premises shall be considered necessary to the general operation and maintenance of the Demised Premises. SEC. 102:2. TRADE FIXTURES. All trade fixtures, machinery, non- structural partitions and other equipment and items which are supplied, installed and used by Lessee in the conduct of its business, including process machinery and equipment, process piping and process electric switch gear (other than replacement of building equipment referred to above), which may hereafter be installed therein, shall be the property of Lessee and may be removed by Lessee at any time prior to or upon termination of the Lease, whether by lapse of time or otherwise; provided the Lessee is not, at any such time, in default of any of the terms or conditions of this Lease. Lessee shall remove, on demand by Lessor and at Lessee's expense, any and all such items at the termination of the Lease term, whether by lapse of time or otherwise, and repair any damage caused by such removal, restoring the Demised Premises to their condition prior to the installation of all such items or any of them. SEC. 103. "DEMISED PREMISES" and "IMPROVEMENTS" DEFINED. "Demised Premises" shall mean the premises described in Exhibit "A" and shall include any and all Improvements, now or hereafter, located or constructed thereon. "Improvements" shall mean all Buildings and other Improvements, now or hereafter located or constructed on the Demised Premises, including the Building, fixtures and equipment on such premises which are the property of Lessor as above described. ARTICLE 2 TERM POSSESSION: SEC. 201. TERM. The term of this Lease shall be for a period of Five (5) years, commencing upon March 1, 1983, and ending February 29, 1988, subject however to Lessee's options to extend the term as provided in Schedule 4. SEC. 202. HOLD-OVER TENANCY. In the event the Lessee remains in possession of the Demised Premises after the expiration of the term of this Lease, or any extension hereof, without written consent of Lessor, the Lessee shall then be obligated to pay double the rate of the then current annual rent as set forth herein, in equal installments on the first day of each calendar month, for so long as the Lessor is willfully kept out of possession of the Demised Premises. No such payment, nor the acceptance thereof, shall in any way constitute a waiver of the rights of Lessor to dispossess the Lessee and, recover possession of the Demised Premises and the just and former estate of the Lessor and to bring any action for damages suffered by Lessor on account of Lessee's failure to vacate the Premises. Notwithstanding the foregoing, in the event there is a dispute as to the "Market Rental", as such term is hereinafter defined, or if such "Market Rental" has not been determined prior to the time within which Lessee must exercise its second option to extend, as provided in Schedule 4, Lessee may elect to extend the then term of this Lease one (1) additional month on the Same terms and conditions and at the same rental as Lessee is then paying, by notifying Lessor of such election not less than sixty (60) days prior to the expiration of this Lease. ARTICLE 3 RENTAL: SEC. 301. RENTAL. The Lessee hereby covenants and agrees with the Lessor, as follows: To take and accept said demise and lease of the Demised Premises on the terms as herein set forth and to pay as Annual Net Basic Rent for said Demised Premises during the first three (3) years of the term of this Lease, the sum of Sixty-eight Thousand Three Hundred Fifty-four Dollars and Twenty- eight Cents ($68,354.28). Thereafter, the Annual Net Basic Rent to be paid for the Demised Premises during the next two (2) successive three (3) year periods and during the tenth (10th) year of the Lease, for so long as this Lease continues in full force and effect, shall be the greater of the following: (a) Sixty-eight Thousand Three Hundred Fifty-f our Dollars and Twenty-eight Cents ($68,354.28); or (b) An amount equal to the product of W the Annual Net Basic Rent payable with respect to the thirty-six (36) month period immediately preceding the March I as of which the adjustment is being made and (h) a fraction which has as its denominator the All Item Revised Consumer Price Index for All Urban Consumers - United States City Average (1967-100), issued by the Bureau of Labor Statistics, U.S. Department of Labor, published for the March thirty-six (36) months prior to the March as of which the adjustment is being made and, as its numerator, the sum of (A) said Index published for the March thirty-six (36) months prior to the March as of which the adjustment is being made and (B) fifty percent (50%) of the difference between (aa) said Index published for the March as of which the adjustment is being made and (bb) said Index published for the March thirty-six (36) months prior to the March as of which the adjustment is being made. Each adjustment as of a March 1 of a given year shall be applicable for the next succeeding thirty-six (36) months of the term of this Lease, except the adjustment for the period commencing March 1, 1992, shall be effective for the next succeeding twelve (12) months. The Annual Net Basic Rent due to be paid to Lessor for said Demised Premises during the eleventh (1lth) through the fifteenth (15th) years of the term of this Lease, shall be the "Market Rental", as that term is hereinafter defined. The Market Rental will be equal to the product of 22,338 multiplied by the market rate of rent per square foot for comparable warehouse/office space for a comparable lease term on the commencement date of the option term (hereinafter referred to as "Market Rate"). The Market Rate will be determined as hereinafter set forth without regard to (a) the rate of rent Lessee is then paying for the Demised Premises, and (b) the value of Lessee's improvements and trade fixtures. In the event Lessee desires to consider exercising its second option to extend as set forth in Schedule 4, Lessee shall submit to Lessor nine (9) months prior to the expiration of the then existing lease term, a written statement setting forth the Lessee's proposed Market Rate, which statement shall include the method used and assumptions made in arriving at such a rate. Lessor shall within twenty (20) days of receipt of the statement accept or reject the same or submit a revised statement of Market Rate which statement shall include the method used and assumptions made in arriving at such a rate. If Lessor accepts Lessee's statement of Market Rate, Market Rate shall be determined as set forth therein and Lessee shall, in the event it exercises its option to extend, pay to Lessor during the eleventh (11th) through the fifteenth (15th) years of the term of this Lease, Annual Net Basic Rent equal to the product of Market Rate times 22,338 square feet. If Lessor elects to submit a revised statement, Lessee shall within ten (10) days of receipt thereof either accept or reject the same. If Lessee accepts Lessor's revised statement of Market Rate, Market Rate shall be determined as set forth therein and Lessee shall, in the event it exercises its option to extend, pay to Lessor Annual Net Basic Rent determined as set forth above in this paragraph. If, however, Lessor rejects Lessee's statement of Market Rate or Lessee rejects Lessor's revised statement of Market Rate, the rejecting party shall name and appoint an independent M.A.I. appraiser and give written notice thereof to the non-rejecting party within five (5) days of the date of such rejection. The non-rejecting party shall, within five (5) days of the receipt of said notice of rejection, name and appoint another appraiser and give the rejecting party written notice thereof. Thereafter, said appraisers shall select a third appraiser. If said appraisers are unable to agree on the selection of a third appraiser within five (5) days, they shall jointly petition the Superior Court of the County of Maricopa, Arizona, for the appointment of a third appraiser. Thereupon, the said appraisers shall independently determine the market rate for leasing the Demised Premises. Their respective written reports of Market Rate shall be submitted to Lessor and Lessee not later than seven (7) months prior to the expiration of the then term or on such later date as Lessor and Lessee may mutually agree. Upon delivery of the aforesaid written reports of value, the Market Rate shall be computed as follows: (a) average the three appraisals and disregard the appraisal which deviates the greatest from the average; and (b) average the two remaining appraisals. The average of the two remaining appraisals shall constitute the Market Rate and shall be binding upon the Lessor and Lessee. In the event Lessee then exercises its option to extend, the exercise of which shall take place six (6) months prior to the expiration of the then existing lease term, Lessee shall pay to Lessor as provided herein Annual Net Basic Rent during the eleventh (11th) through the fifteenth (15th) years of the term of this Lease equal to the product of Market Rate times 22,338 square feet. The Lessor and Lessee shall each bear the fees, cost and expense of the appraiser selected by it, and the fees, costs and expenses of the appraiser appointed by the parties' appraisers shall be shared equally by Lessor and Lessee. Either party's failure to fully comply in a timely fashion with the provisions regarding determination of Market Rate shall be deemed an abandonment of this method of determining rental, and the Market Rate shall be determined solely by the nondefaulting party's appraiser. Thereafter, the Annual Net Basic Rent to be paid for the Demised Premises during the sixteenth (16th) through the twentieth (20th) years of the Lease shall be the greater of the following: (a) The Market Rental (as determined hereinabove); or (b) An amount equal to the product of the Market Rental multiplied by a fraction which has as its denominator the All Item Revised Consumer Price Index for All Urban Consumers -- United States City Average (1967--100), issued by the Bureau of Labor Statistics, U.S. Department of Labor, published for the month of March, 1993, and as its numerator, said Index published for the month of March, 1998. In the event that the Price Index hereinabove referred to ceases to incorporate a significant number of items contained therein in the Index last published prior to March 1, 1983, or if a substantial change is made in the method of establishing such Index, then the Index shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing such Index. In the event that such Index (or a successor or substitute Index) is not available, a reliable governmental or other non- partisan publication evaluating the information theretofore used in determining the Index, shall be used in lieu of such Index. All such rental required herein shall be paid in then lawful money of the United States of America in equal monthly installments; one installment to be paid upon the first day of each and every calendar month during the term hereof to the Lessor at such place as may, from time to time, be designated by them; and in the absence of such designation, at the last known office of the Lessor in Tempe, Arizona. Notwithstanding anything herein to the contrary, it is the intent of the parties that Lessee may use and occupy the Demised Premises during March and April, 1983, without the payment of Annual Net Basic Rent, subject however to all other terms and conditions of this Lease, including without limitation, the obligation to pay taxes, insurance and maintenance as set forth herein. It is intended that the rent provided for in this Lease shall be an absolutely net return to Lessor for the term of this Lease, and any renewals or extensions thereof, free of any and all expenses or charges with respect to the Demised Premises including, without limitation, any taxes and assessments, now or hereafter imposed upon or related to the Demised Premises, commonly known as real estate taxes, general or special or improvement assessments, and any taxes and assessments, whether by way of an income tax or otherwise which may be levied, assessed or imposed by the State in which the Demised Premises are located, or by any political or taxing subdivision thereof, upon the income arising from the rents provided herein in lieu of or as a substitute for taxes or assessments imposed upon or related to the Demised Premises and commonly known as real estate taxes; and that Lessee, and not Lessor, shall be required to, and shall pay, such taxes and assessments, but not to pay any other income tax, or franchise, gift, estate or transfer tax which may be levied against the Lessor, or any of Lessor's interest or mortgage payments, Lessor's expenses in negotiating this Lease, or management fees, if any, paid by Lessor to third parties. ARTICLE 4 TAXES, ASSESSMENTS, UTILITY CHARGES, INSPECTION FEES AND LIENS: SEC. 401. TAXES, ASSESSMENTS. The Lessee shall pay as additional rent, during the full term hereof, all taxes; including, without limitation, ad valorem general real estate taxes, installments of assessments, general and special, and all other public charges levied upon or assessed against and properly attributable to the Demised Premises, or any part thereof, or arising by reason of the existence, occupancy, use or possession of the Demised Premises, or the business carried on therein, including, without limitation, the Arizona Rental Income Tax, all of which are hereinafter, collectively referred to as "Taxes"; but not to pay any other income tax, or franchise, gift, estate or transfer tax which may be levied against the Lessor. The Lessee shall pay to Lessor, contemporaneously with the monthly rent payments One Twelfth (1-12th) of the estimated annual Taxes, such estimate to be made by Lessor. Upon receipt of the real estate tax bills each year the Lessor will make payment thereof and promptly provide Lessee with a copy of the receipted tax bill. Adjustments of amounts (credit or debit) shall be made between the parties within thirty (30) days of the receipt by Lessor, of any such bill. All Taxes shall be prorated for the first and last years of the term hereof and any extension or renewal thereof. Proration with respect to the Taxes for the last year of the term shall be made on the basis of the last available tax bill, provided, however, that upon receipt of the tax bill an appropriate adjustment shall be made. SEC. 402. UTILITY CHARGES. Lessee shall secure service and pay all charges for water, electricity, gas, telephone and any and all other utility services furnished to the Demised Premises. The Lessor, the Public Authorities and the Utilities servicing or located on the Demised Premises shall, at all reasonable hours, by its or their agents or employees, have the right to install, repair and replace the utility conduits, meters and other facilities located on the Demised Premises; it being understood and agreed, however, that the Lessor shall not be liable for the care, upkeep or maintenance of such facilities. SEC. 403. LICENSES, PERMITS AND FEES. All licenses, permits and fees of any kind or character whatsoever, imposed by the City, County, State or Federal Government, or any other governmental unit or Public Authority which are necessary for Lessee to conduct or operate its business or for inspection of the Demised Premises, or any part thereof during the term hereof, shall be paid promptly by Lessee prior to delinquency. SEC. 404. MECHANIC'S LIENS. Lessee shall not permit any liens to stand against the Demised Premises for any labor or material in connection with work of any character performed or claimed to have been performed on the Demised Premises at the direction or sufferance of Lessee (except work done by or at the direction of Lessor), whether such work was performed or furnished prior to, or subsequent to the commencement of the term of this Lease. In the event of any such lien attaching to the Demised Premises, Lessee will promptly notify Lessor of such event promptly upon Lessee's receipt of notice of same, and Lessee will pay off the same and have such lien released of record or shall bond over same within Thirty (30) days of Lessee's receipt of notice of the filing of such lien of record. SEC. 405. PAYMENT BY LESSOR. If at any time, any tax, assessment, charge, rate, fee or inspection fee, generally or specifically charged or assessed against and properly attributable to said Demised Premises shall become due or payable and the Lessee shall not pay the same or have paid same to Lessor;, or, in the event any lien for labor or material shall not be released of record or bonded over by Lessee as required by SEC. 404, the Lessor may, at its option, pay the same at any time thereafter without inquiring into the validity thereof, and the amount of any and all such payments so made by the Lessor (with interest thereon at Eighteen Percent (18%) per annum from and after the date paid by Lessor) shall be and hereby is declared to be so much additional and further rent for the Demised Premises, due from and payable by the Lessee with the next installment of rent and may be collected in the same manner as other rents due hereunder; provided, however, that subject to the further provisions hereinafter set forth, Lessee shall have the right, at Lessee's expense, to contest in good faith the validity of any Taxes, assessments, charges, liens, rates or fees so specifically charged or assessed against the Demised Premises; provided, however, that Lessee notifies Lessor in writing of Lessee's intention to so contest within Thirty (30) days in advance of the date such Taxes, assessments, charges, liens, rates or fees against the Premises were due and payable; and further provided that such contest is commenced within Thirty (30) days of the date of such notice. SEC. 406. CONTEST. In the event Lessee desires to contest any Taxes, assessments, charges, liens, rates or fees herein provided, it shall do so by paying the amounts under protest, or shall provide for the payment thereof, together with all penalties, interest, costs and expenses, by the deposit of a sufficient sum of money to be held in escrow by Lessor or, at the option of Lessor, by a good and sufficient undertaking as may be required or permitted by law, all to the end that no delinquency or proceedings based upon delinquency shall in anyway affect the title or interest of Lessor in the Demised Premises. Lessee agrees that it will prosecute any such contest with due diligence and in the event any such contest be adjudicated adversely to Lessee, that Lessee will, within Thirty (30) days after final determination, or within the time provided for in such adjudication, whichever is sooner thereof, pay the full amount of any such Taxes, assessments, charges, liens, rates or fees, or other obligations (not paid by Lessee to Lessor) which may have been the subject of such contest as so determined, together with all interest and penalties, costs and charges which may be payable in connection therewith and satisfy and cause the release of the same of record. Lessee shall keep the Lessor notified, from time to time throughout the period of its pendency, as to the progress and status of any such contest. If a final determination is not had within Three (3) years from the date of instituting any such contest, or in the event of any default of the Lessee, pursuant to the terms of this Lease, which is not cured within the applicable cure period provided in SEC. 1101, Lessor, at its option, may pay out of any funds held in escrow any such Taxes, assessments, charges, liens, rates or fees which may be under contest, together with all penalties, interest charges and other expenses whatever in connection with such contest. In the event the funds so held are insufficient to pay and satisfy the same, Lessor, at its option, may pay any deficiency and any amount so paid will be reimbursed by Lessee as additional rent due hereunder, promptly upon demand, notwithstanding any previous termination of the term of this Lease by lapse of time or otherwise, with interest at Eighteen Percent (18%) per annum from date of expenditure by Lessor. Nothing contained in this agreement shall be construed to authorize Lessee to create or incur on behalf of Lessor any liability, indebtedness or obligation whatsoever. Anything herein to the contrary, notwithstanding, Lessee shall defend, completely indemnify and hold Lessor forever harmless from any and all consequences of any such Taxes, assessments, charges, liens, rates or fees, or any contest thereof which were the obligations of Lessee to pay hereunder. ARTICLE 5 INSURANCE: SEC. 501. PROPERTY INSURANCE. The Lessee covenants and agrees that immediately upon the commencement of the term hereof, Lessee will cause, at Lessee expense, the Building and Improvements placed on the Demised Premises by the Lessor, including any and all additions thereto, to be insured for full replacement cost against loss or damage by fire, lightning and other casualty covered by the provisions of endorsements for Extended Coverage and Special Extended Coverage, to include the peril of collapse, vandalism and malicious mischief, replacement cost, and will keep insurance to the full replacement value, as reasonably determined by Lessor from time to time, of the Building and Improvements placed on said Demised Premises by Lessor, including any and all additions thereto, in full force and effect during the term hereof so long as this Lease is in effect, including all extensions hereof. No such policy of insurance shall include either the contents of the Building located on the Demised Premises or any other property of the Lessee or any third party except as a separate stated item of insurance, separate and in addition to the coverage which shall apply exclusively to Lessor's Building and other Improvements owned by Lessor. All such policies shall provide that Lessor and any Mortgagee(s) shall be the insureds as their interests appear, and shall further provide that any loss shall be payable to Lessor and any Mortgagee(s) notwithstanding any act or omission of Lessee which might otherwise result in a forfeiture or reduction of said insurance. In addition, Lessee shall maintain steam boiler insurance in such amounts as Lessor may from time to time reasonably require on all steam boilers, pressure boilers or such apparatus as Lessor may deem necessary to be covered by such insurance, if any. The Lessee will not place, nor permit to be placed, any other policies of insurance upon the Building or other Improvements placed upon Demised Premises by Lessor without advance written permission of Lessor and without Lessor and Lessor's Mortgagee(s) as a named insured, provided, however, that nothing herein shall be construed as limiting in any way the manner in which Lessee insures its property placed within the Demised Premises. SEC. 502. PUBLIC LIABILITY INSURANCE. Lessee, at Lessee's expense, and for mutual benefit of the Lessor and the Lessee, shall maintain Comprehensive Public Liability Insurance, covering the Demised Premises in an amount not less than ONE MILLION DOLLARS ($1,000,000). Such insurance shall include the following coverages: premises/operations, independent contractors, personal injury, broad form property damage and contractual liability. SEC. 503. INSURANCE GENERALLY. All insurance policies shall be with companies reasonably satisfactory to Lessor and shall provide for at least Thirty (30) days mandatory advance written notice to Lessor before cancellation, reduction or other amendment and the property policies shall, upon request of Lessor, contain a standard mortgage clause. Certificates evidencing such insurance shall be delivered by Lessee to Lessor at the commencement of the term of this Lease and all subsequent amendments and endorsements shall be promptly delivered to Lessor. Statements for premiums on such policies shall be sent to and paid by Lessee. In the event Lessee shall refuse or fail to provide the insurance coverage herein required or to provide evidence of such coverage as herein described, the Lessor may, at its election, but with no obligation so to do, procure and, from time to time, renew such insurance and all amounts expended therefor with interest thereon at Eighteen Percent (18%) per annum from the respective dates of such expenditures shall be so much additional rent hereunder due from the Lessee on demand. Lessee agrees to indemnify the Lessor for any loss suffered as the result of the exercise of any deductible feature that may be incorporated in the insurance contract and Lessor hereby reserves the right to disapprove the amount and provisions of any such deductible feature. Lessee agrees to be a self insurer as to such deductible amounts and further agrees to pay such amounts to Lessor in the same manner as though such insurance policies did not contain deductible provisions. ARTICLE 6 USE AND CONDITION OF THE DEMISED PREMISES: SEC. 601. DEMISED PREMISES. Lessee shall not breach or suffer the breach of any of the conditions, agreements and restrictions affecting the Demised Premises and described herein, and shall defend, completely indemnify and hold Lessor forever harmless from all consequences of any such breach. Lessee may use and occupy the Demised Premises for light manufacturing, (including mass lamination, manufacturing of copper clad boards, printing and etching of copper clad laminated boards and the manufacturing of pre- preg), storage, assembly, distribution and for offices in connection therewith; provided, however, that Lessee shall strictly comply with all present and future laws, ordinances and regulations of Public Authorities, as well as all insurance underwriting and inspection and rating requirements, now or hereafter in any manner affecting the use of the Demised Premises, the sidewalks, alleys, driveways and parkways adjacent thereto, if any, or any building thereon, or the use thereof. Lessee shall not permit any unlawful occupation, business, trade or nuisance to be conducted on the Demised Premises, or any use to be made thereof contrary to any law, ordinance or regulation. Without in any way limiting the generality of the aforegoing, Lessee will not, at any time, store any material or equipment of any kind or character outside the buildings located on the Demised Premises except in strict compliance with all applicable ordinances, laws or regulations of any governmental unit or Public Authority having jurisdiction. Lessee, at the sole cost and expense of Lessee, shall have the right to contest the validity of any such rules, laws, ordinances or regulations affecting the use of the Demised Premises; provided, however, in any event, that Lessee shall defend, completely indemnify and hold the Lessor forever harmless from all consequences of any such contest and the violation of any such rule, law, ordinance or regulation. Lessee will not use or permit to be used upon or in said Demised Premises or any building thereon anything that will invalidate any policy of insurance at any time insuring the Demised Premises, or any building(s) or improvements thereon, nor shall Lessee permit any dangerous condition to exist on the Demised Premises for which appropriate and sufficient safeguards have not been taken. Lessee shall not cause or suffer any signs to be erected upon the Demised Premises, nor upon any building(s) or improvements located thereon without the prior written approval of Lessor, which shall not be unreasonably withheld. Anything herein to the contrary, notwithstanding, Lessee shall not at any time overload any structural member (including, by way of illustration and not limitation, all roofs, columns, walls, beams, trusses and floors) of the building located on the Demised Premises; nor shall Lessee cause or suffer the demolition of the building(s) or improvements, or any part(s) thereof (except as provided in SEC. 603) without the prior written approval of Lessor. The Lessee further covenants and agrees that the entry into occupancy of the Demised Premises by the Lessee shall constitute an acknowledgment that the same and the buildings) and improvements thereon have been received by the Lessee in first-class condition and repair, subject to the warranties set forth herein. Lessor warrants and guarantees that the following shall be free from defects in material and workmanship to and including the periods set forth: Roof: June 8, 1984; Structural (foundation and exterior bearing walls) and mechanical and electrical systems (HVAC): June 8, 1983; Plumbing: June 8, 1983, provided however that drains are guaranteed to be free and clear flowing only at time of occupancy. SEC. 602. MAINTENANCE. During the term of this Lease and any extensions thereof, the Lessee shall maintain and preserve the Demised Premises and improvements thereon; including, without limitation, the interior and exterior of all Buildings thereon in first-class condition making all repairs, replacements and restorations necessary for such maintenance and preservation: including, without limitation, tuckpointing, painting, glass replacement, glazing caulking and the repair, replacement and restoration of the roof covering, docks, landscaping and parking areas. All repairs, replacements and restorations shall be in quality at least equal to the original construction. At the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the Demised Premises to the Lessor in first-class condition and repair as obtained therein at the commencement of the term of this Lease subject, however, to the loss or damage due to any casualty to the extent actually covered by then valid, in force, insurance policies to be obtained by Lessee as herein set forth, and normal wear and tear. Lessee shall be liable for any detoxification or other corrections which may be required by the Environmental Protection Agency or any other applicable public authority. Anything herein to the contrary, notwithstanding, Lessee will not suffer any waste to occur on the Demised Premises and will make every reasonable effort to prevent the Demised Premises from falling into disrepair; including, without limitation, the prompt performance of all repair, replacement and restoration obligations of Lessee as herein set forth. SEC. 603. ALTERATIONS. Lessee shall make no material alterations to the Demised Premises without prior written approval of Lessor, which shall not be unreasonably withheld. Lessor acknowledges that Lessee intends to penetrate the floor, may make changes in the elevation of portions of the floor and may penetrate the roof for lighting, ventilation, the construction of a treater tower and the heating and cooling of the Building within the Demised Premises in connection with Lessee's improving the Building within the Demised Premises and that such changes are acceptable provided they are properly engineered. Lessee shall remove, on demand by Lessor and at Lessee's expense, any and all alterations at the termination of this Lease, whether by lapse of time or otherwise, and shall repair any damage caused by such removal, restoring the Demised Premises to their condition prior to the making of any such alterations, or any of them. Any and all alterations, additions and improvements made to or placed upon the Demised Premises by the Lessee, or suffered by Lessee to be made to or placed upon the Demised Premises, as well as all fixtures and articles of personal property attached to or made a part of the Demised Premises, which Lessee has not removed or been required to remove by Lessor, shall immediately become the property of the Lessor at the termination of this Lease and shall be surrendered to the Lessor. Subject to the provisions hereinabove set forth, the Lessee may expend such additional sums of money upon the Demised Premises, the Building and Improvements on said Demised Premises as the Lessee may desire, with the full understanding that such additional sums so paid shall not be deducted from or set off against any rents or other payments due hereunder. SEC. 604. LESSOR'S RIGHT TO INSPECT AND REPAIR. Lessor, its agents and employees shall have the right, at any reasonable time, after notice to Lessee, to enter upon the Demised Premises to inspect the same, in the presence of an agent of Lessee. In the event Lessee fails to commence such repairs, replacements or restorations as are necessary to maintain the Demised Premises in first-class condition, within Thirty (30) days after notice from Lessor or fails to diligently prosecute the same to completion, the Lessor, at its option, but without any obligation so to do, may make such repairs, replacements, or restorations, and amounts expended for such work by the Lessor shall be reimbursed by the Lessee as additional rent due hereunder, promptly on demand, together with interest at Eighteen Percent (18%) per annum from date of expenditure. Anything herein to the contrary, notwithstanding, Lessor shall have the right, at any time, to enter upon the Demised Premises, but without any obligation so to do, in order to effect any repair, replacement or restoration of an emergency nature and Lessee shall reimburse Lessor as additional rent due hereunder, promptly upon demand, for expenditures incurred for such work and if Lessee knowingly denies Lessor such access, Lessee agrees to defend, indemnify And hold forever harmless the Lessor from and against any and all liability, fines, suits, claims, demands, actions, causes of action, losses, costs, damages, judgments and expenses of any kind or character, name or nature due to or arising directly or indirectly out of such emergency, which result from such denial of access. ARTICLE 7 INDEMNIFICATION AND HOLDING HARMLESS OF LESSOR: SEC. 701. INDEMNIFICATION. To the extent permitted by law, Lessee shall defend, completely indemnify and hold forever harmless the Lessor from and against any and all liability, fines, suits, claims, demands, actions, causes of action, losses, costs, damages, judgments and expenses of any kind or character, name or nature, due to or arising out of: (a) Any breach, violation or non-performance of any covenant, obligation, condition or agreement in this Lease set forth and contained on the part of the Lessee to be fulfilled, kept, observed or performed; and/or (b) any damage to, loss or destruction of any property arising directly or indirectly out of Lessee's use and occupancy of the Demised Premises; and/or (c) any injury to any person(s), including death, resulting at any time therefrom, occurring in or about the Demised Premises and/or the sidewalks, drive and alleyways, parkways, if any, and any and all other appurtenances thereunto appertaining. In the event the Lessor is made a party to any action or proceeding which Lessee is required to defend pursuant to the provisions of this Lease, the Lessor shall have the right to appear and to take part in any such action or proceeding by legal counsel of Lessor's choice at Lessor's cost and expense. Lessee and Lessor hereby agree to completely indemnify the prevailing party as to all costs and expenses incurred to enforce any of the terms, provisions, conditions or covenants of this Lease; including, but not limited to, attorney's fees. Nothing herein shall be construed as obligating the Lessee to indemnify or hold harmless any party from and against the consequences of intentional or negligent act or omission of the party to be indemnified. SEC. 702. LOSS OF PROPERTY. Lessee agrees that under no circumstances shall Lessor be liable to Lessee or any third party for any loss of, destruction of, damage to or shortage of any property on the Demised Premises; including, by way of illustration and not limitation, equipment, goods or merchandise placed on the Demised Premises or suffered to be placed thereon by Lessee, it being the intention of the parties hereto that the risk of any and all such loss, destruction, damage or shortage shall be borne by Lessee and Lessee agrees to defend, completely indemnify and hold Lessor forever harmless from and against any and all liability, suits, claims, demands, actions causes of action, losses, costs, damages, judgments and expenses arising out of such loss, destruction, damage or shortage. ARTICLE 8 DAMAGE OR DESTRUCTION OF BUILDINGS: SEC. 801. DAMAGE OR DESTRUCTION OF BUILDINGS. If any Building or Improvements placed by Lessor on the Demised Premises shall be injured or destroyed by fire or other casualty insured against pursuant to the terms of this Lease, the Lessor will, with due diligence and dispatch, proceed to collect the insurance thereon and if the Lessor elects to repair or restore such Building, the Lessor will apply the insurance monies derived from said polices to such repair and restoration. In the event that the monies realized from the insurance policies shall not be sufficient to restore such Building and/or Improvements to their condition immediately prior to such fire or other such casualty, the Lessor may, at the option of Lessor, advance the additional funds necessary therefor, and to the extent that the insufficiency of the insurance proceeds was due to the failure of Lessee to comply with the provisions of this Lease and to the extent of any deductible feature in the insurance coverage to be provided by the Lessee, the Lessee covenants and agrees to repay any such advance to the Lessor as additional rent due hereunder, promptly upon demand, with interest at the rate of Eighteen Percent (18%) per annum from the date of such expenditure. In the event Lessor does not elect to repair or restore such Building and/or Improvements within Thirty (30) days after such a casualty, such election to be evidenced by written notice to Lessee within said time period or if the repair or restoration cannot reasonably be accomplished within a period of one hundred twenty (120) days after such casualty, then in either of such events this Lease and the term hereof, may be terminated and cancelled at the election of either party hereto, provided written notice is given to the other party within Ten (10) days after the expiration of the last aforementioned such Thirty (30) day period. Absent such timely notice this Lease shall remain in full force and effect. ARTICLE 9 RENT ABATEMENT BECAUSE OF DAMAGE: SEC. 901. RENT ABATEMENT BECAUSE OF DAMAGE. In the event the Building and/or improvements on the Demised Premises shall be damaged by fire or other casualty covered by the provisions of the insurance policies then in effect as provided for herein, the Lessee shall not be required to pay rent on any untenantable portion of said Building and the rental reserved hereunder shall be reduced to the proportion that the square foot area of the Building remaining tenantable bears to the square foot area of the original Building. Such rental shall be increased pro rata, from time to time, if and when additional areas of the Building are returned to tenantable condition. ARTICLE 10 CONDEMNATION: SEC. 1001. AWARD. In the event the Demised Premises, or any part thereof, shall be condemned or taken for a public or a quasi-public use, or is sold by Lessor under threat of condemnation, any award made or sales price paid to compensate for the value of the Demised Premises, Building(s) and improvements thereon, or for damages to the remainder thereof shall be paid to the Lessor and Lessee shall have no claim thereto and the Lessee hereby irrevocably assigns and transfers to the Lessor any right to any such compensation or damage awards, providing, however, that Lessee shall have the right to prove in the proceeding and to receive any award which may be made for damages for or condemnation of Lessee's personal property, including trade fixtures and equipment, and relocation costs. In the event any or all of the Demised Premises shall be so condemned or taken, the Lessee shall execute and deliver to Lessor, promptly on demand, all documents necessary and proper to evidence the termination of the interest of the Lessee in and to the Demised Premises and this Lease, including, without limitation, a recordable release and cancellation of this Lease and a Quit Claim Deed. The failure of the Lessee to so execute and deliver such documents shall in no way affect such termination of this Lease and the interest of the Lessee in and to the Demised Premises. SEC. 1002. REMAINDER SUSCEPTIBLE OF OCCUPANCY. In the event a part of the Demised Premises remains which is susceptible of occupation for the uses set forth herein, this Lease shall, as to the part so taken, terminate as of the date Title shall vest in the condemning authority and the rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the term only such fractional portion of such rent as the area of the part of the Building located on the Demised Premises remaining after condemnation bears to the area of said Building as of the date of condemnation; and in such event, this Lease shall remain in force and effect and the Lessor shall promptly commence and diligently prosecute to completion the restoration of the Building so that it shall again constitute a complete architectural unit but the Lessee shall be required to pay only that fractional portion of the rent as is provided for hereinabove in this SEC. 1002. SEC. 1003. REMAINDER NOT SUSCEPTIBLE OF OCCUPANCY. In the event all of the Demised Premises, or such party thereof be taken or condemned so that there does not remain a portion susceptible for occupancy for the uses set forth herein, this Lease shall terminate upon the date the Title to the part taken vests in the condemning authority and Lessee's obligation to pay rent or to discharge any other obligation hereunder, other than the payment of money then due and damages arising out of any breach of the covenants, conditions or terms hereof by the Lessee, shall cease. Notwithstanding anything herein to the contrary, the Demised Premises shall not be deemed "susceptible for occupancy" in the event more than twenty-five percent (25%) of the area of the Building located on the Demised Premises is taken or condemned. ARTICLE II DEFAULT, BANKRUPTCY SEC. 1101. DEFAULT, BANKRUPTCY. It is mutually agreed and understood by and between the parties hereto that in the event during the term of this Lease, regardless of the pendency of any bankruptcy, insolvency, receivership or reorganization proceedings, in law, equity or before any administrative tribunal, or any other governmental entity which has prevented or which might prevent compliance by Lessee with the terms or provisions of this Lease: (1) Lessee shall default in the payment of any installment of rent or other payment required to be made by Lessee pursuant to the provisions of this lease and such default shall continue for Ten (10) days after notice of such default from Lessor to Lessee; or (2) Lessee shall make default in the provisions of any of the agreements, conditions, covenants or obligations hereunder to be kept, fulfilled, observed or performed by the Lessee and such default shall not be cured within Thirty (30) days after notice of such default from Lessor to Lessee. Anything hereinabove to the contrary, notwithstanding, as to any such default except the payment of any rent or other monies reserved herein, in the event the Lessee shall, within said Thirty (30) day period, commence the cure of such default and thereafter diligently pursue to completion any such cure as soon as reasonably practicable, the Lessor may not declare the term ended and this Agreement terminated and cancelled; or (3) if any voluntary petition or similar pleading under any bankruptcy act or any federal or state law seeking reorganization or arrangement with creditors or adjustment of debts is filed by Lessee, or if any such petition or pleadings is involuntary and Lessee is not discharged thereof within Thirty (30) days after the date of its filing; or (4) if Lessee admits its inability to pay its debts or if a receiver, trustee or other appointee of a court, administrative tribunal or other Public Authority is appointed for all or a substantial part of Lessee's property and if such appointment is not vacated within Thirty (30) days after being made; or (5) if the leasehold interest of Lessee is levied upon or attached by process of law, and such levy or attachment is not released of record within Thirty (30) days; or (6) if Lessee makes an assignment for the benefit of creditors, or if any proceedings are filed by or against Lessee to declare Lessee insolvent or unable to meet its debts and such proceedings are not discharged within Thirty (30) days after the date of their filing; or (7) if a receiver or similar type of appointment or court appointee or nominee of any name or character is made for all or a substantial part of Lessee's property and if such receiver is not discharged within Thirty (30) days after appointment; then, in any such event, Lessor shall have the right, at any time thereafter (but prior to any cure), with or without notice and at Lessor's election, to re-enter and take complete possession of the Demised Premises and any and all improvements then forming part of the Demised Premises and to declare the term of this Lease ended, whereupon this Lease and all the right, title and interest of Lessee hereunder and all of those claiming under Lessee, shall terminate and be of no further force or effect; or, without prejudice to Lessor's rights to re-enter and terminate, to take any action available to Lessor, all without such termination or action affecting Lessor's right of recovery of past due or future rents or other obligations of Lessee hereunder; including, but not limited to, damages arising out of any default on the part of the Lessee. Anything herein to the contrary, notwithstanding any payment of rent or any other payment to be made by the Lessee to Lessor, pursuant to the provisions of this Lease, shall bear interest at the rate of Eighteen Percent (18%) per annum from the date payment was due. In the event the right, title and interest of Lessee in and to the Demised Premises and this Lease is terminated, whether by lapse of time or otherwise, the Lessee shall execute and deliver to Lessor, promptly on demand, all documents reasonably requested by Lessor to evidence such termination: including, without limitation, a recordable release and cancellation of this Lease and a Quit Claim Deed. The failure of Lessee to so execute and deliver such documents shall in no way affect the termination of this Lease and the interest of the Lessee in and to the Demised Premises. SEC. 1102. NO WAIVER. No waiver by Lessor of any default by the Lessee of any of the obligations, agreements, conditions or covenants on the part of the Lessee to be fulfilled, kept, observed or performed hereunder shall be a waiver of any subsequent default or of any other obligation, agreement, condition or covenant, nor shall any forbearance by Lessor to seek a remedy for any default by Lessee be a waiver by Lessor of any of the rights and remedies available to Lessor hereunder or by law granted or permitted, with respect to such or any subsequent default. ARTICLE 12 TRANSFER, ASSIGNMENT, SUBLEASE SEC. 1201. TRANSFER, ASSIGNMENT, SUBLEASE. The Lessee may not assign, transfer, mortgage or pledge this Lease or the interest of the Lessee herein or hereunder or sublet Demised Premises or any portion thereof; without, in each case, the prior written consent of the Lessor which shall not be unreasonably withheld. Any purported assignment, mortgage, transfer, pledge or sublease without the prior written consent of Lessor shall be absolutely null and void and of no legal force or effect. SEC. 1202. INCREASED RENT TO LESSOR. As a condition precedent to the approval of any sublease, assignment or any other type of transfer by the Lessee to any third party of all or a portion of its interest in and to the Demised Premises pursuant to the provisions of this Lease, Lessee agrees that it will pay to the Lessor, contemporaneously with the rental payments due hereunder, Fifty Percent (50%) of any increased economic benefit received by Lessee, including, without limitation, rent in excess of the rent reserved herein and in the event less than all of the Demised Premises are so subleased, assigned or transferred in any way, the Lessee shall pay to the Lessor Fifty Percent (50%) of any increase in the square foot rate of rent paid to Lessee by any third party. The rent that Lessee pays to the Lessor for the purpose of this Section shall be calculated by dividing the monthly rent reserved herein by the square foot area of the building located on the Demised Premises as stated hereinabove. SEC. 1203. LESSOR MAY SELL, MORTGAGE, TRANSFER OR ASSIGN. Lessor shall have the right to sell, mortgage, pledge, hypothecate or in any other manner transfer or assign the interest of the Lessor in the Demised Premises and/or in the Lease, subject to all of the covenants and conditions of and Lessee's rights under this Lease. The term "Lessor", as used in this Lease, means only the owner for the time being of the Demised Premises and in the event of any sale, conveyance or other transfer of the Demised Premises, or the interest of Lessor in the premises of this Lease, the Lessor shall, upon purchaser's assumption, be entirely freed of all covenants and obligations of Lessor hereunder arising after the date of such sale, transfer assignment or conveyance. This Lease shall not be affected by any such sale and Lessee agrees to attorn to the purchaser or assignee. SEC. 1204. SUBORDINATION. This Lease shall be subject and subordinate to the lien of any mortgage or mortgages which at any time may be placed upon the Demised Premises by Lessor, its successors or assigns, and to any replacements, renewals or extensions thereof, provided that the holder of the encumbrance agrees to recognize for himself and its successors and assigns, Lessee's rights hereunder notwithstanding any foreclosure. Lessee agrees, at any time hereafter, on demand, to execute and deliver ) any instruments, releases or other documents that may be required for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage or mortgages, subject to the provisions set forth above. SEC. 1205. LESSEE'S ESTOPPEL LETTER. Lessee agrees at any time and from time to time upon not less than Ten (10) days prior written request by Lessor to execute, acknowledge and deliver to Lessor a statement in writing certifying whether this Lease is unmodified and in full force and effect (and if there have been modifications, stating the modifications), and the dates to which the basic rent and other charges have been paid in advance, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of the fee or mortgagee or assignee of any mortgage upon the fee of the Demised Premises. ARTICLE 13 MISCELLANEOUS: SEC. 1301. NOTICES. Any notice provided for herein shall be given by registered or certified mail addressed, if to Lessor, as follows: CMD SOUTHWEST, INC. 3225 S. Hardy Drive, Suite 105 Tempe, Arizona 85282 with a copy to: CMD SOUTHWEST, INC. One First National Plaza Chicago, Illinois 60603 Attention: Law Department and if to Lessee, as follows: NELCO PRODUCTS, INC. 1100 East Kimberly Avenue Anaheim, California 92801 Attention: E. P. Smoot, President with a copy to: PARK ELECTROCHEMICAL CORPORATION 475 Northern Boulevard Great Neck, New York 11021 Attention: Allen Levine, Corporate Controller SEC. 1302. CHANGE OF ADDRESS. The person and places to which notices or payments are to be mailed may be changed, from time to time, by Lessor or Lessee upon written notice to the other. SEC. 1303. MODIFICATION. This Lease may be modified only by written agreement signed by Lessor and Lessee. SEC. 1304. DESCRIPTIVE HEADINGS. The descriptive headings and index of this Agreement are inserted for convenience in reference only and do not constitute a part of this Agreement. SEC. 1305. SUCCESSORS AND ASSIGNS. This Lease and the covenants, terms, conditions and provisions hereof, shall be binding upon the respective parties hereto and upon their respective successors, assigns and personal representatives and shall inure to the benefit of said respective parties hereto and their said respective successors, assigns and personal representatives. Wherever in this Lease a reference to any of the parties hereto is made, such reference shall be deemed to include, wherever applicable and even though not expressly stated, also a reference to the successors, assigns and personal representatives of such party, as the case may be, the same as if in every case expressly stated. The phrase "successors and assigns" is used in this Lease in its broadest possible meaning and includes, in addition to administrators, trustees and conservators; every person, firm, corporation or other entity succeeding to the interest in or to this Lease, or any part thereof, or in or to any real estate, or any part or portion thereof, described or referred to herein or any part hereto, or of any of the successors or assigns of any such party, whether such succession results from the act of a party in interest, occurs by operation of law or is the effect of the operation of law together with any act(s) of any such party or parties. SEC. 1306. ENTRY TO SHOW PREMISES. Lessor, its agents or assigns may, from time to time, during the term of this Lease, and each and every extension hereof, enter the Demised Premises at reasonable times, after notice to, and in the company of Lessee, to show the same to prospective buyers or tenants. During the last Six (6) months of the term of this Lease or after the occurrence of any default on the part of the Lessee hereunder (and prior to the curing of such default), the Lessor hereby reserves the right to enter the Demised Premises, after notice to and in the company of Lessee, and to place, on the outer walls or roof of any building(s) located thereon and upon any part of the Demised Premises, outside such buildings), "For Sale" and/or "For Rent" signs of a type similar to those used in the area. Lessee agrees not to remove, interfere with, or obstruct the view of any such sign(s). SEC. 1307. TIME OF ESSENCE. Time is of the essence of this Lease and in all of the conditions, obligations, agreements, provisions, terms and covenants hereof. SEC. 1308. RESOLUTIONS. Lessee and Lessor shall, contemporaneously with the execution and delivery of this Lease, deliver to the other party a copy of a Resolution of each party's Board of Directors, specifically authorizing those officers whose names are subscribed hereto to enter into this Lease Agreement. Such Resolution shall make reference to this Lease, the Demised Premises, lease term and rental reserved, shall be duty certified to by the Secretary or Assistant Secretary of said Board of Directors and shall be appended hereto as Schedules I and 2 . SEC. 1309. UNENFORCEABILITY. In the event any covenant, term, provision, obligation, agreement or condition of this Lease is held to be unenforceable at law it is mutually agreed and understood, by and between the parties hereto, that the other covenants, terms, provisions, obligations, agreements and conditions herein contained shall remain in full force and effect. SEC. 1310. REAL ESTATE COMMISSION. Lessor and Lessee each respectively represent and warrant to the other that neither has employed the services of any real estate broker or similar agent for the purposes of procuring this Lease, other than Arizona Industrial Properties, which has been employed by and will be paid by Seller. In the event either party hereto has so employed any such other broker or agent, the party responsible for such employment shall indemnify, defend and hold the other forever harmless from and against any commissions, fees, brokerage or other compensation or for any claims for any such commission, fees, brokerage or other compensation due such other broker or agent arising out of this Agreement, and/or such employment. SEC. 1311. GOVERNING LAW. This Lease and the rights of the parties hereto shall be interpreted and determined in accordance with the laws of Arizona. SEC. 1312. ENTIRE AGREEMENT. This Lease contains the Entire Agreement between the parties respecting the matters herein set forth and supersedes all prior agreements between the parties hereto about such matters. SEC. 1313. ADDITIONAL TERMS. The Lessor hereby covenants, represents and warrants as follows: a. The Demised Premises consists of approximately 51,981 square feet of land on which there has been constructed a building containing approximately 22,338 square feet. b. The washrooms now in the building within the Demised Premises are connected to the sewer system of the City of Tempe by a four inch sewer line. c. Lessor has not received any notice of any violation of any zoning ordinances, building codes or other local, state and federal statutes, codes, ordinances, laws and regulations and has no knowledge of the existence of any such violation. Required lot splits will be obtained by Lessor, and Lessor will hold Lessee harmless from Lessor's failure to so do. All equipment within the Demised Premises is in good working order at the commencement of Lessee's occupancy of the Demised Premises. A Certificate of Occupancy has been issued with respect to the Improvements on the Demised Premises. d. The Demised Premises are not encumbered, except as set forth in this Lease. All due and payable real property taxes have been paid. e. At Lessee's request, Lessor shall promptly execute and acknowledge and deliver to Lessee a Memorandum of this Lease summarizing the material terms of this Lease. f. Lessor's covenants, representations and warranties shall be true on and as of the date hereof, on and as of March 1, 1983 and shall survive until the end of the term of this Lease. SEC. 1314. EXHIBITS AND SCHEDULES. The following Exhibits and Schedules are attached hereto and expressly made a part hereof, to wit: EXHIBIT A Description of Demised Premises SCHEDULE 1 Lessee's Resolution SCHEDULE 2 Lessor's Resolution SCHEDULE 3 Security Deposit SCHEDULE 4 Options to Extend Term SCHEDULE 5 Additional Work to be Performed by Lessor SCHEDULE 6 Salt River Project Easement SCHEDULE 7 Early Occupancy SCHEDULE 8 Covenant Not to Develop IN WITNESS WHEREOF, said Lessor and Lessee have caused this instrument to be executed by their respective duly authorized officers, all as of the day and year first above written. CMD SOUTHWEST, INC., Lessor /s/Vice President ATTEST: /s/Asst. Secretary NELCO PRODUCTS, INC., Lessee /s/ EP Smoot, President ATTEST:. /s/Harry Linzer, Secretary STATE OF ILLINOIS ) ) SS COUNTY OF COOK ) I, Dorothy F. Schultz, a Notary Public in and for the County and State aforesaid, DO HEREBY CERTIFY that James R. Rumbaugh, Vice President, and Brian L. Rieger, Asst. Secretary of the said CMD SOUTHWEST, INC., who are personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Vice President, and Asst. Secretary, appeared before me this day in person and acknowledged that they signed, sealed and delivered said instrument as their free and voluntary act and as the free and voluntary act of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this 24th day of A.D. 1983. /s/Dorothy F. Schultz Notary Public My Commission expires April 5, 1985 STATE OF NEW YORK ) ) SS COUNTY OF NASSAU ) I, Alan R. Lesh, a Notary Public in and for the County and State aforesaid, DO HEREBY CERTIFY that Harry Linzer, Secretary of the said NELCO PRODUCTS, INC., who are personally known to me to be the same persons whose names are subscribed to the foregoing instrument as such Secretary, appeared before me this day in person and acknowledged that they signed, sealed and delivered said instrument as their free and voluntary act and as the free and voluntary act of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this 15 day of February, A.D. 1983. Alan R. Lesh Notary Public My Commission expires March 30, 1984 STATE OF ) ) SS. County of ) I, , a Notary Public in and for the County and State aforesaid, DO HEREBY CERTIFY that E. P. SMOOT, President of NELCO PRODUCTS, INC., who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such President, appeared before me this day in person and acknowledged that he signed, sealed and delivered said instrument as their free and voluntary act and as the free and voluntary act of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this day of , 1983. My Commission Expires: State of California County of Orange I, Lynette Kirker, a Notary Public in and for the County and State aforesaid, DO HEREBY CERTIFY that E. P. Smoot, President of Nelco Products, Inc., proved to me on the basis of satisfactory evidence to be the same person whose name is subscribed to the foregoing instrument as such President, appeared before me this day in person and acknowledged that he signed, sealed and delivered said instrument as their free and voluntary act and as the free and voluntary act of said corporation, for the uses and purposes therein set forth. GIVEN under my hand and Notarial Seal this 22 day of February, 1983. /s/Lynette Kirker Notary Public My comm. expires April 27, 1984 SCHEDULE I LESSEE'S RESOLUTION: CERTIFICATE OF RESOLUTION OF NELCO PRODUCTS, INC. The undersigned, Harry Linzer, Secretary of Nelco Products, Inc., a Delaware corporation (hereinafter referred to as the "Corporation"), hereby certifies that the following resolutions were duly and regularly passed and adopted in all respects as required by law and the Bylaws of the Corporation and that such resolutions are still in full force and effect and have not been revoked: RESOLVED, that the Corporation should, and it hereby does, approve that certain Lease made the 15th day of February, 1983, by and between CMD Southwest, Inc., an Arizona corporation, as Lessor, and the Corporation, as Lessee, for a building containing approximately 22,338 square feet located on Lot 8 and the West 28.9 feet of Lot 9, Broadway Industrial Park Unit 4-A, as recorded in Book 228 of Maps, page 38, of the records of the Maricopa County, Arizona Recorder; and FURTHER RESOLVED, that E. P. Smoot, President of the Corporation, Richard Perry, Vice President/Finance of the Corporation, and Harry Linzer, Secretary of the Corporation, should be, and each of them acting alone hereby is, authorized to execute said lease on behalf of the Corporation. IN WITNESS WHEREOF, the undersigned has signed his name as Secretary of the Corporation on the 15 day of February, 1983. /s/ Harry Linzer SCHEDULE 2 LESSOR'S RESOLUTION: To Be Provided By Lessor CERTIFICATE OF RESOLUTION OF CMD SOUTHWEST, INC. I, Brian L. Rieger, do hereby certify that I am the duly elected and qualified Assistant Secretary of CMD Southwest, Inc., an Arizona corporation, and that the following resolutions were duly adopted by consent to corporate action by the directors of said corporation, and that such resolutions are presently in full force and effect and have not been revoked: RESOLVED, that the Corporation should, and it hereby does, approve that certain Lease made the 15th day of February, 1983, by and between Nelco Products, Inc., a Delaware corporation, as Lessee, and the Corporation, as Lessor, for a building containing approximately 22,338 square feet located on Lot 8 and the West 28.9 feet of Lot 9, Broadway Industrial Park Unit 4-A, as recorded in Book 228 of Maps, page 38, of the records of the Maricopa County, Arizona Recorder; and FURTHER RESOLVED, that G. G. Martin, President of the Corporation, J. R. Rumbaugh, Vice President of the Corporation, B. L. Rieger, Assistant Secretary of the Corporation, should be, and each of them acting alone hereby is, authorized to execute said lease on behalf of the Corporation. IN WITNESS WHEREOF, the undersigned has signed his name as Assistant Secretary of the Corporation this 27th day of February, 1983. /s/ Brian L. Rieger Assistant Secretary SCHEDULE 3 SECURITY DEPOSIT: Lessee has deposited the sum of Five Thousand Six Hundred Ninety-six Dollars and Nineteen Cents ($5,696.19) with the Lessor as security for the full and faithful performance by the Lessee of the terms of this Lease. It is agreed that in the event Lessee defaults in respect of any of the terms provisions and conditions of this Lease, including, but not limited to, the payment of rent and additional rent, Lessor may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Lessee is in default or for any sum which Lessor may expend or may be required to expend by reason of Lessee's default in respect of any of the terms, covenants and conditions of this Lease, including, but not limited to, any damages or deficiency accrued before or after summary proceedings or other reentry by Lessor. In the event that Lessee shall fully and faithfully comply with the terms, provisions, covenants and conditions of the Lease, the security shall be returned to Lessee promptly after the date fixed as the end of the Lease Term and after delivery of the entire possession of the Demised Premises to Lessor. In the event of a sale of the Demised Premises, Lessor then has the right to transfer the security to the purchaser, and upon such purchaser's assumption, Lessor shall thereupon be released by Lessee from all liability for return of such security and Lessee agrees to look to the new Lessor solely for return of said security. SCHEDULE 4 OPTIONS TO EXTEND TERM: Lessee, at its option, may extend the term of this Lease for three (3) additional five (5) year terms by delivering irrevocable notice thereof upon the Lessor at least Six (6) Months prior to the expiration of the then existing Lease Term, and upon delivery of said notice, the term of this Lease shall be extended for said additional five (5) year period upon the same terms without further action of the parties; subject, however, to the further provisions of this SCHEDULE 4 . RESTRICTIONS ON OPTIONS: Lessee may not exercise an Option if Lessee is in any way in default of any of the terms, conditions or covenants contained in this Lease beyond an applicable cure period, and the occurrence of any default by Lessee from and after the date of notice of exercise of an Option and Lessee's subsequent failure to cure said default within the applicable period, shall result in the immediate termination forever of the Options, and all rights of Lessee as set forth in this Schedule without further action of the parties and all without prejudice to the other rights of Lessor. The Options are for the sole benefit of the above named Lessee and shall automatically terminate upon any assignment of this Lease, sublease of the Demised Premises, or other transfer of this Lease and/or the rights of Lessee, provided however, that Lessee shall have the right to exercise only the next available option to extend the term an additional five (5) years in the event Lessee assigns or subleases this Lease, pursuant to the provisions of SEC. 1201, subject however, to the following terms and conditions: 1) This right to exercise one (1) option to extend the term in the event of an assignment or sublease is a one time right, and shall not be applicable in the event of any subsequent assignments or subleases; 2) Notwithstanding the provisions of Article 3 with regard to determining the Annual Net Basic Rent, the Annual Net Basic Rent during the extended term if this option is exercised following an assignment or sublease, shall be the "Market Rental", and shall be determined substantially in accordance with the procedures set forth on pages 3 and 4 of this Lease for determining Market Rental. 3) Notwithstanding the provisions of SEC. 1202, as a condition precedent to the approval of any sublease, assignment or any other type of transfer by the Lessee to any third party of all or a portion of its interest in and to the Demised Premises pursuant to the provisions of this Lease, Lessee agrees that it will pay to the Lessor, contemporaneously with the rental payments due during the five (5) year option period, any amounts Lessee may receive in excess of the Market Rental as determined aforesaid, and in the event less than all of the Demised Premises are so subleased, assigned or transferred in any way, the Lessee shall pay to the Lessor any increase in the square foot rate of rent paid to Lessee during this option period by any third party. SCHEDULE 5 ADDITIONAL WORK TO BE PERFORMED BY LESSOR: Upon execution of this Lease agreement, Lessor shall immediately undertake the installation or construction of the following improvements: 1. Change the existing electrical service in the Building to 1,000 amps at 277/480 VT, provide a 100 amp main disconnect switch and step down transformer to serve the existing building electrical system, provide a 400 amp main disconnect switch for use by Lessee, provide two 200 amp and one 100 amp main disconnect switches for use by Lessee, switch the transformer from 208 three phase to 277/480 volt three phase and mount a transformer to service the existing power distribution panel. 2. Construct a truck well in the location cross-hatched below, with a hinged dock plate which can be manually operated. Such improvements shall be deemed fixtures and shall be installed at Lessor's cost and expense and shall be completed promptly, and with due diligence, unless delayed at any time by reason of strikes, labor disputes, unavailability of materials and/or labor, governmental laws or regulations, riots, acts of a public enemy, national emergency, flood or other casualty, or other causes beyond Lessor's reasonable control. Such improvements are the property of Lessor. Schedule 6 EASEMENT Southwest, Inc., an Arizona corporation, CMD, a Delaware corporation for an in consideration of the sum of One Dollar, and other valuable consideration, receipt of which is hereby acknowledged, do hereby grant to the Salt River Project Agricultural Improvement and Power District, a political subdivision of the State of Arizona, its successors and assigns, the non-exclusive right, easement and privilege to construct, operate and maintain underground electrical conduits, together with its manholes, transformer pads and vaults and other appurtenances through, over, under and across the following described property: The West 8.5 feet of the North 25.0 feet of the South 33.0 feet of Lot 8, BROADWAY INDUSTRIAL PARK UNIT 4A, according to the plat of record in Book 228 of Maps, page 38 records of Maricopa County, Arizona. Caution: The above described easement contains high voltage electrical equipment and notice is hereby given that the location of underground electrical conduits may vary from the locations indicated in the above description, therefore all persons who may excavate in the area must accordingly proceed with caution. The GRANTEE shall at all times have the right of full and free ingress and egress to said easement for the purpose heretofore specified, and the right to permit other utility companies to use the right of way jointly with the Grantee for their utility purposes. In the event the right, privilege and easement herein granted shall be abandoned and permanently cease to be used for the purpose herein granted, all rights herein granted shall cease and revert to the grantors, their heirs or assigns. The covenants and agreements CAUTION: The above described easement contains high voltage electrical equipment and notice Is hereby given that the location of underground electrical conduits may vary from the locations indicated in the above description,therefore all persons who may excavate in the area must accordingly proceed with caution. The GRANTEE shall at all times have the right of full and free ingress and egress to said easement for the purpose heretofore specified. and the right to permit other utility companies to use the right of way jointly with the Grantee for their utility purposes. In the event the right. privilege and easement herein granted shall be abandoned and permanently cease to be used for the purpose herein granted, all rights herein granted shall cease and revert to the grantors, their heirs or assigns. The covenants and agreements herein set forth shall extend and inure in favor and to the benefit of and shall be binding on the heirs, successors in ownership and estate assigns and lessees of the respective parties hereto. IN WITNESS WHEREOF, CMD SOUTHWEST, INC. an Arizona Corporation has caused its corporate name to be signed and its corporate seal to be affixed by the undersigned officers thereunto duly authorized, this 10th day of June 1982. /s/President State of Arizona County of Maricopa and notarized SCHEDULE 7 EARLY OCCUPANCY: Anything herein to the contrary notwithstanding, upon execution of this Lease it is understood and agreed that the Lessee shall have the right, upon reasonable prior notice to Lessor and subject to any required approval of public authority having jurisdiction, to enter upon the Demised Premises for the purpose of preparing the premises for Lessee's occupancy, provided however that Lessee's presence shall not cause any delay or interference with Lessor's timely completion of the Improvements. SCHEDULE 8 COVENANT NOT TO DEVELOP: In the event Lessor desires to develop or sell, prior to February 28, 1985, approximately 58,247 square feet of vacant land located immediately north of the Demised Premises (the "Parcel") and legally described as: Lots 2 and 3, Unit 4-A, Broadway Industrial Park, as recorded in Book 228 of Maps, Page 38, Maricopa County, Arizona, Records, EXCEPT the easternmost 162 feet of Lot 2 and the westernmost 190 feet of Lot 3, Lessor shall first notify Lessee in writing of such desire not less than thirty (30) days prior to the date Lessor commences such development or offers the Parcel for sale. The parties acknowledge that Lessor has no obligation to sell the Parcel to Lessee, and that Lessee has no rights to acquire the Parcel or affect its development. EX-10.09(B) 7 Exhibit 10.09(b) SECOND AMENDMENT TO LEASE This SECOND AMENDMENT TO LEASE ("Second Amendment") is made on this 24 day of March, 1995 between CMD SOUTHWEST ONE, an Illinois limited partnership ("Lessor"), and NELCO TECHNOLOGY, INC., an Arizona corporation ("Lessee"). A. Lessor and Lessee previously entered into that certain Lease dated March 14, 1988 ("Original Lease"), as amended by that certain First Amendment to Lease dated December 10, 1992 ("First Amendment") for the lease of the premises commonly known as 11 17 West Fairmont, Tempe, Arizona. The Original Lease and the First Amendment are hereinafter collectively referred to as "Lease". B. Lessor and Lessee now desire to amend the Lease, subject to the terms and conditions set forth in this Second Amendment. Lessor and Lessee agree as follows: 1 . Definitions. All of the terms used in this Second Amendment shall have the same meanings set forth in the Lease, except to the extent expressly set forth otherwise herein. 2. First Extension Term. Section 2 of the First Amendment is hereby deleted in its entirety and replaced with the following: "The term of the Lease is hereby extended ("First Extension Term") until 11:59 P.M. (local time at the Demised Premises) on the date immediately preceding the tenth anniversary of the Substantial Completion Date (as hereinafter defined) ("Termination Date"). The term "Substantial Completion Date" shall mean the date certified in writing by Fulton Architects that: the work described in those certain plans and specifications prepared by Fulton Architects, and attached hereto as Exhibit A, to be performed in that certain premises commonly known as 1131 West Fairmont, Tempe, Arizona 85282, pursuant to the terms of that certain Lease between CMD Southwest Inc. and Lessee for the lease of the premises commonly known as 1131 West Fairmont, Tempe, Arizona 85282, is substantially complete." 3. First Extension Term Annual Net Basic Rent. Section 3 of the First Amendment is hereby deleted in its entirety and replaced with the following: "During the period commencing on the Substantial Completion Date, Lessee shall pay to Lessor ("Annual Net Basic Rent") in equal monthly installments ("Monthly Net Basic Rent") as follows: Lease Monthly Net Annual Year Basic Rent Basic Rent Years 1-3 $6,750 $ 81,000 Years 4-6 $7,500 $ 90,000 Years 7-9 $8,400 $100,800 Year 10 $9,500 $114,000 The term "Lease Year" shall mean each twelve (12) month period throughout the First Extension Term of this Lease beginning with the Substantial Completion Date. Such Annual Net Basic Rent shall be paid to Lessor in equal monthly installments on or be the first day of the First Extension Term and on or before the first day of each successive calendar month throughout the First Extension Term." 4. Second Extension Term. The Second Option to Extend Term in Schedule 6 the Lease is hereby deleted and replaced with the following: "A. Provided that this Lease is in full force and effect and Lessee is not in default under any terms and conditions of this Lease as of the date of the Second Extension Option Notice (as hereinafter defined) and as of the Second Extension Term Commencement Date (as hereinafter defined) and subject to the terms herein, Lessee shall have the right ("Second Extension Option") to extend the term of the Lease for the period ("Second Extension Term") commencing on and including the Second Extension Term Commencement Date and ending at 11:59 P.M. (local time at the Demised Premises) on the Second Extension Term Expiration Date (as hereinafter defined). Lessee shall exercise the Second Extension Option, if at all, by delivering written notice of such exercise ("Second Extension Option Notice") on or before the 270th day prior to the Termination Date. If Lessee fails to deliver the Second Extension Option Notice the Lessor on or before the 270th day prior to the Termination Date, Lessee shall be deemed to have forever waived any and all rights to extend the term of this Lease. (i) The phrase "Second Extension Term Commencement Date means the first day following the Termination Date. (ii) The phrase "Second Extension Term Expiration Date" means the day immediately preceding the fifth anniversary of the Second Extension Term Commencement Date. B. For the period commencing on the Second Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the Second Extension Term Commencement Date, the annual net rent shall be the prevailing Market Rate (as defined below) as of Second Extension Term Commencement Date. Notwithstanding anything contained herein or in the Lease to the contrary, in no event shall the annual net rent for such period be less than $114,000.00. (i) The Market Rate will be determined as hereinafter set forth without regard to (i) the rate of rent Lessee is then paying for the Demised Premises, and (ii) the value of Lessee's improvements and trade fixtures. In the event Lessee desires to exercise the Second Extension Option, Lessee shall submit to Lessor, simultaneously with the delivery of the Second Extension Option Notice, a written statement setting forth Lessee's proposed Market Rate, which statement shall include the method used and assumptions made in arriving at such a rate. Lessor shall within twenty (20) days of receipt of the statement accept or reject the same or submit a revised statement of Market Rate which statement shall include the method used and assumptions made in arriving at such a rate. If Lessor accepts Lessee's statement of Market Rate, the Market Rate shall be that contained in Lessee's statement of Market Rate and Lessee shall pay to Lessor, commencing on the Second Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the Second Extension Term Commencement Date, annual net rent equal to the product of Market Rate times 13,180 square feet. If Lessor elects to submit a revised statement, Lessee shall within ten (10) days of receipt thereof either accept or reject the same. If Lessee accepts Lessor's revised statement of Market Rate, the Market Rate shall be that contained in Lessor's revised statement of Market Rate and Lessee shall pay to Lessor annual net rent as described above in this paragraph. If, however, Lessor rejects Lessee's statement of Market Rate or Lessee rejects Lessor's revised statement of Market Rate, the rejecting party shall name and appoint an independent M.A.I. appraiser and give written notice thereof to the non-rejecting party within five (5) days of the date of such rejection. The non-rejecting party shall, with five (5) days of the receipt of said notice of rejection, name and appoint another appraiser and give the rejecting party written notice thereof Thereafter, said appraisers shall select a third appraiser. If said appraisers are unable to agree on the selection of a third appraiser within five (5) days, they shall jointly petition the Superior Court of the County of Maricopa, Arizona, for the appointment of a third appraiser. Thereupon, the said appraisers shall independently determine the Market Rate for leasing the Demised Premises. Their respective written reports of Market Rate shall be submitted to Lessor and Lessee not later than six (6) months prior to the Termination Date. Upon delivery of the aforesaid written reports of value, the Market Rate shall be computed as follows: (i) average the three appraisals and disregard the appraisal which deviates the greatest from the average; and (ii) average the two remaining appraisals. The average of the two remaining appraisals shall constitute the Market Rate and shall be binding upon Lessor and Lessee. Lessee shall pay to Lessor as provided herein annual net rent, commencing on the Second Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the Second Extension Term Commencement Date, equal to the product of Market Rate times 13,180 square feet. Lessor and Lessee shall each bear the fees, cost and expense of the appraiser selected by it, and fees, costs and expenses of the appraiser appointed by the parties' appraisers shall be shared equally by Lessor and Lessee. Either party's failure to fully comply in a timely fashion with the provisions regarding determination of Market Rate shall be deemed an abandonment of this method of determining rental, and the Market Rate shall be determined solely by the non-defaulting party's appraiser. C. For the period commencing on the third anniversary of the Second Extension Term Commencement Date and ending on the Second Extension Tenn Expiration Date, the annual net rent shall be the product obtained by multiplying the amount of annual net rent in effect in the year immediately preceding the third anniversary of the Second Extension Term Commencement Date by 1.15. D. Except to the extent set forth otherwise herein, all of the terms of the Lease shall apply during the Second Extension Term." 5. Third Extension Term. A. Provided that Lessee shall have exercised the Second Extension Option and that this Lease is in full force and effect and Lessee is not in default under any terms and conditions of this Lease as of the date of the Third Extension Option Notice (as hereinafter defined) and as of the Third Extension Term Commencement Date (as hereinafter defined) and subject to the terms herein, Lessee shall have the right ("Third Extension Option") to extend the term of Lease for the period ("Third Extension Term") commencing on and including the Third Extension Term Commencement Date and ending at 11:59 P.M. (local time at the Demised Premises) on the Third Extension Term Expiration Date (as hereinafter defined). Lessee shall exercise the Third Extension Option, if at all, by delivering written notice of such exercise ("Third Extension Option Notice") on or before the 270th day prior to the Second Extension Term Expiration Date. If Lessee fails to deliver the Third Extension Option Notice to Lessor on or before the 270th day prior to the Second Extension Term Expiration Date, Lessee shall be deemed to have forever waived any and all rights to extend the term of this Lease. (a) The phrase "Third Extension Term Commencement Date" means the first day following the fifth anniversary of the Termination Date. (b) The phrase "Third Extension Term Expiration Date" means the day immediately preceding the fifth anniversary of the Third Extension Term Commencement Date. B. For the period commencing on the Third Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the Third Extension Term Commencement Date, the annual net rent shall be the prevailing Market Rate as of Third Extension Term Commencement Date. Notwithstanding anything contained herein or in the Lease to the contrary, in no event shall the annual net rent during the Third Extension Term be less than that in effect on the last day of the Second Extension Term. Market Rate shall be determined in the same manner as provided for the Second Extension Term, except that all references to "Second Extension Option," "Second Extension Term Commencement Date" and "Second Extension Option Notice" shall mean "Third Extension Option," "Third Extension Term Commencement Date" and "Third Extension Option Notice," respectively. C. For the period commencing on the third anniversary of the Third Extension Term Commencement Date and ending on the Third Extension Term Expiration Date, the annual net rent shall be the product obtained by multiplying the amount of annual net rent in effect in the year immediately preceding the third anniversary of the Third Extension Term Commencement Date by 1. 15. D. Except to the extent set forth otherwise herein, all of the terms of the Lease shall apply during the Third Extension Term. 6. Full Force and Effect. Except to the extent expressly provided otherwise in this Second Amendment, all of the terms and conditions set forth in the Lease shall remain in full force and effect. 7. Conflicts. In the event that any of the provisions of the Lease conflict with any of the terms and provisions of this Second Amendment, the terms and provisions of this Second Amendment shall prevail. LESSOR: CMD SOUTHWEST ONE, an Illinois limited partnership By CMD SOUTHWEST, INC., an Arizona corporation By: /s/ Its: President LESSEE: NELCO TECHNOLOGY, INC., an Arizona corporation By: Kevin Brumbaugh Its: Vice President/General Manager EX-10.09(C) 8 Exhibit 10.09(c) THIRD AMENDMENT TO LEASE This THIRD AMENDMENT TO LEASE ("Third Amendment") is made on this 18th day of January, 1996 between CMD SOUTHWEST ONE, an Illinois limited partnership ("Lessor"), and NELCO TECHNOLOGY, INC., an Arizona corporation ("Lessee"). A. Lessor and Lessee previously entered into that certain Lease dated March 14, 1988 ("Original Lease"), as amended by that certain First Amendment to Lease dated December 10, 1992 ("First Amendment") and by that certain Second Amendment to Lease dated March 24, 1995 ("Second Amendment") for the lease of the premises commonly known as 11 17 West Fairmont, Tempe, Arizona according to the terms thereof The Original Lease, as amended by the First Amendment and Second Amendment, is referred to herein as "Lease". B. Lessor and Lessee now desire to amend the Lease, subject to the terms and conditions set forth in this Third Amendment. In consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows: 1. Definitions. All of the terms used in this Third Amendment shall have the same meanings set forth in the Lease, except to the extent expressly set forth otherwise herein. 2. First Extension Term. Section 2 of the Second Amendment is hereby amended as follows: (a) Substantial Completion Date. Notwithstanding anything contained in the Lease to the contrary, the term "Substantial Completion Date" shall mean December 8, 1995. (b) Termination Date. Notwithstanding anything contained in the Lease to the contrary, the term "Termination Date" shall mean December 31, 2005. 3. Full Force and Effect. Except to the extent expressly provided otherwise in this Third Amendment, all of the terms and conditions set forth in the Lease shall remain in full force and effect. 4. Conflicts. In the event that any of the provisions of the Lease conflict with any of the terms and provisions of this Third Amendment, the terms and provisions of this Third Amendment shall prevail. 5. Time of Essence. Time is of the essence of each and every term of this Third Amendment. IN WITNESS WHEREOF, said Landlord and Tenant have caused this instrument to be executed by their respective duly authorized officers, all as of the day and year first written above. LESSOR: CMD SOUTHWEST ONE, an Illinois limited partnership By: CMD SOUTHWEST INC. Its: General Partner By: /s/ Its: President LESSEE: NELCO TECHNOLOGY, INC., an Arizona corporation By: /s/Kevin Brumbaugh Its: VP/GM EX-10.11 9 EXHIBIT 10.11 LEASE THIS INDENTURE, made this 31 day of August, A.D. 1989, by and between Cemanudi Associates, an Illinois Limited Partnership, (hereinafter, for convenience, referred to as the "Lessor"), and Nelco Technology, Inc., a corporation organized and existing by and pursuant to the laws of the state of Arizona, (hereinafter, for convenience, referred to as the "Lessee"). WITNESSETH: ARTICLE I THE LEASED PREMISES, FIXTURES AND EQUIPMENT: SEC. 101. THE LEASED PREMISES. That the Lessor, for and in consideration of TEN DOLLARS ($10.00), to it in hand paid by the Lessee, the receipt whereof is hereby acknowledged; and in consideration of the agreements, conditions, covenants and obligations to be kept, fulfilled, observed or performed by the Lessee, does hereby demise and lease, and the Lessee does hereby take and rent from the Lessor, in "As Is" condition and upon the terms herein set forth, approximately 38,311 square feet of land, more specifically described on Exhibit "A" attached hereto, which Exhibit is by this reference expressly made a part hereof, together with a building located thereon containing approximately 13,995 square feet (the "Building") and including all easements, improvements, tenements, appurtenances, hereditaments, fixtures, rights and privileges thereto belonging, or in any way appertaining and subject to any restrictions, easements and encroachments and to any zoning ordinances, laws, rules or regulations of any Public Authority, now or hereafter in effect, relating to or affecting the Demised Premises; including, without limitation, all those indicated on Exhibit "A". The Demised Premises are commonly known as 1104 West Geneva Drive, Tempe, Arizona 85282. SEC. 102:1. BUILDING FIXTURES AND EQUIPMENT. All fixtures, machinery and equipment which are necessary to the general operation and maintenance of the Demised Premises and which are now in the Demised Premises, shall be the property of the Lessor, whether owned by Lessor at the commencement of the term, subsequently purchased by Lessor, or purchased by Lessee in accordance with the provisions of this Lease. Without in any way limiting the generality of the aforegoing, all electric power panels, lighting fixtures, plumbing, heating and air-conditioning equipment presently located in the Demised Premises shall be considered necessary to the general operation and maintenance of the Demised Premises. SEC. 102:2. TRADE FIXTURES. Only those trade fixtures, machinery, non-structural partitions and other equipment and items which are supplied, installed and used by Lessee in the conduct of its business, including process machinery and equipment, process piping and process electric switch gear (other than replacement of building equipment referred to above), which may hereafter be installed therein, shall be the property of Lessee and may be removed by Lessee at any time prior to or upon termination of the Lease, whether by lapse of time or otherwise; provided the Lessee is not, at any such time, in default of any of the terms or conditions of this Lease. Lessee shall remove, on demand by Lessor and at Lessee's expense, any and all such items at the termination of the Lease term, whether by lapse of time or otherwise, and repair any damage caused by such removal, restoring the Demised Premises to their condition prior to the installation of all such items or any of them. SEC. 103. "DEMISED PREMISES" and 'IMPROVEMENTS" DEFINED. "Demised Premises" shall mean the real estate described in Exhibit "A" and shall include any and all Improvements, now or hereafter, located or constructed thereon. "Improvements" shall mean all buildings and all other improvements, (except for Lessee's trade fixtures) now or hereafter located or constructed on the Demised Premises, including, without limitation, the Building, fixtures, other structures and equipment on such premises which are the property of Lessor as above described in Sec. 102:1. ARTICLE 2 TERM POSSESSION: SEC. 201. TERM. The term of this Lease shall be for a period of Five (5) years commencing upon September 1, 1989 and ending at midnight August 31, 1994 subject to the further provisions of this Lease. SEC. 202. HOLD-OVER TENANCY. In the event the Lessee remains in possession of the Demised Premises after the expiration of the term of this Lease, or any extension hereof, without written consent of Lessor, the Lessee shall then be obligated to pay double the rate of the then current annual rent as set forth herein, in equal installments on the first day of each calendar month, for so long as the Lessor is willfully kept out of possession of the Demised Premises. No such payment, nor the acceptance thereof, shall in any way constitute a waiver of the rights of Lessor to dispossess the Lessee and recover possession of the Demised Premises and the just and former estate of the Lessor and to bring any action for damages suffered by Lessor on account of Lessee's failure to vacate the Premises. Notwithstanding the foregoing, in the event there is a dispute as to the "Market Rental", as such term is hereinafter defined, or if such "Market Rental" has not been determined prior to the time within which Lessee must exercise its second option to extend, as provided in Schedule 3, Lessee may elect to extend the then term of this Lease one (1) additional month on the same terms and conditions and at the same rental as Lessee is then paying, by notifying Lessor of such election not less than sixty (60) days prior to the expiration of the Lease. ARTICLE 3 RENTAL: SEC. 301. RENTAL. The Lessee hereby covenants and agrees with the Lessor, as follows: The following terms shall have the following respective meanings for the purpose of this lease: (a) Consumer Price Index. The term "Consumer Price Index means the United States All Items Consumer Price Index (1982-1984=100), All Urban Consumer Section, as published by the United States Department of Labor, Bureau of Labor Statistics. If the manner in which the Consumer Price Index is determined by the Bureau of Labor Statistics shall be substantially revised, including without limitation, a change in the base index year, an adjustment shall be made by Lessor in such revised index which would produce results equivalent, as nearly as possible, to those which would have been obtained if such Consumer Price Index had not been so revised. If the Consumer Price Index shall become unavailable to the public because publication is discontinued, or otherwise, or if equivalent data is not readily available to enable Lessor to make the adjustment referred to in the preceding sentence, then Lessor will substitute therefor a comparable index based upon changes in the cost of living or purchasing power of the consumer dollar published by any other governmental agency or, if no such index shall be available, then a comparable index published by a major bank or other financial institution or by a university or a recognized financial publication. (b) CPI Adjustment. The term "CPI Adjustment" means the percentage increase, if any, in the Consumer Price Index for the calendar month of July, 1991 over the Consumer Price Index for the calendar month of August, 1989. The Lessee hereby covenants and agrees with the Lessor, as follows: To take and accept said demise and lease of the Demised Premises on the terms as herein set forth and to pay as Annual Net Basic Rent for said Demised Premises at the following annual rates applicable during the following respective periods: (a) During the period beginning on and including September 1, 1989 ("Commencement Date") and ending on and including August 13, 1991, Sixty-three Thousand Eight Hundred Seventeen and 20/100 Dollars ($63,817.20); and (b) During the period beginning on and including August 14, 1991 and ending on and including the last day of the term of this lease, an amount equal to the greater of (i) Sixty-three Thousand Eight Hundred Seventeen and 20/100 Dollars ($63,817.20) multiplied by the CPI Adjustment, and (ii) Sixty-three Thousand Eight Hundred Seventeen and 20/100 Dollars ($63,817.20). Such rental shall be paid in then lawful money of the United States of America in equal monthly installments each in an amount equal to one- twelfth (1/12) of the amount of the Annual Net Basic Rent applicable during such month, to be paid in advance upon the Commencement Date and on the first day of each and every calendar month thereafter during the term hereof to the Lessor at such place as may, from time to time, be designated by them; and in the absence of such designation, at the last known office of the Lessor in Tempe, Arizona. Notwithstanding anything herein to the contrary, (a) if the Commencement Date occurs on a date other than the first day of a calendar month, the amount of the monthly installment of Annual Net Basic Rent payable on the Commencement Date shall be prorated based on the number of days from and including the Commencement Date through and including the last day of such calendar month and a calendar month consisting of thirty (30) days, and (b) if the last day of the term of this Lease occurs on a day other than the last day of a calendar month, the amount of the monthly installment of Annual Net Basic Rent payable on the first day of such calendar month shall be prorated based on the number of days of such month which fall within the term and a calendar month consisting of thirty (30) days. It is intended that the rent provided for in this Lease shall be an absolutely net return to Lessor for the term of this Lease, and any renewals or extensions thereof, free of any and all expenses or charges with respect to the Demised Premises including, without limitation, any Taxes and assessments, now or hereafter imposed upon or related to the Demised Premises, commonly known as real estate taxes, general or special or improvement assessments, and any taxes and assessments, whether by way of an income tax or otherwise which may be levied, assessed or imposed by the State in which the Demised Premises are located, or by any political or taxing subdivision thereof, upon the income arising from the rents provided herein in lieu of or as a substitute for taxes or assessments imposed upon or related to the Demised Premises and commonly known as real estate taxes; and that Lessee, and not Lessor, shall be required to, and shall pay, such taxes and assessments, but not to pay any other income tax or gift, estate or fee title transfer tax payable upon transfer of fee title to the Demised Premises which may be levied against the Lessor, or any of Lessor's interest or Mortgage payments, Lessor's expenses in negotiating this Lease, or management fees, if any, paid by Lessor to third parties. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include but are not limited to; processing and accounting charges and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Demised Premises. Accordingly, if any installment of rent or any other payment due from Lessee shall not be received by Lessor within Ten (10) days after such amount shall be due, Lessee shall pay to Lessor in addition to the amount due, a late charge equal to Ten Percent (10%) of such overdue amount. The parties hereto hereby agree that such late charge by Lessor is a fair and reasonable estimate of the costs Lessor will incur by reason of any such late payment. Such late charge is deemed to be only one of several cumulative remedies available to Lessor hereunder and acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. ARTICLE 4 TAXES, ASSESSMENTS, UTILITY CHARGES, INSPECTION FEES AND LIENS: SEC. 401. TAXES, ASSESSMENTS. The Lessee shall pay as additional rent, during the full term hereof, all taxes; including, without limitation, ad valorem general real estate taxes, installments of assessments, general and special, and all other public charges levied upon or assessed against and properly attributable to the Demised Premises, or any part thereof, or arising by reason of the existence, occupancy, use or possession of the Demised Premises, or the business carried on therein, including, without limitation, the Arizona Rental Income Tax, all of which are hereinafter, collectively referred to as "Taxes", but not to pay any other income tax, or gift, estate or fee title transfer tax payable upon transfer of fee title to the Demised Premises which may be levied against the Lessor. The Lessee shall pay to Lessor, contemporaneously with the monthly rent payments One Twelfth (1-12th) of the estimated annual Taxes, such estimate to be made by Lessor. Upon receipt of the real estate tax bills each year the Lessor will make payment thereof prior to delinquency and promptly provide Lessee with a copy of the receipted tax bill. Adjustments of amounts (credit or debit) shall be made between the parties within thirty (30) days of the receipt by Lessor, of any such bill. All Taxes shall be prorated for the first and last years of the term hereof and any extension or renewal thereof. Proration with respect to the Taxes for the last year of the term shall be made on the basis of the last available tax bill, provided, however, that upon receipt of the tax bill an appropriate adjustment shall be made. SEC. 402. UTILITY CHARGES. Lessee shall secure service and pay all charges for water, electricity, gas, telephone and any and all other utility services furnished to the Demised Premises. The Lessor, the Public Authorities and the.Utilities servicing or located on the Demised Premises shall, at all reasonable hours, by its or their agents or employees, have the right to install, repair and replace the utility conduits, meters and other facilities located on the Demised Premises; it being understood and agreed, however, that the Lessor shall not be liable for the care, upkeep or maintenance of such facilities. SEC. 403. LICENSES, PERMITS AND FEES. All licenses, permits and fees of any kind or character whatsoever, imposed on the Demised Premises or the use and operation thereof by the City, County, State or Federal Government, or any other governmental unit or Public Authority or for inspection of the Demised Premises, or any part thereof during the term hereof, shall be paid promptly by Lessee prior to delinquency. SEC. 404. MECHANIC'S LIENS. Lessee shall not permit any liens to stand against the Demised Premises for any labor or material in connection with work of any character' performed or claimed to have been performed on the Demised Premises at the direction or sufferance of Lessee (except work done by Lessor), whether such work was performed or furnished prior to, or subsequent to the commencement of the term of this Lease. In the event of any such lien attaching to the Demised Premises, Lessee will promptly notify Lessor of such event and Lessee will pay off the same and have such lien released of record within Thirty (30) days of the filing of such lien of record. SEC. 405. PAYMENT BY LESSOR. If at any time, any tax, assessment, charge, rate, fee or inspection fee, generally or specifically charged or assessed against and properly attributable to said Demised Premises shall become due or payable and the Lessee shall not pay the same, or have paid same to Lessor or, in the event any lien for labor or material shall not be released of record by Lessee within Thirty (30) days of the filing of such lien of record, the Lessor may, at its option, pay the same at any time thereafter without inquiring into the validity thereof whether or not Lessee has failed to pay such amount or Lessee has paid such amount to Lessor, and the amount of any and all such payments so made by the Lessor (with interest thereon at Eighteen Percent (18%) per annum from and after the date any such payment was paid by Lessor) shall be and hereby is declared to be so much additional and further rent for the Demised Premises, due from and payable by the Lessee with the next installment of rent and may be collected in the same manner as other rents due hereunder; provided, however, that subject to the further provisions hereinafter set forth, Lessee shall have the right, at Lessee's expense, to contest in good faith the validity of any Taxes, assessments, charges, liens, rates or fees so specifically charged or assessed against the Demised Premises; provided, however, that Lessee notifies Lessor in writing of Lessee's intention to so contest within Thirty (30) days in advance of the date such Taxes, assessments, charges, liens, rates or fees charged or assessed against the Demised Premises were due and payable; and further provided that such contest is commenced within Thirty (30) days of the date of such notice. SEC. 406. CONTEST. In the event Lessee desires to contest any Taxes, assessments, charges, liens, rates or fees herein provided, it shall do so by paying the amounts under protest, or shall provide for the payment thereof, together with all penalties, interest, costs and expenses, by the deposit of a sufficient sum of money to be held in escrow by Lessor or, at the option of Lessor, by a good and sufficient undertaking as may be required or permitted by law, all to the end that no delinquency or proceedings based upon delinquency shall in anywise affect the title or interest of Lessor in the Demised Premises. Lessee agrees that it will prosecute any such contest with due diligence and in the event any such contest be adjudicated adversely to Lessee, that Lessee will, within Thirty (30) days after final determination, or within the time provided for in such adjudication, whichever is sooner thereof, pay the full amount of any such Taxes, assessments, charges, liens, rates or fees, or other obligations not paid by Lessee to Lessor which may have been the subject of such contest as so determined, together with all interest and penalties, costs and charges which may be payable in connection therewith and satisfy and cause the release of the same of record. Lessee shall keep the Lessor notified, from time to time throughout the period of its pendency, as to the progress and status of any such contest. If a final determination is not had within Three (3) years from the date of instituting any such contest, or in the event of any default of the Lessee, pursuant to the terms of this Lease, Lessor at its option, may pay out of any funds held in escrow for any such Taxes, assessments, charges, liens, rates or fees which may be under contest, together with all penalties, interest charges and other expenses whatever in connection with such contest and Lessee shall immediately upon written demand from Lessor, terminate any such contest. In the event the funds so held are insufficient to pay and satisfy the same, Lessor, at its option, may pay any deficiency and any amount so paid will be reimbursed by Lessee as additional rent due hereunder, promptly upon demand, notwithstanding any previous termination of the term of this Lease by lapse of time or otherwise, with interest at Eighteen Percent (18%) per annum from the date of expenditure by Lessor. Nothing contained in this agreement shall be construed to authorize Lessee to create or incur on behalf of Lessor any liability, indebtedness or obligation whatsoever. Anything herein to the contrary, notwithstanding, Lessee shall defend, completely indemnify and hold Lessor forever harmless from any and all consequences of any such Taxes, assessments, charges, liens, rates or fees, or any contest thereof which were the obligations of Lessee to pay hereunder. ARTICLE 5 INSURANCE: SEC. 501. PROPERTY INSURANCE. The Lessee covenants and agrees that immediately upon the commencement of the term hereof, Lessee will cause, at Lessee's expense, the Building and, Improvements placed on the Demised Premises by the Lessor, including any and all additions thereto, to be insured for full replacement cost against loss or damage by fire, lightning and other casualty covered by the provisions of endorsements for Extended Coverage and Special Extended Coverage, to include the peril of collapse, vandalism and malicious mischief, replacement cost, and will keep insurance to the full replacement value, from time to time, of the Building and Improvements placed on said Demised Premises by Lessor, including any and all additions thereto, in full force and effect during the term hereof so long as this Lease is in effect, including all extensions hereof. No such policy of insurance shall include either the contents of the Building located on the Demised Premises or any other property of the Lessee or any third party except as a separate stated item of insurance, separate and in addition to the coverage which shall apply exclusively to Lessor's Building and other Improvements owned by Lessor. All such policies shall provide that Lessor and any Mortgagee(s) shall be the insureds as their interests appear, and shall further provide that any loss shall be payable to Lessor and any Mortgagee(s) notwithstanding any act or omission of Lessee which might otherwise result in a forfeiture or reduction of said insurance. In addition, Lessee shall maintain steam boiler insurance in such amounts as Lessor may from time to time reasonably require on all steam boilers, pressure boilers or such apparatus as Lessor may deem necessary to be covered by such insurance, if any. The Lessee will not place, nor permit to be placed, any other policies of insurance upon the Building or other Improvements placed upon Demised Premises by Lessor without advance written permission of Lessor and without Lessor and Lessor's Mortgagee(s) as a named insured, provided, however, that nothing herein shall be construed as limiting in any way the manner in which Lessee insures its personal property and trade fixtures placed within the Demised Premises. SEC. 502. PUBLIC LIABILITY INSURANCE. Lessee, at Lessee's expense, and for mutual benefit of the Lessor any Mortgagee(s) and the Lessee, shall maintain Comprehensive Public Liability Insurance, covering the Demised Premises in an amount not less than ONE MILLION DOLLARS ($1,000,000). Such insurance shall include the following coverages: premises/operations, independent contractors, personal injury, broad form property damage and contractual liability. SEC. 503. INSURANCE GENERALLY. All insurance policies shall be with companies reasonably satisfactory to Lessor and shall provide for at least Thirty (30) days mandatory advance written notice to Lessor before cancellation, reduction or other amendment and the property policies shall contain a standard mortgage clause. Certificates evidencing such insurance shall be delivered by Lessee to Lessor at the commencement of the term of this Lease and all subsequent amendments and endorsements shall be promptly delivered to Lessor. Statements for premiums on such policies shall be sent to and paid by Lessee. In the event Lessee shall refuse or fail to provide the insurance coverage herein required or to provide evidence of such coverage as herein described, the Lessor may, at its election, but with no obligation so to do, procure and, from time to time, renew such insurance and all amounts expended therefor with interest thereon at Eighteen Percent (18%) per annum from the respective dates of such expenditures shall be so much additional rent hereunder due from the Lessee on demand. Lessee agrees to indemnify the Lessor for any loss suffered as the result of the exercise of any deductible feature that may be incorporated in the insurance contract and Lessor hereby reserves the right to disapprove the amount and provisions of any such deductible feature. Lessee agrees to be a self insurer as to such deductible amounts and further agrees to pay such amounts to Lessor in the same manner as though such insurance policies did not contain deductible provisions. ARTICLE 6 USE MAINTENANCE AND CONDITION OF THE DEMISED PREMISES: SEC. 601. DEMISED PREMISES. Lessee shall not breach or suffer the breach of any of the conditions, agreements and restrictions of record affecting the Demised Premises and shall defend, completely indemnify and hold Lessor forever harmless from all consequences of any such breach. Lessee may use and occupy the Demised Premises for light manufacturing (including mass lamination, manufacturing of copper clad boards, printing and etching of copper clad laminated boards and the manufacturing of prepreg), storage, assembly, distribution and for offices in connection therewith; provided, however, that Lessee shall strictly comply with all present and future laws, ordinances and regulations of public authorities, as well as all insurance underwriting and inspection and rating requirements, now or hereafter in any manner affecting the use of the Demised Premises, the sidewalks, alleys, driveways and parkways adjacent thereto, if any, or any Building thereon, or the use thereof. Lessee shall not permit any unlawful occupation, business, trade or nuisance to be conducted on the Demised Premises, or any use to be made thereof contrary to any law, ordinance or regulation. Without in any way limiting the generality of the aforegoing, Lessee will not, at any time, store any material or equipment of any kind or character outside the Building(s) located on the Demised Premises except in strict compliance with all applicable ordinances, laws or regulations of any governmental unit or other public authority having jurisdiction. Lessee, at the sole cost and expense of Lessee, shall have the right to contest the validity of any such rules, laws, ordinances or regulations affecting the use of the Demised Premises; provided, however, in any event, that Lessee shall defend, completely indemnify and hold the Lessor forever harmless from all consequences of any such contest and the violation of any such rule, law, ordinance or regulation. Lessee will not use or permit to be used upon or in said Demised Premises or any Building thereon anything that will invalidate any policy of insurance at any time insuring the Demised Premises, or any Building(s) or Improvements thereon, nor shall Lessee permit any dangerous condition to exist on the Demised Premises for which appropriate and sufficient safeguards in compliance with all applicable laws have not been taken. Lessee shall not cause or suffer any signs to be erected upon the Demised Premises, nor upon any Building(s) or Improvements located thereon without the prior written approval of Lessor, which shall not be unreasonably withheld. Anything herein to the contrary, notwithstanding, Lessee shall not at any time overload any structural member (including, by way of illustration and not limitation, all roofs, columns, walls, beams, trusses and floors) of the Building located on the Demised Premises; nor shall Lessee cause or suffer the demolition of the Building(s) or Improvements, or any part(s) thereof (except as provided in Sec. 603) without the prior written approval of Lessor. The Lessee further covenants and agrees that the entry into occupancy of the Demised Premises by the Lessee shall constitute an acknowledgment that the same and the Building(s) and Improvements thereon have been received by the Lessee in good condition and repair, subject to the warranties set forth herein. SEC 602. ENVIRONMENTAL PROVISIONS. As used herein, the term "Environmental Laws" includes all statutes, regulations, ordinances and orders, federal, state and local, including, but not limited to, Title 49 of the Arizona Revised Statutes, which concern the regulation or protection of the human health or the environment, including the ambient air, surface water, groundwater, and surface and subsurface land use, and any regulations promulgated thereto. The term "Regulated Substance" includes, but is not limited to, any and all hazardous substances, hazardous wastes, toxic substances or hazardous materials defined or regulated by the Environmental Laws including but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. 9601 et seq.) and the Arizona Environmental Quality Act (A.R.S. 49- 201, et seq.) and any rules, regulations and guidelines adopted thereto. Lessee shall immediately notify Lessor in writing of any (a) correspondence or communication from any entity, governmental or private, regarding an actual, potential, or alleged violation of Environmental Laws, and (b) any event or change mi Lessee's operation of the Demised Premises that will change Lessee's or Lessor's obligations or liabilities under the Environmental Laws. Lessee shall, at Lessee's own expense, comply with all existing and hereinafter enacted Environmental Laws, and any amendments thereto, affecting Lessee's operation and use of the Demised Premises and Lessee's use, storage and disposal of Regulated Substances. Lessee shall obtain, prior to the commencement of the Lease, all permits, licenses and other authorizations required under the Environmental Laws. Lessor or Lessor's duly-authorized representative shall have the right to enter the premises at all reasonable times to determine whether Lessee is in compliance with this Section. Lessee's failure to abide by the terms of this Section shall be restrainable by injunction and may result in termination of the Lease, at Lessor's sole discretion. Lessee shall defend, indemnify and hold harmless Lessor, its agents, successors and assigns, from and against any claims demands, penalties, fines, liabilities (whether governmental or private), settlements, damages, costs, or expenses (including, without limitation, attorney's and consultants' fees, court costs, and litigation expenses), arising out of or in any way related to (a) the presence, use, generation, storage, treatment, disposal, release or threatened release of any Regulated Substance that is on, from, or affecting the human health or environment, whether or not previously disclosed to Lessor; (b) any personal injury (including wrongful death) or property damage of any kind arising out of or related to a Regulated Substance: or (c) any violation of any Environmental Law; provided, however, that such events described in clauses (a), (b) or (c) of this sentence are directly caused by or directly attributable to the acts or omissions of Lessee, its agents, and contractors. The provisions of this Section and this indemnification shall be in addition to any other obligations and liabilities Lessee shall have to Lessor at law or in equity and shall survive the termination of this Lease. SEC. 603. MAINTENANCE. The Lessor warrants that the foundation, exterior bearing walls, and wood roof structure shall be free from defects in material and workmanship until such times as any of these structural systems have been altered or modified by Lessee. In the event, of the occurrence of any such defect during the warranty period and upon receipt of written notice from Lessee, Lessor shall promptly commence and diligently prosecute to completion such repairs as are necessary to correct such defect. Except for the aforegoing Lessor warranties, Lessee shall maintain and preserve the Demised Premises, including, without limitation, the interior and exterior of the Building thereon in good and clean condition making all repairs, replacements and restorations necessary for such maintenance and preservation: including, without limitation, tuckpointing, painting, glass replacement, glazing, caulking and the repair, replacement and restoration of the roof covering, docks, landscaping and, parking areas. All repairs, replacements and restorations shall be in quality at least equal to the original construction. Notwithstanding anything herein to the contrary, on or before each anniversary date of this Lease or extension thereof, Lessee shall deliver to Lessor written evidence satisfactory to Lessor that the roof of the building on the Demised Premises has been serviced by a roofing contractor licensed by the State of Arizona and satisfactory to Lessor. At the termination of this Lease, by lapse of time or otherwise, Lessee shall deliver the Demised Premises to the Lessor in good condition and repair as obtained therein at the commencement of the term of this Lease subject, however, to the loss or damage due to any casualty to the extent actually recovered by Lessor under insurance policies to be obtained and maintained by Lessee as herein set forth and normal wear and tear. Anything herein to the contrary, notwithstanding, Lessee will not suffer any waste t@-occur on the Demised Premises and will make every reasonable effort to prevent the Demised Premises from falling into disrepair; including, without limitation, the prompt performance of all repair, replacement and restoration obligations of Lessee as herein set forth. SEC. 604. ALTERATIONS. Lessee shall make no alterations to the Demised Premises without prior written approval of Lessor which shall not be unreasonably withheld provided, however, Lessee shall make no material alterations to the Demised Premises (including roof, floor, and structural wall penetration). Lessee shall remove, on demand by Lessor and at Lessee's expense, any and all alterations at the termination of this Lease, whether by lapse of time or otherwise, and shall repair any damage caused by such removal, restoring the Demised Premises to their condition prior to the making of any such alteration(s), or any of them. Any and all alterations, additions and improvements made to or placed upon the Demised Premises by the Lessee, or suffered by Lessee to be made to or placed upon the Demised Premises, as well as all fixtures and articles of personal property attached to or made a part of the Demised Premises, which Lessee has not removed or been required to remove by Lessor, shall immediately become the property of the Lessor at the termination of this Lease and shall be surrendered to the Lessor. Subject to the provisions hereinabove set forth, the Lessee may expend such additional sums of money upon the Demised Premises, the Building and Improvements on said Demised Premises as the Lessee may desire, with the full understanding that such additional sums so paid shall not be deducted from or set off against any rents or other payments due hereunder., SEC. 605. LESSORS RIGHT TO INSPECT AND REPAIR. Lessor, its agents and employees shall have the right, at any reasonable time after notice to Lessee, to enter upon the Demised Premises to inspect the same in the presence of an agent of Lessee and Lessee agrees to make such agent available. In the event Lessee fails to commence such repairs, replacements or restorations as are necessary to maintain the Demised Premises in good condition, within Thirty (30) days after notice from Lessor or fails to diligently prosecute the same to completion, the Lessor, at its option, but without any obligation so to do, may make such repairs, replacements, or restorations, and amounts expended for such work by the Lessor shall be reimbursed by the Lessee as additional rent due hereunder, promptly on demand, together with interest at Eighteen Percent (18%) per annum from date of expenditure. Anything herein to the contrary, notwithstanding, Lessor shall have the right, at any time, to enter upon the Demised Premises, but without any obligation so to do, in order to effect any repair, replacement or restoration of an emergency nature and Lessee shall reimburse Lessor as additional rent due hereunder, promptly upon demand, for expenditures incurred for such work and if Lessee denies Lessor such access, Lessee agrees to defend, indemnify and hold forever harmless the Lessor from and against any and all liability, fines, suits, claims, demands, actions, causes of action, losses, costs, damages, judgments and expenses of any kind or character, name or nature due to or arising directly or indirectly out of such emergency. ARTICLE 7 INDEMNIFICATION AND HOLDING HARMLESS OF LESSOR: SEC. 701. INDEMNIFICATION. To the extent permitted by law, Lessee shall defend, completely indemnify and hold forever harmless the Lessor from and against any and all liability, fines, suits, claims, demands, actions, causes of action, losses, costs, damages, judgments and expenses of any kind or character, name or nature, due to or arising out of: (a) Any breach, violation or non-performance of any covenant, obligation, condition or agreement in this Lease set forth and contained on the part of the Lessee to be fulfilled, kept, observed or performed; and/or (b) any damage to, loss or destruction of any property arising directly or indirectly out of Lessee's use and occupancy of the Demised Premises, except for any such damages, losses or destruction resulting from or attributable to the breach of the warranty contained in the first sentence of Section 603 hereof; and/or (c) any injury to any person(s), including death, resulting at any time therefrom, occurring in or about the Demised Premises and/or the sidewalks, drive and alleyways, pkways, if any, and any and all other appurtenances thereunto appertaining arising directly or indirectly out of Lessee's use and occupancy of the Demised Premises, except for any such injuries or deaths resulting from or attributable to the breach of the warranty contained in the first sentence of Section 603 hereof. In the event the Lessor is made a party to any action or proceeding which Lessee is required to defend pursuant to the provisions of this Lease, the Lessor shall have the right to appear and to take part in any such action or proceeding by legal counsel of Lessor's choice at Lessor's cost and expense. Lessee and Lessor hereby agree to completely indemnify the prevailing party as to an costs and expenses incurred to enforce any of the terms, provisions, conditions or covenants of this Lease; including, but not limited to, reasonable attorney's fees. Nothing herein shall be construed as obligating the Lessee to indemnify or hold harmless any party, from and against the consequences of willful or negligent acts or omissions of the party to be indemnified. SEC. 702. LOSS OF PROPERTY. Anything in this Lease to the contrary notwithstanding Lessee agrees that under no circumstances shall Lessor be liable to Lessee or to any third party for any loss of, destruction of, damage to or shortage of any property other than that directly or indirectly caused by defects, latent or otherwise, warranted herein by Lessor; including, by way of illustration and not limitation, equipment or inventory placed on the Demised Premises or suffered to be placed thereon by Lessee, it being the intention of the parties hereto that the risk of any and all such loss, destruction, damage or shortage shall be borne by Lessee and Lessee agrees to defend, completely indemnify and hold Lessor forever harmless from and against any and all liability, suits, claims, demands, actions causes of action, losses, costs, damages, judgments and expenses if any arising out of such loss, destruction, damage or shortage. ARTICLE 8 DAMAGE OR DESTRUCTION OF BUILDINGS: SEC. 801. DAMAGE OR DESTRUCTION OF BUILDINGS. If any Building or Improvements placed by the Lessor on the Demised Premises shall be injured or destroyed by fire or other casualty insured against pursuant to the terms of this Lease, the Lessor will, with due diligence and dispatch, proceed to collect the insurance thereon and if the Lessor elects to repair or restore such Building, the Lessor will apply the insurance monies derived from said policies to such repair and restoration. In the event that the monies realized from the insurance policies shall not be sufficient to restore such Building and/or Improvements to their condition immediately prior to such fire or other such casualty, the Lessor may, at the option of Lessor, advance the additional funds necessary therefor, and to the extent that the insufficiency of the insurance proceeds was due to the failure of Lessee to comply with the provisions of this Lease and to the extent of any deductible feature in the insurance coverage to be provided by the Lessee, the Lessee covenants and agrees to repay any such advance to the Lessor as additional rent due hereunder, promptly upon demand, with interest at the rate of Eighteen Percent (18%) per annum from the date of such expenditure. In the event Lessor does not elect to repair or restore such Building and/or Improvements within Thirty (30) days after such a casualty, such election to be evidenced by written notice to Lessee within said time period, or if the repair or restoration cannot reasonably be accomplished within a period of one hundred twenty (120) days after such casualty, then in either of such events this Lease and the term hereof, may be terminated and cancelled at the election of either party hereto, provided written notice is given to the other party within Ten (10) days after the expiration of the last aforementioned such Thirty (30) day period. Absent such timely notice this Lease shall remain in full force and effect. ARTICLE 9 RENT ABATEMENT BECAUSE OF DAMAGE: SEC. 901. RENT ABATEMENT BECAUSE OF DAMAGE. In the event the Building and/or Improvements on the Demised Premises shall be damaged by fire or other casualty covered by the provisions of the insurance policies then in effect as provided for herein, the Lessee shall not be required to pay rent on any untenantable portion of said Building and the rental reserved hereunder shall be reduced to the proportion that the square foot area of the Building remaining tenantable bears to the total square foot area of the original Building. Such rental shall be increased pro rata, from time to time, if and when additional areas of the Building are returned to tenantable condition. ARTICLE 10 CONDEMNATION: SEC. 1001. AWARD. In the event the Demised Premises, or any part thereof, shall be condemned or taken for a public or a quasi-public use, or is sold by Lessor under threat of condemnation, any award made or sales price paid to compensate for the value of the Demised Premises, Building(s) and Improvements thereon, or for damages to the remainder thereof shall be paid to the Lessor and Lessee shall have no claim thereto and the Lessee hereby irrevocably assigns and transfers to the Lessor any right to any such compensation or damage awards, providing, however, that Lessee shall have the right to prove in the proceeding and to receive any award which may be made for damages for or condemnation of Lessee's personal property, including movable trade fixtures and equipment and relocation costs. In the event any or all of the Demised Premises shall be so condemned or taken, the Lessee shall execute and deliver to Lessor, promptly on demand, all documents necessary and proper to evidence the termination of the interest of the Lessee in and to the Demised Premises and this Lease, including, without limitation, a recordable release and cancellation of this Lease and a quit claim deed. The failure of the Lessee to so execute and deliver such documents shall in no way affect such termination of this Lease and the interest of the Lessee in and to the Demised Premises. SEC. 1002. REMAINDER SUSCEPTIBLE OF OCCUPANCY. In the event a part of the Demised Premises remains which is susceptible of occupation for the uses set forth herein, this Lease shall, as to the part so taken, terminate as of the date title shall vest in the condemning authority and the rent payable hereunder shall be adjusted so that the Lessee shall be required to pay for the remainder of the term only such fractional portion of such rent as the area of the part of the building located on the Demised Premises remaining after condemnation bears to the area of said Building as of the date of condemnation: and in such event, this Lease shall remain in full force and effect and the Lessor shall promptly commence and diligently prosecute to complete the restoration of the Building so that it shall again constitute a complete architectural unit but the Lessee shall be required to pay only that fractional portion of the rent as is provided for hereinabove in this Sec. 1002. In the event the Lessor does not so terminate this Lease, this Lease shall remain in full force and effect and the Lessor shall promptly commence and diligently prosecute to completion the restoration of the Building so that it shall again constitute a complete architectural unit but the Lessee shall be required to pay only that fractional portion of the rent as is provided for hereinabove in this SEC. 1002. SEC. 1003. REMAINDER NOT SUSCEPTIBLE OF OCCUPANCY. In the event all of the Demised Premises, or such part thereof be taken or condemned so that there does not remain a portion susceptible for occupancy for the uses set forth herein, this Lease shall terminate upon the date the title to the part taken vests in the condemning authority and Lessee's obligation to pay rent or to discharge any other obligation hereunder, other than the payment of money then due and damages arising out of any breach of the covenants, conditions or terms hereof by the Lessee, shall cease. Notwithstanding anything herein to the contrary, the Demised Premises shall not be deemed tenantable in the event more than twenty-rive percent (25%) of the area of the Building located on the Demised Premises is taken or condemned. ARTICLE 11 DEFAULT, BANKRUPTCY SEC. 1101. DEFAULT, BANKRUPTCY. It is mutually agreed and understood by and between the parties hereto that in the event during the term of this Lease, regardless of the pendency of any bankruptcy, insolvency, receivership or reorganization proceedings, in law, equity or before any administrative tribunal, or any other governmental entity which has been prevented or which might prevent compliance by Lessee with the terms or provisions of this Lease: (1) Lessee shall default in the payment of any installment of rent or other payment required to be made by Lessee pursuant to the provisions of this lease and such default shall continue for Ten (10) days after notice of such default from Lessor provided however that in the event Lessor has had to give Lessee notices of such default more than twice in any twelve (12) consecutive month period, this notice requirement shall thereupon terminate and Lessee shall be in default after the expiration of any such ten (10) day period regardless of lack of notice from Lessor; or (2) Lessee shall make default in the provisions of any of the agreements, conditions, covenants or obligations hereunder. to be kept, fulfilled, observed or performed by the Lessee and such default shall not be cured within Thirty (30) days after notice of such default from Lessor to Lessee; Anything hereinabove to the contrary, notwithstanding, as to any such default except the payment of any rent or other monies reserved herein, in the event the Lessee shall, within said Thirty (30) day period, commence the cure of such default and diligently pursue to completion any such cure as soon as reasonably practicable, the Lessor may not declare the term ended and this Lease terminated and cancelled; or (3) if any voluntary petition or similar pleading under any bankruptcy act or any federal or state law seeking reorganization or arrangement with creditors or adjustment of debts is filed by or against Lessee, or if any such petition or pleadings is involuntary and Lessee is not discharged thereof within Thirty (30) days after the date of its filing; or (4) if Lessee admits its inability to pay its debts or if a receiver, trustee or other appointee of a court, administrative tribunal or other public authority is appointed for all or a substantial part of Lessee's property and if such appointment is not vacated within Thirty (30) days after being made; or (5) if the leasehold interest of Lessee is levied upon or attached by process of law, and such levy or attachment is not released of record within Thirty (30) days; or (6) if Lessee makes an assignment for the benefit of creditors, or if any proceedings are filed by or against Lessee to declare Lessee insolvent or unable to meet its debts and such proceedings are not discharged within Thirty (30) days after the date of their filing; or (7) if a receiver or similar type of appointment or court appointee or nominee of any name or character is made for all or a substantial part of Lessee's property and if such receiver is not discharged within Thirty (30) days after appointment; then, in any such event, Lessor shall have the right, at any time thereafter (but prior to any timely cure as hereinabove provided), with or without notice to avail itself to any or all of the following remedies, (a) to lock the doors of the Demised Premises and exclude Lessee therefrom; (b) to retain or re-enter and take complete possession of the Demised Premises pursuant to Landlord's statutory lien; (c) to remove all persons and all of Lessee's property therefrom; (d) to terminate this Lease forthwith; (e) to@sue for the rent due and to become due under this Lease; (f) to sue for- any damages sustained by Lessor and/or (g) to keep this Lease in full force and effect reletting the Demised Premises on such terms and conditions as Lessor may deem appropriate without prejudicing Lessor's rights to recover past and future rents or other obligations of Lessee hereunder. Anything herein to the contrary, notwithstanding any payment of rent or any other payment to be made by the Lessee to Lessor, pursuant to the provisions of this Lease, shall bear interest at the rate of Eighteen Percent (18%) per annum from the date payment was due. In the event the right, title and interest of Lessee in and to the Demised Premises and this Lease is terminated, whether by lapse of time or otherwise, the Lessee shall execute and deliver to Lessor, promptly on demand, all documents reasonably requested by Lessor to evidence such termination: including, without limitation, a recordable release and cancellation of this Lease and a quit claim deed. The failure of Lessee to so execute and deliver such documents shall in no way affect the termination of this Lease and the interest of the Lessee in and to the Demised Premises. SEC. 1102. NO WAIVER. No waiver by Lessor of any default by the Lessee of any of the obligations, agreements, conditions or covenants on the part of the Lessee to be fulfilled, kept, observed or performed hereunder shall be a waiver of any subsequent default or of any other obligation, agreement, condition or covenant, nor shall any forbearance by Lessor to seek a remedy for any default by Lessee be a waiver by Lessor of any of the rights and remedies available to Lessor hereunder or by law granted or permitted, with respect to such or any subsequent default. ARTICLE 12 TRANSFER, ASSIGNMENT, SUBLEASE SEC. 1201. TRANSFER, ASSIGNMENT, SUBLEASE. The Lessee may not assign, transfer, mortgage or pledge this Lease or the interest of the Lessee herein or hereunder or sublet Demised Premises or any portion thereof, without, in each case, the prior written consent of the Lessor which shall not be unreasonably withheld. Any purported assignment, mortgage, transfer, pledge or sublease without the prior written consent of the Lessor which shall not be unreasonably withheld. Any purported assignment, mortgage, transfer, pledge or sublease without the prior written consent of Lessor shall be absolutely null and void and of no legal force or effect. SEC. 1202. INCREASED RENT TO LESSOR. As a condition precedent to the approval of any sublease, assignment or any other type of transfer by the Lessee to any third party of all or a portion of its interest in and to the Demised Premises pursuant to the provisions of this Lease, Lessee agrees that it will pay to the Lessor, contemporaneously with the rental payments due hereunder, Fifty Percent (50%) of any increased economic benefit received by Lessee, including, without limitation, rent in excess of the rent reserved herein and in the event less than all of the Demised Premises are so subleased, assigned or transferred in any way, the Lessee shall pay to the Lessor Fifty Percent (50%) of any increase in the square foot rate of rent paid to Lessee by any third party. Lessee shall also increase any security deposit required hereunder to the amount of a full month's rent. The rent that Lessee pays to the Lessor for the purpose of this, Section 1202. shall be calculated by dividing the monthly rent reserved herein by the square foot area of the building located on the Demised Premises as stated hereinabove. SEC. 1203. MAINTENANCE, REPAIR, AND RESTORATION UPON ASSIGNMENT OR SUBLETTING. As a condition precedent to Lessor's consent to any assignment or subletting of this Lease or all or any part of the Demised Premises Lessor may at it's sole discretion require Lessee to undertake any deferred maintenance and to make all repairs and restorations which are the obligations of Lessee under this Lease prior to the effective date of any such assignment or sublease in the same fashion as could be required at the expiration of this Lease Term. SEC. 1204. LESSOR MAY SELL, MORTGAGE, TRANSFER OR ASSIGN. Lessor shall have the right to sell, mortgage, pledge, hypothecate or in any other manner transfer or assign the interest of the Lessor in the Demised Premises and/or in the Lease, subject to all of the covenants and conditions of and Lessee's rights under this Lease. The term "Lessor", as used in this Lease, means only the owner for the time being of the Demised Premises and in the event of any sale, conveyance or other transfer of the Demised Premises, or the interest of Lessor in the Demised Premises, the Lessor shall upon purchaser's assumption, be and hereby is entirely freed of all covenants and obligations of Lessor hereunder arising after the date of such sale, transfer assignment or conveyance. This Lease shall not be affected by any such sale and Lessee agrees to attorn to the purchaser or assignee. SEC. 1205. SUBORDINATION. This Lease shall be subject and subordinate to the lien of any mortgage or mortgages which at any time may be placed upon the Demised Premises by Lessor, its successors or assigns, and to any replacements, renewals or extensions thereof, provided that the holder of the encumbrance agrees to recognize for itself and its successors, and assigns, Lessee's rights hereunder notwithstanding any foreclosure. Lessee agrees, at any time hereafter, on demand, to execute and deliver any instruments, releases or other documents that may be required for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage or mortgages subject to the provisions set forth above. SEC. 1204. LESSOR MAY SELL, MORTGAGE, TRANSFER OR ASSIGN. Lessor shall have the right to sell, mortgage, pledge, hypothecate or in any other manner transfer or assign the interest of the Lessor in the Demised Premises and/or in the Lease, subject to all of the covenants and conditions of and Lessee's rights under this Lease. The term "Lessor", as used in this Lease, means only the owner for the time being of the Demised Premises and in the event of any sale, conveyance or other transfer of the Demised Premises, or the interest of Lessor in the Demised Premises, the Lessor shall upon purchaser's assumption, be and hereby is entirely freed of all covenants and obligations of Lessor hereunder arising after the date of such sale, transfer assignment or conveyance. This Lease shall not be affected by any such sale and Lessee agrees to attorn to the purchaser or assignee. SEC. 1205. SUBORDINATION. This Lease shall be subject and subordinate to the lien of any mortgage which at any time may be placed upon the Demised premises by Lessor, its successors or assigns, and to any replacements, renewals or extensions thereof, provided that the holder of the emcumbrance agrees to recognize for itself and its successors, and assigns, Lessee's rights hereunder notwithstanding any foreclosure. Lessee agrees, at any time hereafter, on demand, to execute and deliver any instruments, releases or other documents that may be required for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage or mortgages subject to the provisions set forth above. SEC. 1206. LESSEE'S ESTOPPEL LETTER. Lessee agrees at any time and from time to time upon not less than Ten (10) days prior written request by Lessor to execute, acknowledge and deliver to Lessor a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), and the dates to which the basic rent and other charges have been paid in advance, if any, and all of the defaults of Lessor hereunder, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of the fee or mortgagee or assignee of any mortgage upon the fee of the Demised Premises. ARTICLE 13 MISCELLANEOUS: SEC. 1301. NOTICES. Any notice provided for herein shall be given by registered or certified mail addressed, if to Lessor, as follows: Cemanudi Associates 3225 S. Hardy Drive, Suite 105 Tempe, Arizona 85282 with a copy to: Cemanudi Associates One First National Plaza Chicago, Illinois 60603 Attention: Law Department and if to Lessee, as follows: Nelco Technology, Inc. 1130 West Geneva Drive Tempe, Arizona 85282 Attention: President with a copy to: Park Electrochemical Corporation 5 Dakota Drive Lake Success, New York 11042 Attention: General Counsel SEC. 1302. CHANGE OF ADDRESS. The person and places to which notices or payments are to be mailed may be changed, from time to time, by Lessor or Lessee upon written notice to the other. SEC. 1303. MODIFICATION. This Lease may be modified only by written agreement signed by Lessor and Lessee. SEC. 1304. DESCRIPTIVE HEADINGS. The descriptive headings and index of this Agreement are inserted for convenience in reference only and do not constitute a part of this Agreement. SEC. 1305. SUCCESSORS AND ASSIGNS. This Lease and the covenants, terms, conditions and Provisions hereof, shall be binding upon the respective parties hereto and upon their respective successors, assigns and personal representatives and shall inure to the benefit of said respective parties hereto and their said respective successors, assigns and personal representatives. Wherever in this Lease a reference to any of the parties hereto is made, such reference shall be deemed to include, wherever applicable and even though not expressly stated, also a reference to the successors, assigns and personal representatives of such party, as the case may be, the same as if in every case expressly stated. The phrase "successors and assigns" is used in this Lease in its broadest possible meaning and includes, in addition to administrators, trustees and conservators; every person, firm, corporation or other entity succeeding to the interest in or to this Lease, or any part thereof, or in or to any real estate, or any part or portion thereof, described or referred to herein or any part hereto, or of any of the successors or assigns of any such party, whether such succession results from the act of a party in interest, occurs by operation of law or is the effect of the operation of law together with any act(s) of any such party or parties. SEC. 1306. ENTRY TO SHOW PREMISES. Lessor, its agents or assigns may, from time to time, during the term of this Lease, and each and every extension hereof after notice to and in the company of Lessee, enter the Demised Premises at reasonable times to show the same to prospective buyers or tenants. During the last Six (6) months of the term of this Lease or after the occurrence of any default on the part of the Lessee hereunder, after notice to and in the company of Lessee, the Lessor hereby reserves the right to enter the Demised Premises (and prior to the curing of such default) and to place, on the outer walls or roof of any building(s) located thereon and upon any part of the Demised Premises, outside such building(s), "For Sale" and/or "For Rent" signs of a type similar to those used in the area. Lessee agrees not to remove, interfere with, or obstruct the view of any such sign(s). SEC. 1307. TIME OF ESSENCE. Time is of the essence of this Lease and in all of the conditions, obligations, agreements, provisions, terms and covenants hereof. SEC. 1308. RESOLUTION. Lessee shall, contemporaneously with the execution and,delivery of this Lease, also deliver to Lessor a copy of a Resolution of the Board of Directors of Lessee, or other evidence satisfactory to Lessor, specifically authorizing those of Lessee's officers whose names are subscribed hereto to enter into this Lease Agreement with the Lessor named herein. Such Resolution shall make reference to this Lease of the Demised Premises, lease term and rental reserved, shall be duly certified to by the Secretary of said Board of Directors and shall be appended hereto as Schedule 2. Lessor shall, contemporaneously with the execution and delivery of this Lease, also deliver to Lessee evidence of Lessor's general partner's authority to bind Lessor of the officer of Lessor's general partner who executes this Lease Agreement. SEC. 1309. UNENFORCEABILITY. In the event any covenant, term, provision, obligation, agreement or condition of this Lease is held to be unenforceable at law it is mutually agreed and understood, by and between the parties hereto, that the other covenants, terms, provisions, obligations, agreements and conditions herein contained shall remain in full force and effect. SEC. 1310. WAIVER OF TRIAL BY JURY. The Lessee waives a trial by jury of any or all issues arising in any action, or proceeding between the parties hereto, or their successors arising out of, or in any way connected with this Lease, or any of its provisions the Lessee's use, or occupancy of the Demised Premises and/or any claim of injury or damage. SEC. 1311. GOVERNING LAW. This Lease and the rights of the parties hereto shall be interpreted and determined in accordance with the laws of Arizona. SEC. 1312. ENTIRE AGREEMENT. This Lease contains the Entire Agreement between the parties respecting the matters herein set forth and supersedes, all prior agreements between the parties hereto about such matters. SEC. 1313. ADDITIONAL TERMS. The Lessor hereby covenants, represents and warrants as follows: (a) The Demised Premises consists of approximately 38,311 square feet of land together with a building located thereon containing approximately 13,995 square feet. (b) Lessor has not received any notice of any violation of any zoning ordinances, building codes or other local, state and federal statutes, codes, ordinances, laws and regulations and has no knowledge of the existence of any such violation. (c) At Lessee's request, Lessor shall promptly execute and acknowledge and deliver to Lessee Memorandum of this Lease summarizing the material terms of this Lease. (d) Lessor's covenants, representations and warranties shall be true on and as of the date hereof, on and as of August 31, 1989. SEC. 1314. EXHIBITS AND SCHEDULES. The following Exhibits and Schedules are attached hereto and expressly made a part hereof, to wit: Exhibit A- Legal Description Schedule 1- Security Deposit Schedule 2- Lessee's Board Resolution Schedule 3- First and Second-Option to Extend Term IN WITNESS WHEREOF, said Lessor and Lessee have caused this instrument to be executed by their respective duly authorized officers, all as of the day and year first above written. Cemanudi Associates, Lessor By CMD Corporation, its General Partner By /s/ President ATTEST: /s/Secretary NELCO TECHNOLOGY, INC. By: /s/Robert A. Forcier, President ATTEST: /s/Ron Fleming, Secretary EASEMENT R/W# 2381 AGT. PRL COUNTY Maricopa Parcel MCR 228-38 CMD SOUTHWEST INCORPORATED, an Arizona corporation, for an in consideration of the sum of One Dollar, and other valuable consideration, receipt of which is hereby acknowledged, do hereby grant to the Salt River Project Agricultural Improvement and Power District, a political subdivision of the State of Arizona, its successors and assigns, the non-exclusive right, easement and privilege to construct, operate and maintain underground electrical conduits, together with its manholes, transformer pads and vaults and other appurtenances through, over, under and across the following described property: The East 162 feet of Lot 9 of BROADWAY INDUSTRIAL PARK UNIT 4-A, as recorded in Book 228 of Maps, page 38, Maricopa County, Arizona. Said easement being 7.0 feet in width, 3.5 feet on each side of the following described centerline: Commencing at the Southeast corner of said Lot 9; thence North 89 degrees 53', 53" West (assumed bearing) along the South line thereof, a distance of 70.5 feet; thence North 16 degrees 13' 47" East a distance of 8.0 feet to the TRUE POINT OF BEGINNING of the easement herein described; thence continue North 16 degrees 13' 47" East a distance of 103.7 feet; thence North 03 degrees 41' 27" East a distance of 103.3 feet; thence South 88 degrees 37' 07" West a distance of 13.0 feet to a terminus: Caution: The above described easement contains high voltage electrical equipment and notice is hereby given that the location of underground electrical conduits may vary from the locations indicated in the above description, therefore all persons who may excavate in the area must accordingly proceed with caution. The GRANTEE shall at all times have the right of full and free ingress and egress to said easement for the purpose heretofore specified, and the right to permit other utility companies to use the right of way jointly with the Grantee for their utility purposes. In the event the right, privilege and easement herein granted shall be abandoned and permanently cease to be used for the purpose herein granted, all rights herein granted shall cease and revert to the grantors, their heirs or assigns. The covenants and agreements herein set forth shall extend and inure in favor and to the benefit of and shall be binding on the heirs, successors in ownership and estate, assigns and lessees of the respective parties hereto. IN WITNESS WHEREOF, CMD SOUTHWEST INCORPORATED, an Arizona corporation has caused its corporate name to be signed and its corporate seal to be affixed by the undersigned officers thereunto duly authorized, this 24th day of August, 1981. /s/ President State of Arizona County of Maricopa CERTIFICATE OF RESOLUTION OF NELCO TECHNOLOGY, INC. The undersigned, Harry Linzer, Secretary of NELCO TECHNOLOGY, INC., an Arizona corporation (hereinafter referred to as the "Corporation"), hereby certifies that the following resolutions were duly and regularly passed and adopted in all respects as required by law and the Bylaws of the Corporation, and that such resolutions are still in full force and effect and have not been revoked: RESOLVED, that the Corporation should, and it hereby does, approve that certain Lease by and between Cemanudi Associates, an Illinois limited partnership, as Lessor, and the Corporation, as Lessee, for approximately 38,311 square feet of land, together with a building located thereon containing approximately 13,995 square feet, commonly known as 1104 West Geneva Drive, Tempe, Arizona 85282; and FURTHER RESOLVED, that Robert A. Forcier, President of the Corporation, should be acting alone hereby is, authorized to execute said Lease on behalf of the Corporation. IN WITNESS WHEREOF, the undersigned has signed his name as Secretary of the Corporation on this 1st day of September, 1989. Harry Linzer Secretary SCHEDULE 1 SECURITY DEPOSIT: Lessee has deposited the sum of Five Thousand Dollars ($5,000) with the Lessor as security for the full and faithful performance by the Lessee of the terms of this Lease. It is agreed that in the event Lessee defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of rent and additional rent, Lessor may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Lessee is in default or for any sum which Lessor may reasonably expend or may be reasonably required to expend by reason of Lessee's default in respect of any of the terms, covenants and conditions of this Lease, including, but not limited to, any damages or deficiency accrued before or after summary proceedings or other re-entry by Lessor. In the event that Lessee shall fully and faithfully comply with the terms, provisions, covenants and conditions of the Lease, the security shall be returned to Lessee promptly after the date fixed as the end of the Lease Term and after delivery of the entire possession of the Demised Premises to Lessor. In the event of a sale of the demised premises, Lessor then has the right to transfer the security to the purchaser, and upon the purchaser's assumption Lessor shall thereupon be released by Lessee from all liability for return of such security and Lessee agrees to look to the new Lessor solely for return of said security. SCHEDULE 2 LESSEE'S BOARD RESOLUTION [To be inserted by Lessee] SCHEDULE 3 FIRST OPTION TO EXTEND TERM Lessee, at its option, may extend the term of this Lease for an additional Five (5) years by delivering irrevocable written notice thereof upon the Lessor at lease Six (6) Months prior to the expiration of the then existing Lease Term, and upon delivery of said notice, the term of this Lease shall be extended for said additional period upon the same terms without further action of the parties; subject, however, to the further provisions of this schedule. RENTAL DURING FIRST EXTENSION OF TERM: In the event the original term of this Lease is extended as hereinabove provided, the Annual Net Basic Rent during the first three (3) years of the extended term will be the greater of the following: (a) The Annual Net Basic Rent during the last two (2) years of the original Lease term; or (b) An amount equal to the product of Sixty-three Thousand Eight Hundred Seventeen and 20/100 Dollars ($63,817.20) multiplied by a fraction which has as its denominator the United States All Item Consumer Price Index (1982-1984 = 100), All Urban Consumer Section, issued by the Bureau of Labor Statistics, U.S. Department of Labor (hereinafter the "CPI-U") published for the month immediately prior to the beginning of the original term of this Lease and, as its numerator said Index published for the month immediately prior to the commencement date of said extension; In the event the original term of this Lease is extended as herein provided, the Annual Net Basic Rent during the last two (2) years of the extended term will be the greater of the following: (c) The Annual Net Basic Rent during the first three (3) years of the extended term; or (d) An amount calculated by the following formula: (A)x(.50)x{(B/C)-1.00}+(A) = Annual Basic Rent during the last two (2) year of extended term of Lease. where A = The amount described in preceding subparagraphs (a) or (b) whichever is greater; where B = The CPI-U published for the period immediately prior to the commencement date of the last two year period of the extended term. where C = The CPI-U published for the period immediately prior to the commencement date of the Five year extended term. All such Annual Net Basic Rent due to be paid during any and all extensions of the original Lease Term shall be paid in equal monthly installments, in advance, in the same manner as the rent paid during the original Term of this Lease. In the event that the Index hereinabove referred to ceases to incorporate a significant number of items contained therein in the Index last published prior to the commencement date of the original term of this Lease, or if a substantial change is made in the method of establishing such Index, then the Index shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing such Index. In the event that such Index (or a successor or substitute Index) is not available, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the Index, shall be used in lieu of such Index. SECOND OPTION TO EXTEND TERM: Provided Lessee has validly exercised the First Option to Extend Term hereinabove described, Lessee at its option, may extend the term of this Lease for a second, additional Five (5) years by delivering irrevocable written notice thereof upon the Lessor at lease Six (6) months prior to the expiration of the first Five year extension of the Lease Term, and upon delivery of said notice, the term of this Lease shall be extended for said additional period upon the same terms without further action of the parties, subject, however to the further provisions of this Schedule. RENTAL DURING SECOND EXTENSION OF TERM: The Annual Net Basic Rent due to be paid to Lessor for said Demised Premises during the first Three (3) years of the second option to extend shall be the "Market Rental, as that term is hereinafter defined. The Market Rental will be equal to the product of 13,995 multiplied by the market rate of rent per square foot for comparable warehouse/office space for a comparable lease term on the commencement date of the option term (hereinafter referred to as "Market Rate"). The Market Rate will be determined as hereinafter set forth without regard to (a) the rate of rent Lessee is then paying for the Demised Premises, and (b) the value of Lessee's improvements and trade fixtures. In the event Lessee desires to consider exercising its second option to extend as set forth in this Schedule, Lessee shall submit to Lessor nine (9) months prior to the expiration of the then existing lease term, a written statement setting forth the Lessee's proposed Market Rate, which statement shall include the method used and assumptions made in arriving at such a rate. Lessor shall within twenty (20) days of receipt of the statement accept or reject the same or submit a revised statement of Market Rate which statement shall include the method used and assumptions made in arriving at such a rate. If Lessor accepts Lessee's statement of Market Rate, Market Rate shall be determined as set forth therein and Lessee shall, in the event it exercises its option to extend, pay to Lessor during the first Three (3) years of the second option to extend, Annual Net Basic Rent equal to the product of Market Rate times 13,995 square feet. If Lessor elects to submit a revised statement, Lessee shall within ten (10) days of receipt thereof either accept or reject the same. If Lessee accepts Lessor's revised statement of Market Rate, Market Rate shall be determined as set forth therein and Lessee shall, in the event it exercises its option to extend, pay to Lessor Annual Net Basic Rent determined as set forth above in this paragraph. If, however, Lessor rejects Lessee's statement of Market Rate or Lessee rejects Lessor's revised statement of Market Rate, the rejecting party shall name and appoint an independent M.A.I. appraiser and give written notice thereof to the non-rejecting party within five (5) days of the date of such rejection. The non-rejecting party shall, within five (5) days of the receipt of said notice of rejection, name and appoint another appraiser and give the rejecting party written notice thereof. Thereafter, said appraisers shall select a third appraiser. If said appraisers are unable to agree on the selection of a third appraiser within five (5) days, they shall jointly petition the Superior Court of the County of Maricopa, Arizona, for the appointment of a third appraiser. Thereupon, the said appraisers shall independently determine the market rate for leasing the Demised Premises. Their respective written reports of Market Rate shall be submitted to Lessor and Lessee not later than seven (7) months prior to the expiration of the then term or on such later date as Lessor and Lessee may mutually agree. Upon delivery of the aforesaid written reports of value, and Market Rate shall be computed as follows: (a) average the three appraisals and disregard the appraisal which deviates the greatest from the average; and (b) average the two remaining appraisals. The average of the two remaining appraisals shall constitute the Market Rate and shall be binding upon the Lessor and Lessee. In the event Lessee then exercises its option to extend, the exercise of which shall take place, if at all, at lease six (6) months prior to the expiration of the then existing lease term, Lessee shall pay to Lessor during the first three (3) years of the second option to extend Annual Net Basic Rent equal to the product of Market Rate times 13,995 square feet. The Lessor and Lessee shall each bear the fees, costs and expenses of the appraiser selected by it, and the fees, costs and expenses of the appraiser appointed by the parties' appraisers shall be shared equally by Lessor and Lessee. Either party's failure to fully comply in a timely fashion with the provisions regarding determination of Market Rate shall be deemed an abandonment of this method of determining rental, and the Market Rate shall be determined solely by the non-defaulting party's appraiser. Thereafter, the Annual Net Basic Rent to be paid for the Demised Premises during the fourth and fifth years of the second option to extend shall be the greater of the following: (a) The Market Rental (as determined hereinabove); or (b) An amount calculated by the following formula: (A)x(.50)x{(B/C)-1.00}+(A) = Annual Basic Rent during the last two (2) year of second extended term of Lease. where A = The Annual Net Basic Rent during the first three (3) years of the second extended term. where B = The CPI-U published for the period immediately prior to the commencement date of the last two year period of the second extended term. where C = The CPI-U published for the period immediately prior to the commencement date of the second Five year extended term. In the event that the Price Index hereinabove referred to ceases to incorporate a significant number of items contained in the Index last published prior, or if a substantial change is made in the method of establishing such Index, then the Index shall be adjusted to the figure that would have resulted had no change occurred in the manner of computing such Index. In the event that such Index (or a successor or substitute Index) is not available, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the Index, shall be used in lieu of such Index. All such rental required herein shall be paid in then lawful money of the United States of America in equal monthly installments; one installment to be paid upon the first day of each and every calendar month during the term hereof to the Lessor at such place as may, from time to time, be designated by them; and in the absence of such designation, at the last known office of the Lessor in Tempe, Arizona. RESTRICTIONS ON OPTION: Lessee may not exercise an Option if Lessee is in any way in default of any of the terms, conditions or covenants contained in this Lease beyond an applicable cure period, and the occurrence of any default by Lessee from and after the date of notice of exercise of an Option and Lessee's subsequent failure to cure said default within the applicable period, shall result in the immediate termination forever of the Options, and all rights of Lessee as set forth in this Schedule without further action of the parties and all without prejudice to the other rights of Lessor. The Options are for the sole benefit of the above named Lessee and shall automatically terminate upon any assignment of this Lease, sublease of the Demised Premises, or other transfer of this Lease and/or the rights of Lessee, provided, however, that Lessee shall have the right to exercise only the next available option to extend the term an additional five (5) years in the event Lessee assigns or subleases this Lease, pursuant to the provisions of SEC. 1201, subject however, to the following terms and conditions: 1) This right to exercise one (1) option to extend the term in the event of an assignment or sublease is a one time right, and shall not be applicable in the event of any subsequent assignments or subleases; 2) Notwithstanding the provisions of Article 3 with regard to determining the Annual Net Basic Rent, the Annual Net Basic Rent during the extended term if this option is exercised following an assignment or sublease, shall be the "Market Rental", and shall be determined substantially in accordance with the procedures set forth in this Schedule 3 for determining Market Rental. 3) Notwithstanding the provisions of SEC.1202, as a condition precedent to the approval of any sublease, assignment of any other type of transfer by the Lessee to any third party of all or a portion of its interest in and to the Demised Premises pursuant to the provisions of this Lease, Lessee agrees that it will pay to the Lessor, contemporaneously with the rental payments due during the five (5) year option period, any amounts Lessee may receive in excess of the Market Rental as determined aforesaid, and in the event less than all of the Demised Premises are so subleased, assigned or transferred in any way, the Lessee shall pay to the Lessor any increase in the square foot rate of rent paid to Lessee during this option period by any third party. EX-10.12 10 EXHIBIT 10.12 LEASE THIS LEASE made this 24th day of March, 1995 by and between CMD SOUTHWEST INC., an Arizona corporation ("Landlord"), and NELCO TECHNOLOGY, INC., an Arizona corporation ("Tenant"). WITNESSETH: ARTICLE I LEASED PREMISES, FIXTURES AND EQUIPMENT: SEC. 101 LEASED PREMISES. That Landlord, for and in consideration of TEN DOLLARS ($10.00), to it in hand paid by Tenant, the receipt whereof is hereby acknowledged; and in consideration of the agreements, conditions, covenants and obligations to be kept, fulfilled, observed or performed by Tenant, does hereby demise and lease, and Tenant does hereby take and rent from Landlord, upon the terms herein set forth, approximately 58,247 square feet of land, more specifically described on Exhibit "A" attached hereto, which Exhibit is by this reference expressly made a part hereof, together with a building to be constructed thereon containing approximately 18,601 square feet ("Building") and including all easements, improvements, tenements, appurtenances, hereditaments, fixtures, rights and privileges thereto belonging, or in any way appertaining and subject to any restrictions, easements and encroachments and to any zoning ordinances, laws, rules or regulations of any Public Authority, now or hereafter in effect, relating to or affecting the Demised Premises. The Demised Premises are commonly known as 1131 West Fairmont, Tempe, Arizona 85282. SEC. 102:1. BUILDING FIXTURES AND EQUIPMENT. All fixtures, machinery and equipment which are necessary to the general operation and maintenance of the Demised Premises, shall be the property of Landlord, whether owned by Landlord at the commencement of the term, subsequently purchased by Landlord, or purchased by Tenant in accordance with the provisions of this Lease. Without in any way limiting the generality of the foregoing, all electric power panels, lighting fixtures, plumbing, heating and air- conditioning equipment shall be considered necessary to the general operation and maintenance of the Demised Premises. SEC. 102:2. TRADE FIXTURES. Only those trade fixtures, machinery, non- structural partitions and other equipment which are supplied, installed and used by Tenant in the conduct of its business, including process machinery and equipment, process piping and process electric switch gear (other than building equipment), which may hereafter be installed therein, shall be the property of Tenant and may be removed by Tenant at any time prior to or upon termination of the Lease, whether by lapse of time or otherwise; provided Tenant is not, at any such time, in default of any of the terms or conditions of this Lease. Tenant shall remove, on demand by Landlord and at Tenant's expense, any and all such items at the termination of the Lease term, whether by lapse of time or otherwise, and repair any damage caused by such removal, restoring the Demised Premises to their condition prior to the installation of all such items or any of them. SEC. 103. "DEMISED PREMISES" and "IMPROVEMENTS" DEFINED. "Demised Premises" shall mean the real estate described in Exhibit "A" and shall include any and all Improvements, now or hereafter, located or constructed thereon. "Improvements" shall mean all buildings and all other improvements, (except for Tenant's trade fixtures) now or hereafter located or constructed on the Demised Premises, including, without limitation, the Building, fixtures, other structures and equipment on such premises which are the property of Landlord as above described in Sec. 102: 1. ARTICLE 2 TERM, POSSESSION: SEC. 201. TERM. Promptly after execution and delivery of counterparts of this Lease by both parties and payment of the first month's rent and Security Deposit to Landlord, Landlord will promptly commence and diligently prosecute to Substantial Completion (as hereinafter defined) the work ("Landlord's Work"), at Landlord!s sole cost and expense, in a good and workmanlike manner, as described in those certain plans and specifications prepared by Fulton Architects, 7633 E. Acoma Suite 206B, Scottsdale, AZ. 85260 and attached hereto as Exhibit B. "Substantial Completion" shall mean the date certified in writing by Fulton Architects that Landlord's Work is substantially complete, in accordance with Exhibit B. The term of this Lease ("Term") shall be for a period of Ten (10) years commencing upon the date of Substantial Completion ("Commencement Date") and ending at 11:59 P.M. (local time at the Demised Premises) on the day immediately preceding the tenth anniversary date of the Commencement Date ("Termination Date"), subject to the further provisions of this Lease. SEC. 202. HOLD-OVER TENANCY. In the event Tenant remains in possession of the Demised Premises after the expiration of the term of this Lease, or any extension hereof, without written consent of Landlord, Tenant shall then be obligated to pay double the rate of the then current annual rent as set forth herein, in equal installments on the first day of each calendar month, for so long as Landlord is willfully kept out of possession of the Demised Premises. No such payment, nor the acceptance thereof, shall in any way constitute a waiver of the rights of Landlord to dispossess Tenant and recover possession of the Demised Premises and the just and former estate of Landlord and to bring any action for damages suffered by Landlord on account of Tenant's failure to vacate the Premises. ARTICLE 3 RENTAL: SEC. 301. RENTAL. Tenant hereby covenants and agrees with Landlord to take and accept said demise and lease of the Demised Premises on the terms as herein set forth and to pay throughout the Term to Landlord or such other person as Landlord may direct in writing the annual sums (" Annual Net Basic Rent") in equal monthly installments ("Monthly Net Basic Rent") as follows: Monthly Net Annual Net Lease Year Basic Rent Basic Rent Years 1-3 $9,200.00 $110,400.00 Years 4-6 $10,275.00 $123,300.00 Years 7-9 $11,600.00 $139,200.00 Year 10 $13,000.00 $156,000.00 The term "Lease Year" shall mean each twelve (12) month period throughout the Term of this Lease beginning with the Commencement Date. The Annual Net Basic Rent during each Lease Year shall be paid by Tenant to Landlord in monthly installments in advance on the first day of each calendar month of the Term, except that Tenant shall pay the first such monthly installment upon the execution hereof subject to adjustment as hereinafter set forth. All such rent shall be paid in lawful money of the United States of America (either in cash, wire transfer or corporate check of Tenant, which rent shall be deemed paid upon receipt of such check unless such check is subsequently dishonored), without any set-off or deduction whatsoever. Time is of the essence of this Lease. In the event the Term commences on a day other than the first day of a calendar month, then upon the Commencement Date, Tenant shall pay to Landlord as rental for the period from the Commencement Date to the first day of the next succeeding calendar month that proportion of said monthly rental which the number of days between the Commencement Date and the first day of said next succeeding calendar month bears to 30. In the event the Term ends on a day other than the last day of a calendar month, then upon the first day of the last calendar month of the Term, Tenant shall pay to Landlord as rental for the period from said first day of the last calendar month to and including the last day of the Term that proportion of the monthly rental which the number of days between said first day of said last calendar month and the last day of the Term bears to 30. It is intended that the rent provided for in this Lease shall be an absolutely net return to Landlord for the term of this Lease, and any renewals or extensions thereof, free of any and all expenses or charges with respect to the Demised Premises including, without limitation, any Taxes and assessments, now or hereafter imposed upon or related to the Demised Premises, commonly known as real estate taxes, general or special or improvement assessments, and any taxes and assessments, whether by way of an income tax or otherwise which may be levied, assessed or imposed by the State in which the Demised Premises are located, or by any political or taxing subdivision thereof, upon the income arising from the rents provided herein in lieu of or as a substitute for taxes or assessments imposed upon or related to the Demised Premises and commonly known as real estate taxes; and that Tenant, and not Landlord, shall be required to, and shall pay, such taxes and assessments, but not to pay any other income tax which may be levied against Landlord. Tenant hereby 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 trust deed covering the Demised Premises. Accordingly, if any installment of rent or any other payment due from Tenant shall not be received by Landlord within Ten (10) days after such amount shall be due, Tenant shall pay to Landlord in addition to the amount due, a late charge equal to Eight Percent (8%) of such overdue amount. The parties hereto hereby agree that such late charge by Landlord is a fair and reasonable estimate of the costs Landlord will incur by reason of any such late payment. Such late charge is deemed to be only one of several cumulative remedies available to Landlord hereunder and 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 the other rights and remedies granted hereunder. ARTICLE 4 TAXES, ASSESSMENTS, UTILITY CHARGES, INSPECTION FEES AND LIENS: SEC. 40 1. TAXES, ASSESSMENTS. Tenant shall pay as additional rent, during the full term hereof, all taxes; including, without limitation, ad valorem general real estate taxes, installments of assessments, general and special, and all other public charges levied upon or assessed against the Demised Premises, or any part thereof, or arising by reason of the existence, occupancy, use or possession of the Demised Premises, or the business carried on therein, including, without limitation, the Arizona Rental Income Tax, all of which are hereinafter, collectively referred to as ("Taxes"). Tenant shall pay to Landlord, contemporaneously with the monthly rent payments One Twelfth (1/12th) of the estimated annual Taxes, such estimate to be made by Landlord. Upon receipt of the real estate tax bills each year Landlord will make payment thereof prior to delinquency and promptly provide Tenant with a copy of the tax bill. Adjustments of amounts (credit or debit) shall be made between the parties within thirty (30) days of the receipt by Landlord, of any such bill. All Taxes shall be prorated for the first and last years of the term hereof and any extension or renewal thereof. Proration with respect to the Taxes for the last year of the term shall be made on the basis of the last available tax bill, provided, however, that upon receipt of the tax bill an appropriate adjustment shall be made. SEC. 402. UTILITY CHARGES. Tenant shall secure service and pay all charges for water, electricity, gas, telephone and any and all other utility services furnished to the Demised Premises. Landlord, the Public Authorities and the Utilities servicing or located on the Demised Premises shall, at all reasonable hours, by its or their agents or employees, have the right to install, repair and replace the utility conduits, meters and other facilities located on the Demised Premises; it being understood and agreed, however, that Landlord shall not be liable for the care, upkeep or maintenance of such facilities. SEC. 403. LICENSES, PERMITS AND FEES. All licenses, permits and fees of any kind or character whatsoever, imposed on the Demised Premises or the use and operation thereof by the City, County, State or Federal Government, or any other governmental unit or Public Authority or for inspection of the Demised Premises, or any part thereof during the term hereof, shall be paid promptly by Tenant prior to delinquency. SEC. 404. MECHANIC'S LIENS. Tenant agrees to keep the Demised Premises and the Building free from any liens arising out of any work performed on the Demised Premises or materials furnished to the Demised Premises (except work performed or materials furnished by or at the request of Landlord). Landlord may, at any time and in accordance with applicable law, post notices of non-responsibility on the Demised Premises and record verified copies of those notices in connection with all work of any kind upon the Demised Premises. The parties hereto agree, and notice is hereby given, that Tenant is not the agent of Landlord for the construction, alteration or repair of any improvements on the Demised Premises, the same being at the sole direction and expense of Tenant, except for the construction of the Building pursuant to Section 201 hereof. All contractors, materialmen, mechanics, and laborers are hereby charged with notice that they must look only to Tenant for the payment of any charge for work done or material furnished on the Demised Premises during the term of this Lease (except work performed or materials furnished by or at the request of Landlord). Tenant shall have no right, authority or power to bind Landlord or any interest of Landlord for the payment of any claim for labor or material, or for any charge or expense, incurred by Tenant as to improvements, alterations or repairs on or to the Demised Premises, and Tenant shall post notices on the Demised Premises during all construction work of any nature whatsoever that Landlord is not responsible for any material and labor used on the Demised Premises, except for the construction of the Building pursuant to Section 201 hereof. Tenant shall hold harmless and indemnify Landlord from and against all costs, expenses and liabilities from any mechanics', laborers' or materialmen's liens which may be filed against the Demised Premises arising out of Tenant's use or occupancy of the Demised Premises. In the event of any such lien attaching to the Demised Premises, Tenant will promptly notify Landlord of such event and Tenant will pay off the same and have such lien released of record within forty-five (45) days of the filing of such lien of record. SEC. 405. PAYMENT BY LANDLORD. If at any time, any tax, assessment, charge, rate, fee or inspection fee, generally or specifically charged or assessed against said Demised Premises shall become due or payable and Tenant shall not pay the same, or, in the event any lien for labor or material shall not be released of record by Tenant within forty-five (45) days of the filing of such lien of record (other than a lien for labor performed or materials furnished by or at the request of Landlord), Landlord may, at its option, pay the same at any time thereafter without inquiring into the validity thereof, and the amount of any and all such payments so made by Landlord (with interest thereon at Fifteen Percent (15 %) per annum from and after the date any such payment was due and payable by Tenant) shall be and hereby is declared to be so much additional and further rent for the Demised Premises, due from and payable by Tenant with the next installment of rent and may be collected in the same manner as other rents due hereunder; provided, however, that subject to the further provisions hereinafter set forth, Tenant shall have the right, at Tenant's expense, to contest in good faith the validity of any Taxes, assessments, charges, liens, rates or fees so specifically charged or assessed against the Demised Premises; provided, however, that Tenant notifies Landlord in writing of Tenant's intention to so contest within Thirty (30) days in advance of the date such Taxes, assessments, charges, liens, rates or fees charged or assessed against the Demised Premises were due and payable; and further provided that such contest is commenced within Thirty (30) days of the date of such notice. SEC. 406. CONTEST. In the event Tenant desires to contest any Taxes, assessments, charges, liens, rates or fees herein provided, it shall do so by paying the amounts under protest, or shall provide for the payment thereof, together with all penalties, interest, costs and expenses, by the deposit of a sufficient sum of money to be held in escrow by Landlord or, at the option of Landlord, by a good and sufficient undertaking as may be required or permitted by law, all to the end that no delinquency or proceedings based upon delinquency shall in anyway affect the title or interest of Landlord in the Demised Premises. Tenant agrees that it will prosecute any such contest with due diligence and in the event any such contest be adjudicated adversely to Tenant, that Tenant will, within Thirty (30) days after final determination, or within the time provided for in such adjudication, whichever is sooner thereof, pay the full amount of any such Taxes, assessments, charges, liens, rates or fees, or other obligations which may have been the subject of such contest as so therewith and satisfy and cause the release of the same of record. Tenant shall keep Landlord notified, from time to time throughout the period of its pendency, as to the progress and status of any such contest. If a final determination is not had within Three (3) years from the date of instituting any such contest, or in the event of any default of Tenant, pursuant to the terms of this Lease, Landlord at its option, may pay out of any funds held in escrow any such Taxes, assessments, charges, liens, rates or fees which may be under contest, together with all penalties, interest charges and other expenses whatever in connection with such contest and Tenant shall immediately upon written demand from Landlord. terminate any such contest. In the event the funds so held are insufficient to pay and satisfy the same, Landlord, at its option, may pay any deficiency and any amount so paid will be reimbursed by Tenant as additional rent due hereunder, promptly upon demand, notwithstanding any previous termination of the term of this Lease by lapse of time or otherwise, with interest at Fifteen Percent (15%) per annum from the date of expenditure by Landlord. Nothing contained in this agreement shall be construed to authorize Tenant to create or incur on behalf of Landlord any liability, indebtedness or obligation whatsoever. Anything herein to the contrary, notwithstanding, Tenant shall defend, completely indemnify and hold Landlord forever harmless from any and all consequences of any such Taxes, assessments, charges, liens, rates or fees, or any contest thereof which were the obligations of Tenant to pay hereunder. ARTICLE 5 INSURANCE: SEC. 501. PROPERTY INSURANCE. Tenant covenants and agrees that immediately upon the commencement of the term hereof, Tenant will cause, at Tenant's expense, the Building and Improvements placed on the Demised Premises by Landlord, including any and all additions thereto, to be insured for full replacement cost against loss or damage by fire, lightning and other casualty covered by the provisions of endorsements for Extended Coverage and Special Extended Coverage or All Risk Coverage, to include the peril of collapse, vandalism and malicious mischief, replacement cost, and will keep insurance to the full replacement value, from time to time, of the Building and Improvements placed on said Demised Premises by Landlord, including any and all additions thereto, in full force and effect during the term hereof so long as this Lease is in effect, including all extensions hereof, and naming Landlord as a loss payee and Landlord!s mortgage as mortgagee and a loss payee. No such policy of insurance shall include either the contents of the Building located on the Demised Premises or any other property of Tenant or any third party except as a separate stated item of insurance, separate and in addition to the coverage which shall apply exclusively to Landlord!s Building and other Improvements owned by Landlord. All such policies shall provide that Landlord and any mortgagee(s) shall be the insureds as their interests appear, and shall further provide that any loss shall be payable to Landlord and any mortgagee(s) notwithstanding any act or omission of Tenant which might otherwise result in a forfeiture or reduction of said insurance. In addition, Tenant shall maintain steam boiler insurance in such amounts as Landlord may from time to time reasonably require on all steam boilers, pressure boilers or such apparatus as Landlord may reasonably deem necessary to be covered by such insurance, if any. Tenant will not place, nor permit to be placed, any other policies of insurance upon the Building or other Improvements placed upon Demised Premises by Landlord without advance written permission of Landlord and without Landlord and Landlord!s Mortgagee(s) as a named insured. SEC. 502. GENERAL LIABILITY INSURANCE. Tenant, at Tenant's expense, and for mutual benefit of Landlord any Mortgagee(s) and Tenant, shall maintain Commercial General Liability Insurance, covering the Demised Premises in an amount not less than One Million Dollars ($1,000,000), combined single limit. Such insurance shall include, but not be limited to, the following coverages: premises/operations, independent contractors, personal injury, broad form property damage and contractual liability and shall name Landlord and Landlord's mortgagee as additional insureds. SEC. 503. INSURANCE GENERALLY. All insurance policies shall be with companies mutually satisfactory to Landlord and Tenant and shall provide for at least Thirty (30) days mandatory advance written notice to Landlord before cancellation, reduction or other amendment and the property policies shall contain a standard mortgage clause. Certificates evidencing such insurance shall be delivered by Tenant to Landlord at the commencement of the term of this Lease and all subsequent amendments and endorsements shall be promptly delivered to Landlord. Statements for premiums on such policies shall be sent to and paid by Tenant. In the event Tenant shall refuse or fail to provide the insurance coverage herein required or to provide evidence of such coverage as herein described, Landlord may, at its election, but with no obligation so to do, procure and, from time to time, renew such insurance and all amounts expended therefor with interest thereon at Fifteen Percent (15%) per annum from the respective dates of such expenditures shall be so much additional rent hereunder due from Tenant on demand. Tenant agrees to indemnify Landlord for any loss suffered as the result of the exercise of any deductible feature that may be incorporated in the insurance contract and Landlord hereby reserves the right to disapprove the amount and provisions of any such deductible feature. Tenant agrees to be a self insurer as to such deductible amounts and further agrees to pay such amounts to Landlord in the same manner as though such insurance policies did not contain deductible provisions. ARTICLE 6 USE MAINTENANCE AND CONDITION OF THE DEMISED PREMISES: SEC. 601. DEMISED PREMISES. Tenant shall not breach or suffer the breach of any of the conditions, agreements and restrictions of record affecting the Demised Premises and shall defend, completely indemnify and hold Landlord forever harmless from all consequences of any such breach. Tenant may use and occupy the Demised Premises for electronics substrate materials manufacturing, related test/support activities, and for offices in connection therewith; provided, however, that Tenant shall strictly comply with all present and future laws, ordinances and regulations of public authorities, as well as all insurance underwriting and inspection and rating requirements, now or hereafter in any manner affecting the use of the Demised Premises, the sidewalks, alleys, driveways and parkways adjacent thereto, if any, or any building thereon, or the use thereof, provided, however, that Tenant shall have no liability for any such compliance if such compliance is in no way related to Tenant's use or occupancy of the Demised Premises. Tenant shall not permit any unlawful occupation, business, trade or nuisance to be conducted on the Demised Premises, or any use to be made thereof contrary to any law, ordinance or regulation. The storage of any material or equipment of any kind or character outside the Building(s) located on the Demised Premises shall comply with applicable codes and regulations. Tenant will not use or permit to be used upon or in said Demised Premises or any Building thereon anything that will invalidate any policy of insurance at any time insuring the Demised Premises, or any Building(s) or Improvements thereon, nor shall Tenant permit any dangerous condition to exist on the Demised Premises. Tenant shall not cause or suffer any signs to be erected upon the Demised Premises, nor upon any Building(s) or Improvements located thereon without the prior written approval of Landlord, which shall not be unreasonably withheld. Anything herein to the contrary, notwithstanding, Tenant shall not at any time overload any structural member (including, by way of illustration and not limitation, all roofs, columns, walls, beams, trusses and floors) of the Building located on the Demised Premises; nor shall Tenant cause or suffer the demolition of the Building(s) or Improvements, or any part(s) thereof without the prior written approval of Landlord. Tenant further covenants and agrees that the entry into occupancy of the Demised Premises by Tenant shall constitute an acknowledgment that the same and the Building(s) and Improvements thereon have been received by Tenant in first-class condition and repair. Landlord warrants the following against defects in material and workmanship for the periods set forth: roof, two years; paving, structural components, mechanical systems, air conditioning and electrical systems, one year; landscaping, ninety days; and plumbing, one year (provided however, that drains on the Demised Premises are warranted to be free flowing only on the Commencement Date). Tenant shall not be deemed to have accepted those latent defects in the structure of the Building, or in the electrical, plumbing, heating or air conditioning systems of the Building, which would not be discoverable upon a reasonable "walk-through" inspection of the Demised Premises, except that it shall be conclusively presumed as against Tenant that the Demised Premises is in first-class order and satisfactory condition with regard to such latent defects unless such latent defects are described on a "punch list" prepared, and agreed upon, by Tenant and Landlord within 60 days after the commencement of the term of this Lease. Landlord agrees to promptly commence and diligently prosecute to completion all such "punch list" items in a good and workmanlike manner. Except as provided in this paragraph, Tenant agrees that upon Tenant's occupancy of the Demised Premises, Tenant is taking the Demised Premises in "AS IS" condition. SEC. 602. MAINTENANCE. During the term of this Lease and any extensions thereof, Tenant shall maintain and preserve the Demised Premises, including, without limitation, the interior and exterior of the Building thereon in first-class and clean condition making all repairs, replacements and restorations necessary for such maintenance and preservation: including, without limitation, tuckpointing, painting, glass replacement, glazing, caulking and the repair, replacement and restoration of docks, landscaping and, parking areas. All repairs, replacements and restorations shall be in quality at least equal to the original construction. At the termination of this Lease, by lapse of time or otherwise, Tenant shall deliver the Demised Premises to Landlord in first-class condition and repair as obtained therein at the commencement of the term of this Lease subject, however, to ordinary wear and tear and to the loss or damage due to any casualty to the extent actually recovered by Landlord under insurance policies to be obtained and maintained by Tenant as herein set forth. Anything herein to the contrary, notwithstanding, Tenant will not suffer any waste to occur on the Demised Premises and will make every reasonable effort to prevent the Demised Premises from falling into disrepair; including, without limitation, the prompt performance of all repair, replacement and restoration obligations of Tenant as herein set forth. SEC. 603. ALTERATIONS. Tenant shall make no alterations to the Demised Premises without prior written approval of Landlord which shall not be unreasonably withheld. Tenant shall remove, on demand by Landlord and at Tenant's expense, any and all alterations made by Tenant at the termination of this Lease, whether by lapse of time or otherwise, and shall repair any damage caused by such removal, restoring the Demised Premises to their condition prior to the making of any such alteration(s), or any of them. Any and all alterations, additions and improvements made to or placed upon the Demised Premises by Tenant, or suffered by Tenant to be made to or placed upon the Demised Premises, as well as all fixtures and articles of personal property attached to or made a part of the Demised Premises, which Tenant has not been required to remove by Landlord, shall immediately become the property of Landlord at the termination of this Lease and shall be surrendered to Landlord. Subject to the provisions hereinabove set forth, Tenant may expend such additional sums of money upon the Demised Premises, the Building and Improvements on said Demised Premises as Tenant may desire, with the full understanding that such additional sums so paid shall not be deducted from or set off against any rents or other payments due hereunder. SEC. 604. LANDLORD'S RIGHT TO INSPECT AND REPAIR. Landlord, its agents and employees shall have the right, at any reasonable time, to enter upon the Demised Premises to inspect the same. In the event Tenant fails to commence such repairs, replacements or restorations as are necessary to maintain the Demised Premises in first-class condition, within Thirty (30) days after notice from Landlord or fails to diligently prosecute the same to completion, Landlord, at its option, but without any obligation so to do, may make such repairs, replacements, or restorations, and amounts expended for such work by Landlord shall be reimbursed by Tenant as additional rent due hereunder, promptly on demand, together with interest at Fifteen Percent (15%) per annum from date of expenditure. Anything herein to the contrary, notwithstanding, Landlord shall have the right, at any time, to enter upon the Demised Premises, but without any obligation so to do, in order to effect any repair, replacement or restoration of an emergency nature and Tenant shall reimburse Landlord as additional rent due hereunder, promptly upon demand, for reasonable expenditures incurred for such work and if Tenant denies Landlord such access, Tenant agrees to defend, indemnify and hold forever harmless Landlord from and against any and all liability, fines, suits, claims, demands, actions, causes of action, losses, costs, damages, judgments and expenses of any kind or character, name or nature due to or arising directly or indirectly out of such emergency. ARTICLE 7 INDEMNIFICATION AND HOLDING HARMLESS OF LANDLORD: SEC. 701. INDEMNIFICATION. To the extent permitted by law, Tenant shall defend, completely indemnify and hold forever harmless Landlord from and against any and all liability, fines, suits, claims, demands, actions, causes of action, losses, costs, damages, judgments and expenses of any kind or character, name or nature, due to or arising out of: (a) Any breach, violation or non-performance of any covenant, obligation, condition or agreement in this Lease set forth and contained on the part of Tenant to be fulfilled, kept, observed or performed; and/or (b) any damage to, loss or destruction of any property arising directly or indirectly out of Tenant's use and occupancy of the Demised Premises; and/or (c) any injury to any person, including death resulting at any time therefrom, occurring in the Demised Premises, or any injury to any agent or business invitee of Tenant, including death resulting at any time therefrom occurring on or about the Demised Premises, or any injury to any person, including death resulting at any time therefrom wherever occurring when such injury or death was proximately caused by Tenant's negligence or intentional act or omission. In the event Landlord is made a party to any action or proceeding which Tenant is required to defend pursuant to the provisions of this Lease, Landlord shall have the right to appear and to take part in any such action or proceeding by legal counsel of Landlord's choice, at Tenant's sole cost and expense, but Tenant shall not be obligated to pay any such cost or expense for the legal counsel of Landlord's choice, unless such cost or expense is covered by Tenant's commercial general liability insurance. Tenant shall also completely indemnify Landlord as to all costs and expenses incurred to enforce any of the terms, provisions, conditions or covenants of this Lease; including, but not limited to, attorney's fees. SEC. 702. LOSS OF PROPERTY. Anything in this Lease to the contrary notwithstanding Tenant agrees that under no circumstances shall Landlord be liable to Tenant or to any third party for any loss of, destruction of, damage to or shortage of any property; including, by way of illustration and not limitation, equipment or inventory placed on the Demised Premises or suffered to be placed thereon by Tenant, it being the intention of the parties hereto that the risk of any and all such loss, destruction, damage or shortage shall be borne by Tenant and Tenant agrees to defend, completely indemnify and hold Landlord forever harmless from and against any and all liability, suits, claims, demands, actions causes of action, losses, costs, damages, judgments and expenses if any arising out of such loss, destruction, damage or shortage. ARTICLE 8 DAMAGE OR DESTRUCTION OF BUILDINGS: SEC. 801. DAMAGE OR DESTRUCTION OF BUILDINGS. If any Building or Improvements placed by Landlord on the Demised Premises shall be injured or destroyed by fire or other casualty insured against by endorsement for extended coverage and special extended coverage, Landlord will, with due diligence and dispatch, proceed to collect the insurance thereon and if Landlord elects to repair or restore such Building, Landlord will apply the insurance monies derived from said policies to such repair and restoration and shall promptly commence and diligently prosecute to substantial completion such repair and restoration work. In the event that the monies realized from the insurance policies shall not be sufficient to restore such Building and/or Improvements to their condition immediately prior to such fire or other such casualty, Landlord may, at the option of Landlord, advance the additional funds necessary therefor, and to the extent that the insufficiency of the insurance proceeds was due to the failure of Tenant to comply with the provisions of this Lease and to the extent of any deductible feature in the insurance coverage to be provided by Tenant, Tenant covenants and agrees to repay any such advance to Landlord as additional rent due hereunder, promptly upon demand, with interest at the rate of Fifteen Percent (151/o) per annum from the date of such expenditure. In the event Landlord does not elect to repair or restore such Building and/or Improvements within Thirty (30) days after such a casualty, such election to be evidenced by written notice to Tenant within said time period, then in such event this Lease and the term hereof, may be terminated and canceled at the election of either party hereto, provided written notice is given to the other party within Ten (10) days after the expiration of the last aforementioned such Thirty (30) day period. Absent such timely notice this Lease shall remain in full force and effect. ARTICLE 9 RENT ABATEMENT BECAUSE OF DAMAGE: SEC. 901. RENT ABATEMENT BECAUSE OF DAMAGE. In the event the Building and/or Improvements on the Demised Premises shall be damaged by fire or other casualty covered by the provisions of the insurance policies then in effect as provided for herein, Tenant shall not be required to pay rent on any portion of said Building not susceptible to occupancy for the uses set forth herein and the rental reserved hereunder shall be reduced to the proportion that the square foot area of the Building remaining susceptible to occupancy for the uses set forth herein tenantable bears to the total square foot area of the Building. Such rental shall be increased pro rata, from time to time, if and when additional areas of the Building are returned to tenantable condition. ARTICLE 10 CONDEMNATION: SEC. 1001. AWARD. In the event the Demised Premises, or any part thereof, shall be condemned or taken for a public or a quasi-public use, or is sold by Landlord under threat of condemnation, any award made or sales price paid to compensate for the value of the Demised Premises, Building(s) and Improvements thereon, or for damages to the remainder thereof shall be paid to Landlord and Tenant shall have no claim thereto and Tenant hereby irrevocably assigns and transfers to Landlord any right to any such compensation or damage awards, providing, however, that Tenant shall have the right to prove in the proceeding and to receive any award which may be made for damages for or condemnation of Tenant's movable trade fixtures and equipment and relocation costs. In the event any or all of the Demised Premises shall be so condemned or taken, Tenant shall execute and deliver to Landlord, promptly on demand, all documents necessary and proper to evidence the termination of the interest of Tenant in and to the Demised Premises and this Lease, including, without limitation, a recordable release and cancellation of this Lease and a quit claim deed. The failure of Tenant to so execute and deliver such documents shall in no way affect such termination of this Lease and the interest of Tenant in and to the Demised Premises. SEC. 1002. REMAINDER SUSCEPTIBLE OF OCCUPANCY. In the event a part of the Demised Premises remains which is susceptible of occupation for the uses set forth herein, this Lease shall, as to the part so taken, terminate as of the date title shall vest in the condemning authority and the rent payable hereunder shall be adjusted so that Tenant shall be required to pay for the remainder of the term only such fractional portion of such rent as the area of the part of the building located on the Demised Premises remaining after condemnation bears to the area of said Building as of the date of condemnation; but, in such event, either party hereto shall have the option to terminate this Lease as of the date when title to the part so taken vests in the condemning authority by written notice to the other party within Thirty (30) days after the date on which the title so vests. In the event either party hereto does not so terminate this Lease, this Lease shall remain in full force and effect and Landlord shall promptly commence and diligently prosecute to completion the restoration of the Building so that it shall again constitute a complete architectural unit but Tenant shall be required to pay only that fractional portion of the rent as is provided for hereinabove in this SEC. 1002. SEC. 1003. REMAINDER NOT SUSCEPTIBLE OF OCCUPANCY. Subject to the further provisions of SEC. 1004 hereof, and in the event all of the Demised Premises, or such part thereof be taken or condemned so that there does not remain a portion susceptible for occupancy for the uses set forth herein, this Lease shall terminate upon the date the title to the part taken vests in the condemning authority and Tenant's obligation to pay rent or to discharge any other obligation hereunder, other than the payment of money then due and damages arising out of any breach of the covenants, conditions or terms hereof by Tenant, shall cease. SEC. 1004. LANDLORD'S RIGHT TO RESTORE. Anything herein to the contrary, notwithstanding, in the event the Demised Premises are not susceptible for occupancy for the uses set forth herein and in the further event Landlord notifies Tenant, within Ten (10) days from the date the title of any part so taken vested in the condemning authority, of Landlord's intention to restore the Demised Premises to a condition susceptible of occupancy for the uses set forth herein; and in the further event such restoration is diligently prosecuted to completion and labor disputes, material shortages, force majeure and other causes beyond Landlord's control shall not be considered indiligence, this Lease shall remain in MI force and effect; provided, however, that a rental adjustment shall be made proportionate to any reduction in the area of the Building located on the Demised Premises. Absent such timely notice, the provisions of SEC. 1003 shall control. ARTICLE 11 DEFAULT, BANKRUPTCY: SEC. 1101. DEFAULT, BANKRUPTCY. It is mutually agreed and understood by and between the parties hereto that in the event during the term of this Lease, regardless of the pendency of any bankruptcy, insolvency, receivership or reorganization proceedings, in law, equity or before any administrative tribunal, or any other governmental entity which has prevented or which might prevent compliance by Tenant with the terms or provisions of this Lease: (1) Tenant shall default in the payment of any installment of rent or other payment required to be made by Tenant pursuant to the provisions of this lease and such default shall continue for Ten (10) days; or (2) Tenant shall default in the provisions of any of the agreements, conditions, covenants or obligations hereunder to be kept, fulfilled, observed or performed by Tenant and such default shall not be cured within Thirty (30) days after notice of such default from Landlord to Tenant; Anything hereinabove to the contrary notwithstanding. as to any such default except the payment of any rent or other monies reserved herein, in the event Tenant shall, within said Thirty (30) day period, commence the cure of such default and diligently pursue to completion any such cure as soon as reasonably practicable, Landlord may not declare the term ended and this Lease terminated and canceled; or (3) if any voluntary petition or similar pleading under any bankruptcy act or any federal or state law seeking reorganization or arrangement with creditors or adjustment of debts is filed by or against Tenant, or if any such petition or pleadings is involuntary and Tenant is not discharged thereof within Thirty (30) days after the date of its filing; or (4) if Tenant admits its inability to pay its debts or if a receiver, trustee or other appointee of a court, administrative tribunal or other public authority is appointed for all or a substantial part of Tenant's property and if such appointment is not vacated within Thirty (30) days after being made; or (5) if the leasehold interest of Tenant is levied upon or attached by process of law, and such levy or attachment is not released of record within Thirty (30) days; or (6) if Tenant makes an assignment for the benefit of creditors, or if any proceedings are filed by or against Tenant to declare Tenant insolvent or unable to meet its debts and such proceedings are not discharged within Thirty (30) days after the date of their filing; or (7) if a receiver or similar type of appointment or court appointee or nominee of any name or character is made for all or a substantial part of Tenant's property and if such receiver is not discharged within Thirty (30) days after appointment; then, in any such event, Landlord shall have the right, at any time thereafter, with or without notice to avail itself to any or all of the following remedies, (a) to lock the doors of the Demised Premises and exclude Tenant therefrom; (b) to retain or re-enter and take complete possession of the Demised Premises pursuant to Landlord's statutory lien; (c) to remove all persons and all of Tenants property therefrom; (d) to terminate this Lease forthwith; (e) to sue for the rent due and to become due under this Lease; (f) to sue for any damages sustained by Landlord and/or (g) to keep this Lease in full force and effect reletting the Demised Premises on such terms and conditions as Landlord may deem appropriate without prejudicing Landlord's rights to recover past and future rents or other obligations of Tenant hereunder. Anything herein to the contrary, notwithstanding any payment of rent or any other payment to be made by Tenant to Landlord, pursuant to the provisions of this Lease, shall bear interest at the rate of Fifteen Percent (15%) per annum from the date payment was due. In the event the right, title and interest of Tenant in and to the Demised Premises and this Lease is terminated, whether by lapse of time or otherwise, Tenant shall execute and deliver to Landlord, promptly on demand, all documents reasonably requested by Landlord to evidence such termination: including, without limitations a recordable release and cancellation of this Lease and a quit claim deed. The failure of Tenant to so execute and deliver such documents shall in no way affect the termination of this Lease and the interest of Tenant in and to the Demised Premises. SEC. 1102. NO WAIVER. No waiver by Landlord of any default by Tenant of any of the obligations, agreements, conditions or covenants on the part of Tenant to be fulfilled, kept, observed or performed hereunder shall be a waiver of any subsequent default or of any other obligation, agreement, condition or covenant, nor shall any forbearance by Landlord to seek a remedy for any default by Tenant be a waiver by Landlord of any of the rights and remedies available to Landlord hereunder or by law granted or permitted. with respect to such or any subsequent default. ARTICLE 12 TRANSFER, ASSIGNMENT, SUBLEASE: SEC. 1201. TRANSFER, ASSIGNMENT, SUBLEASE. Tenant may not assign, transfer, mortgage or pledge this Lease or the interest of Tenant herein or hereunder or sublet Demised Premises or any portion thereof, without, in each case, the prior written consent of Landlord, which. shall not be unreasonably withheld. Any purported assignment, mortgage, transfer, pledge or sublease without the prior written consent of Landlord shall be absolutely null and void and of no legal force or effect. Notwithstanding anything contained herein to the contrary, Tenant shall have the right to assign this Lease or sublet all or any portion of the Demised Premises without the consent of Landlord if such assignment or sublease is to an entity which controls, is controlled by, or is under common control with Tenant, or which is the result of a merger or consolidation with Tenant, or which acquires all or substantially all of Tenant's assets. For purposes of this paragraph, in order for an entity to control another, it must have voting control of and own at least fifty-one percent (5 11/6) of every class of stock and/or other equity interest of the other entity, in the case the other entity is a corporation; it must be the owner of at least seventy-five percent (751/6) of the partnership interests in the assets, liabilities, income, loss and distributions of the other entity, in the case that the other entity is a partnership; it must be the sole beneficiary of the other entity, in the case that the other entity is a trust. SEC. 1202. INCREASED RENT TO LANDLORD. As a condition precedent to the approval of any sublease, assignment or any other type of transfer by Tenant to any third party of all or a portion of its interest in and to the Demised Premises pursuant to the provisions of this Lease, Tenant agrees that it will pay to Landlord, contemporaneously with the rental payments due hereunder, Fifty Percent (50%) of any increased economic benefit received by Tenant, including, without limitation, rent in excess of the rent reserved herein and in the event less than all of the Demised Premises are so subleased, assigned or transferred in any way, Tenant shall pay to Landlord Fifty Percent (50%) of any increase in the square foot rate of rent paid to Tenant by any third party. Tenant shall also increase any security deposit required hereunder to the amount of a full month's rent. The rent that Tenant pays to Landlord for the purpose of this SEC. 1202 shall be calculated by dividing the monthly rent reserved herein by the square foot area of the building located on the Demised Premises as stated hereinabove. SEC. 1203. MAINTENANCE, REPAIR, AND RESTORATION UPON ASSIGNMENT OR SUBLETTING. As a condition precedent to Landlord's consent to any assignment or subletting of this Lease or all or any part of the Demised Premises Landlord may at it's sole discretion require Tenant to undertake any deferred maintenance and to make all repairs and restorations which are the obligations of Tenant under this Lease prior to the effective date of any such assignment or sublease in the same fashion as could be required at the expiration of this Lease Term. SEC. 1204. LANDLORD MAY SELL, MORTGAGE, TRANSFER OR ASSIGN. Landlord shall have the right to sell, mortgage, pledge, hypothecate or in any other manner transfer or assign the interest of Landlord in the Demised Premises and/or in the Lease, subject to all of the covenants and conditions of this Lease. The term "Landlord", as used in this Lease, means only the owner for the time being of the Demised Premises and in the event of any sale, conveyance or other transfer of the Demised Premises, or the interest of Landlord in the Demised Premises, subject to the provisions of Schedule 2 hereof, Landlord shall be and hereby is entirely freed of all covenants and obligations of Landlord hereunder arising after the date of such sale, transfer assignment or conveyance. This Lease shall not be affected by any such sale and Tenant agrees to attorn to the purchaser or assignee. SEC. 1205. SUBORDINATION. This Lease shall be subject and subordinate to the lien of any mortgage or mortgages which at any time may be placed upon the Demised Premises by Landlord, its successors or assigns, and to any replacements, renewals or extensions thereof. Landlord shall use commercially reasonable efforts to obtain the agreement of the holder of such mortgage or mortgages to recognize Tenant's rights hereunder. Tenant agrees, at any time hereafter, on demand, to execute and deliver any instruments, releases or other documents that may be required for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage or mortgages. Tenant hereby appoints Landlord the attorney-in-fact of Tenant, irrevocably, to execute and deliver such instruments, releases or other documents for and on behalf of Tenant, provided, however, Landlord agrees that it shall exercise its power as Tenant's attorney-in-fact as aforesaid only in the event that Tenant unreasonably withholds the delivery of any such instruments, releases or documents for a period of time of 10 days after Landlord's request. SEC. 1206. TENANT'S ESTOPPEL LETTER. Tenant agrees at any time and from time to time upon not less than Ten (10) days prior written request by Landlord to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that the same is in full force and effect as modified and stating the modifications), and the dates to which the basic rent and other charges have been paid in advance, if any, and all of the defaults of Landlord hereunder, if any, it being intended that any such statement delivered pursuant to this Section may be relied upon by any prospective purchaser of the fee or mortgagee or assignee of any mortgage upon the fee of the Demised Premises. ARTICLE 13 MISCELLANEOUS: SEC. 1301. NOTICES. Any notice provided for herein shall be given by registered or certified mail addressed, if to Landlord, as follows: CMD SOUTHWEST INC. 3225 S. Hardy Drive, Suite 105A Tempe, Arizona 85282 with a copy to: CMD SOUTHWEST INC. 227 W. Monroe Street, Suite 3900 Chicago, Illinois 60606 Attention: General Counsel and if to Tenant, as follows: Nelco Technology, Inc. 1104 W. Geneva Tempe, Arizona 85282 with a copy to: Nelco International Corporation 2401 E. Katella, Suite 370 Anaheim. California 92806 Park Electrochemical Corporation 5 Dakota Drive Lake Success, New York 11042 Attention: General Counsel SEC. 1302. CHANGE OF ADDRESS. The person and places to which notices or payments are to be mailed may be changed, from time to time, by Landlord or Tenant upon written notice to the other. SEC. 1303. MODIFICATION. This Lease may be modified only by written agreement signed by Landlord and Tenant. SEC. 1304. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience in reference only and do not constitute a part of this Agreement. SEC. 1305. SUCCESSORS AND ASSIGNS. This Lease and the covenants, terms, conditions and provisions hereof, shall be binding upon the respective parties hereto and upon their respective successors, assigns and personal representatives and shall inure to the benefit of said respective parties hereto and their said respective successors, assigns and personal representatives. Wherever in this Lease a reference to any of the parties hereto is made, such reference shall be deemed to include, wherever applicable and even though not expressly stated, also a reference to the successors, assigns and personal representatives of such party, as the case may be, the same as if in every case expressly stated. The phrase "successors and assigns" is used in this Lease in its broadest possible meaning and includes, in addition to administrators, trustees and conservators; every person, firm, corporation or other entity succeeding to the interest in or to this Lease, or any part thereof, or in or to any real estate, or any part or portion thereof, described or referred to herein or any part hereto, or of any of the successors or assigns of any such party, whether such succession results from the act of a party in interest, occurs by operation of law or is the effect of the operation of law together with any act(s) of any such party or parties. SEC. 1306. ENTRY TO SHOW PREMISES. Landlord, its agents or assigns may, from time to time, during the term of this Lease, and each and every extension hereof, enter the Demised Premises at reasonable times to show the same to prospective buyers or tenants. During the last Six (6) months of the term of this Lease or after the occurrence of any default on the part of Tenant hereunder, Landlord hereby reserves the right to enter the Demised Premises and to place, on the outer walls or roof of any building(s) located thereon and upon any part of the Demised Premises, outside such building(s), "For Sale" and/or "For Rent" signs of a type similar to those used in the area. Tenant agrees not to remove, interfere with, or obstruct the view of any such sign(s). SEC. 1307. TIME OF ESSENCE. Time is of the essence of this Lease and in all of the conditions, obligations, agreements, provisions. terms and covenants hereof. SEC. 1308. RESOLUTION. Tenant shall, contemporaneously with the execution and delivery of this Lease, also deliver to Landlord a copy of a Resolution of the Board of Directors of Tenant, specifically authorizing those of Tenant's officers whose names are subscribed hereto to enter into this Lease Agreement with Landlord named herein. Such Resolution shall make reference to this Lease, the Demised Premises, lease term and rental reserved, shall be duly certified to by the Secretary of said Board of Directors and shall be appended hereto as Schedule 1. SEC. 1309. UNENFORCEABILITY. In the event any covenant, term, provision, obligation, agreement or condition of this Lease is held to be unenforceable at law it is mutually agreed and understood, by and between the parties hereto, that the other covenants, terms, provisions, obligations, agreements and conditions herein contained shall remain in full force and effect. SEC. 1310. WAIVER OF TRIAL BY JURY. Each party hereto waives a trial by jury of any or all issues arising in any action, or proceeding between the parties hereto, or their successors arising out of, or in any way connected with this Lease, or any of its provisions Tenant's use, or occupancy of the Demised Premises and/or any claim of injury or damage. SEC. 1311. GOVERNING LAW. This Lease and the rights of the parties hereto shall be interpreted and determined in accordance with the laws of Arizona. SEC. 1312. ENTIRE AGREEMENT. This Lease contains the Entire Agreement between the parties respecting the matters herein set forth and supersedes all prior agreements between the parties hereto about such matters. SEC. 1313. EXCULPATION. Neither of the partners, if Landlord is a partnership, or if Landlord is a trustee of a trust, the beneficiaries of such trust, nor the shareholders (nor any of the partners comprising same) directors or officers of any of the foregoing (collectively, the "Parties") shall be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder and shall not seek any damages against the rest of the Parties. The liability of Landlord for Landlord's obligations under this Lease shall not exceed and shall be limited to the value of Landlord's interest in the Site and Tenant shall not look to the property or assets of any of the Parties in seeking either to enforce Landlord's obligations under this Lease or to satisfy a judgment for Landlord's failure to perform such obligation. SEC. 1314. BROKERS. Landlord and Tenant each respectively represent and warrant to the other that neither has employed the services of any real estate broker or any similar agent for the purposes of processing this Lease. In the event either party hereto has so employed any such broker or agent, the party responsible for such employment shall indemnify, defend and hold the other forever harmless from and against any commissions, fees, brokerage or other compensation and for any claims for any such commissions, fees, brokerage or other compensation arising out of this Lease, and/or such employment. SEC. 1315. EXHIBITS AND SCHEDULES. The following Exhibits and Schedules are attached hereto and expressly made a part hereof, to wit: Exhibit A Legal Description of Demised Premises Exhibit B Plans and Specifications Schedule I Tenant's Resolution Schedule 2 Security Deposit Schedule 3 Work to be Performed by Landlord Schedule 4 Options to Extend SEC. 1316. ADDITIONAL TERMS. (a) On or before each anniversary of the date of this Lease, Tenant shall deliver to Landlord upon Landlord's request written evidence satisfactory to Landlord that the roof of the Building on the Demised Premises has been serviced @y a roofing contractor licensed @y the State of Arizona and satisfactory to Landlord. (b) Tenant shall not store outside the building on the Demised Premises any goods, materials, scraps, boxes, pallets, containers of all types (except an ordinary refuse container needed for periodic refuse disposal) and any other materials, equipment or items whatsoever unless such items are entirely screened from street view and such storage complies with any applicable regulations or laws. (c) Tenant agrees to hire, at Tenant's sole cost and expense, a professional landscape maintenance company and cause said company to maintain the landscaping improvements to the Demised Premises weekly, in good condition, for the term of this Lease. (d) Notwithstanding anything contained in this Lease to the contrary: Each party's obligations hereunder (except for the payment of rent or any other sums to be paid pursuant to the terms of this Lease) shall be excused to the extent that and during such time as such party is prevented from discharging such obligations by acts of God, strikes, material shortages or any other reason beyond such party's control; Tenant will not avail itself of any remedy provided at law or in equity until Landlord fails to cure any default on the part of Landlord within thirty days after its receipt of written notice of such default from Tenant; and Landlord and Tenant agree that in no event shall either party be liable to the other party for any consequential or incidental damages. (e) If Tenant is in default under the terms of that certain Lease between CMD Southwest One and Tenant, dated March 14, 1988, for the lease of the premises commonly known as II 17 W. Fairmont in Tempe, Arizona, such default shall constitute a default under the terms and provisions of this Lease, entitling Landlord to exercise any and all remedies available to Landlord as provided herein, at Landlord's sole option. IN WITNESS WHEREOF, said Landlord and Tenant have caused this instrument to be executed by their respective duly authorized officers, all as of the day and year first above written. CMD SOUTHWEST INC., Landlord By: /s/ Its: President NELCO TECHNOLOGY, INC, Tenant By: /a/Kevin Brumbaugh Its: Vice President/General Manager EXHIBIT A LEGAL DESCRIPTION OF DEMISED PREMISES: Lot 2 and 3 of Broadway Industrial Park Unit 4A as recorded in Book 228 of Maps, Page 38, Maricopa County Records; EXCEPT the East 162 feet of Lot 2 and Except the West 190 feet of Lot 3. EXHIBIT B To be appended. Schedule I Lease between CMD Southwest Inc. and Nelco Technology, Inc. for 1131 West Fairmont, Temps, Arizona TENANT'S RESOLUTION RESOLVED, that the Corporation should, and it hereby does, approve that certain Lease by and between am Southwest Inc., an Arizona corporation, as Lessor, and the Corporation, as Losses, for approximately 58,247 square feet of land, together with a building to be constructed thereon containing approximately 18,601 square feet, located on a portion of Lots 2 and 3, Broadway Industrial Park, Unit 4A, as recorded in Book 228 of Maps, page 38, Maricopa County Records, Phoenix, Arizona, commonly known as 1131 West Fairmont, Temps, Arizona 85282 for a period of tan years commencing on substantial completion of the building at an annual net basic rent of not more than $112, 800 for each of the first three years, not more than $126, 000 for each of the fourth, fifth and sixth years, not more than $142,200 for each of the seventh, eighth and ninth years and not more than $160, 500 for the tenth year, plus insurance, maintenance, utilities and real estates taxes, with options to extend such lease for two additional five-year periods at an annual net basic rent equal to the then prevailing market rate during the first three years of the extension term, but not less than $148,200, 115% of such rent during the next two years, the then prevailing market rate during the next three years and 115% of such rent during the final two years and with the prevailing market rate to be determined by agreement of the Corporation and the landlord or by the average of the two appraisals closest in value completed by an appraiser appointed by. the Corporation, an appraiser appointed by the landlord and an appraiser appointed by the other two appraisers; FURTHER RESOLVED, that E. Philip Smoot, President of the Corporation, or Kevin Brumbaugh, Allen Levine or Lee H. Newton, Vice Presidents of the Corporation, each acting alone hereby is authorized to execute said Lease an behalf of the Corporation; and FURTHER RESOLVED, that any officer of the Corporation be, and each of them hereby is, authorized and directed to take such actions and to do such things and to execute and deliver any and all such letters, agreements, instruments and other documents in the name of and on behalf of the Corporation and under its corporate seal attested to by the Secretary where required, as any such officer may deem necessary or desirable in order to carry out the purpose and intent of the foregoing resolutions and all matters relating thereto. SCHEDULE 2 SECURITY DEPOSIT Tenant has deposited the sum of Nine Thousand Five Hundred Dollars ($9,500) with Landlord as security for the full and faithful performance by Tenant of the terms of this Lease. It is agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of rent and additional rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including, but not limited to, any damages or deficiency accrued before or after summary proceedings or other reentry by Landlord. In the event that Tenant shall fully and faithfully comply with the terms, provisions, covenants and conditions of the Lease, the security shall be returned to Tenant promptly after the date fixed as the end of the Lease Term and after delivery of the entire possession of the Demised Premises to Landlord. In the event of any sale, conveyance or other transfer of the Demised Premises, or the interest of Landlord in the Demised Premises , Landlord shall use commercially reasonable efforts to transfer the security to the purchaser, and Landlord shall thereupon be released by Tenant from all liability for return of such security and Tenant agrees to look to the new Landlord solely for return of said security. SCHEDULE 3 WORK TO BE PERFORMED BY LANDLORD Upon execution of this Lease and the delivery to Landlord of certificates evidencing the insurance coverage required pursuant to Article 5 of this Lease, Landlord shall promptly commence and diligently prosecute to completion improvements as generally described on the drawings and specifications attached to this Lease as Exhibit B. Landlord!s certain improvements to the Premises ("Premises Improvements") shall be substantially in accordance with the Working Drawings and Specifications (as hereinafter defined) and subject and according to the terms and conditions set forth in this Schedule 3. 1. Premises Working Drawings and Specifications. Tenant shall provide Landlord with Tenant's complete requirements for the Premises Improvements within 25 days of the date hereof, and Landlords obligations contained in this Schedule 3 are conditioned upon Landlord's receipt thereof within said 25 day period. Within 21 days of Landlord's receipt thereof, Landlord shall cause to be prepared and delivered to Tenant working drawings and specifications for the Premises Improvements ("Working Drawings and Specifications") incorporating such requirements. Tenant shall have the right to approve or disapprove the Working Drawings and Specifications by written notice to Landlord within 15 days after receipt thereof, which approval may not be unreasonably withheld. If Tenant fails to deliver a written notice of approval or disapproval within such 15 day period, the Working Drawings and Specifications shall be deemed approved. If Tenant delivers to Landlord within such 15 day period a written notice of disapproval of the Working Drawings and Specifications, then Landlord shall revise the Working Drawings and Specifications to remove the reasons for Tenant's disapproval within 10 days of Landlord's receipt of such disapproval notice. Landlord's preparation of the Working Drawings and Specifications shall not constitute assumption of any liability on the part of Landlord for the accuracy of their conformity with the requirements of any building code or the municipal governmental regulation or ordinance. 2. Premises Construction Documents. (a) Delivery of Documents. Landlord shall deliver to Tenant within 15 days after the approval or deemed approval of the Working Drawings and Specifications (1) a copy of the written contract with the general contractor covering the construction of the Premises Improvements ("Construction Contract"), and (2) a written budget ("Construction Budget"). (i) Construction Budget. The Construction Budget: (I) shall set forth the total cost of completion of the Premises Improvements in accordance with the Working Drawings and Specifications, including the cost of the preparation of the Working Drawings and Specifications ("Construction Cost"), and (II) shall contain various line items for each category of the work which comprises the Premises Improvements. (b) Tenant's Approval of Construction Budget Tenant shall have the right to approve or disapprove the Construction Budget by written notice to Landlord within 15 days after receipt thereof, which approval may not be unreasonably withheld. if Tenant fails to deliver a written notice of approval or disapproval within such 15 day period, the Construction Budget shall be deemed approved. If Tenant delivers to Landlord within such 15 day period a written notice of disapproval of the Construction Budget, then Landlord shall revise the Construction Budget to remove the reasons for Tenant's disapproval within 10 days of Landlord's receipt of such disapproval notice. Notwithstanding anything contained herein to the contrary, in the event that Tenant has not approved or have been deemed to approve the Construction Budget within 95 days of the date hereof, Landlord may terminate this Lease by delivering written notice to Tenant, in which event all obligations of Tenant and Landlord hereunder shall cease and this Lease shall be of no further force or effect, provided, however, that Tenant shall pay to Landlord upon demand the cost of preparing the Working Drawings and Specifications, this obligation to survive the termination of this Lease. 3. Premises improvements Allowance. (a) Premises Improvements Allowance. The term "Premises Improvements Allowance" means, for the purpose of this Lease, an amount equal to the lesser of (A) the Construction Cost, and (B) the Maximum Premises Improvements Allowance (as hereinafter defined). (b) Maximum Premises Improvements Allowance. The term "Maximum Premises Improvements Allowance" means, for the purpose of this Lease, $650,000.00. 4. Premises Construction Escrow. Landlord shall within 10 days after the approval or deemed approval by Tenant of the Construction Budget pursuant to Section 2(b) hereof, establish an escrow ("Construction Escrow") with itself or a title company satisfactory to Landlord ("Escrow Agent"). Landlord shall deposit in the Construction Escrow as and when required amounts ("Landlord Deposits") which in the aggregate do not exceed the Maximum Premises Improvements Allowance. If the Construction Cost is greater than the Maximum Premises Improvements Allowance, then Tenant shall deposit in the Construction Escrow within 5 days after the establishment of the Construction Escrow an amount ("Tenant Deposit") equal to the difference between (i) the Construction Cost and (ii) the Maximum Premises Improvements Allowance. All amounts of the Construction Cost shall be paid by the Escrow Agent pursuant to the terms of the Construction Contract as the Premises Improvements are completed. Upon demand, Tenant and Landlord shall provide the Escrow Agent with such waivers of lien and other documents as the Escrow Agent reasonably requires. All amounts payable to the Escrow Agent with respect to the creation, maintenance and disbursement of the Construction Escrow shall be the sole responsibility of Tenant. SCHEDULE 4 OPTIONS TO EXTEND I. First Option to Extend. 1. Provided that this Lease is in full force and effect and Tenant is not in default under any terms and conditions of this Lease as of the date of the First Extension Option Notice (as hereinafter defined) and as of the First Extension Term Commencement Date (as hereinafter defined) and subject to the terms of this Schedule 4, Tenant shall have the night ("First Extension Option") to extend the Term for the period ("First Extension Term") commencing on and including the First Extension Term Commencement Date and ending at 11:59 P.M. (local time at the Demised Premises) on the First Extension Term Expiration Date (as hereinafter defined). Tenant shall exercise the First Extension Option, if at all, by delivering written notice of such exercise ("First Extension Option Notice") on or before the 270th day prior to the Termination Date. If Tenant fails to deliver the First Extension Option Notice to Landlord on or before the 270th day prior to the Termination Date, Tenant shall be deemed to have forever waived any and all rights to extend the Term pursuant to this Schedule 4. (a) The phrase "First Extension Term Commencement Date" means the first day following the Termination Date. (b) The phrase "First Extension Term Expiration Date" means the day immediately preceding the fifth anniversary of the First Extension Term Commencement Date. 2. For the period commencing on the First Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the First Extension Term Commencement Date, the annual net rent shall be the prevailing Market Rate (as defined below) as of First Extension Term Commencement Date. Notwithstanding anything contained in this Schedule 4 to the contrary, in no event shall the annual net rent for such period be less than $148,200.00 (a) The Market Rate will be determined as hereinafter set forth without regard to (i) the rate of rent Tenant is then paying for the Demised Premises, and (ii) the value of Tenant's improvements and trade fixtures. In the event Tenant desires to exercise the First Extension Option, Tenant shall submit to Landlord, simultaneously with the delivery of the First Extension Option Notice, a written statement setting forth Tenant's proposed Market Rate, which statement shall include the method used and assumptions made in arriving at such a rate. Landlord shall within twenty (20) days of receipt of the statement accept or reject the same or submit a revised statement of Market Rate which statement shall include the method used and assumptions made in arriving at such a rate. If Landlord accepts Tenant's statement of Market Rate, the Market Rate shall be that contained in Tenant's statement of Market Rate and Tenant shall pay to Landlord, commencing on the First Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the First Extension Term Commencement Date, annual net rent equal to the product of Market Rate times 18,601 square feet. If Landlord elects to submit a revised statement, Tenant shall within ten (10) days of receipt thereof either accept or reject the same. If Tenant accepts Landlord's revised statement of Market Rate, the Market Rate shall be that contained in Landlord's revised statement of Market Rate and Tenant shall pay to Landlord annual net rent as described above in this paragraph. If, however, Landlord rejects Tenant's statement of Market Rate or Tenant rejects Landlord's revised statement of Market Rate, the rejecting party shall name and appoint an independent M.A.I. appraiser and give written notice thereof to the non-rejecting party within five (5) days of the date of such rejection. The non-rejecting party shall, with five (5) days of the receipt of said notice of rejection, name and appoint another appraiser and give the rejecting party written notice thereof. Thereafter, said appraisers shall select a third appraiser. If said appraisers are unable to agree on the selection of a third appraiser within five (5) days, they shall jointly petition the Superior Court of the County of Maricopa, Arizona, for the appointment of a third appraiser. Thereupon, the said appraisers shall independently determine the Market Rate for leasing the Demised Premises. Their respective written reports of Market Rate shall be submitted to Landlord and Tenant not later than six (6) months prior to the Termination Date. Upon delivery of the aforesaid written reports of value, the Market Rate shall be computed as follows: (i) average the three appraisals and disregard the appraisal which deviates the greatest from the average; and (ii) average the two remaining appraisals. The average of the two remaining appraisals shall constitute the Market Rate and shall be binding upon Landlord and Tenant. Tenant shall pay to Landlord as provided herein annual net rent, commencing on the First Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the First Extension Term Commencement Date, equal to the product of Market Rate times 18,601 square feet. Landlord and Tenant shall each bear the fees, cost and expense of the appraiser selected by it, and fees, costs and expenses of the appraiser appointed by the parties' appraisers shall be shared equally by Landlord and Tenant. Either party's failure to fully comply in a timely fashion with the provisions regarding determination of Market Rate shall be deemed an abandonment of this method of determining rental, and the Market Rate shall be determined solely by the non-defaulting party's appraiser. 3. For the period commencing on the third anniversary of the First Extension Term Commencement Date and ending on the First Extension Term Expiration Date, the annual net rent shall be the product obtained by multiplying the amount of annual net rent in effect in the year immediately preceding the third anniversary of the First Extension Term Commencement Date by 1.15. 4. Except to the extent set forth otherwise herein, all of the terms of the Lease shall apply during the First Extension Term. II. Second Option to Extend. 1. Provided that Tenant shall have exercised the First Extension Option and that this Lease is in fall force and effect and Tenant is not in default under any terms and conditions of this Lease as of the date of the Second Extension Option Notice (as hereinafter defined) and as of the Second Extension Term Commencement Date (as hereinafter defined) and subject to the terms of this Schedule 4, Tenant shall have the right ("Second Extension Option") to extend the Term for the period ("Second Extension Term") commencing on and including the Second Extension Term Commencement Date and ending at 11:59 P.M. (local time at the Demised Premises) on the Second Extension Term Expiration Date (as hereinafter defined). Tenant shall exercise the Second Extension Option, if at all, by delivering written notice of such exercise ("Second Extension Option Notice") on or before the 270th day prior to the First Extension Term Expiration Date. If Tenant fails to deliver the Second Extension Option Notice to Landlord on or before the 270th day prior to the First Extension Term Expiration Date, Tenant shall be deemed to have forever waived any and all rights to extend the Term pursuant to this Schedule 4. (a) The phrase "Second Extension Term Commencement Date" means the fifteenth anniversary of the Commencement Date. (b) The phrase "Second Extension Term Expiration Date" means the day immediately preceding the fifth anniversary of the Second Extension Term Commencement Date. 2. For the period commencing on the Second Extension Term Commencement Date and ending on the day immediately preceding the third anniversary of the Second Extension Term Commencement Date, the annual net rent shall be the prevailing Market Rate as of Second Extension Term Commencement Date. Notwithstanding anything contained in this Schedule 4 to the contrary, in no event shall the annual net rent during the Second Extension Term be less than that in effect on the last day of the First Extension Term. Market Rate shall be determined in the same manner as provided for the First Extension Term, except that all references to "First Extension Option," "First Extension Tenn Commencement Date" and "First Extension Option Notice" shall mean "Second Extension Option," "Second Extension Term Commencement Date" and "Second Extension Option Notice," respectively. 3. For the period commencing on the third anniversary of the Second Extension Term Commencement Date and ending on the Second Extension Term Expiration Date, the annual net rent shall be the product obtained by multiplying the amount of annual net rent in effect in the year immediately preceding the third anniversary of the Second Extension Term Commencement Date by 1.15. 4. Except to the extent set forth otherwise herein, all of the terms of the Lease shall apply during the Second Extension Tenn. The options contained in this Schedule 4 are for the sole benefit of Nelco Technology, Inc. or any affiliated entity to whom Nelco Technology, Inc. has assigned its rights under this Lease. EXHIBIT 10.20 EMPLOYMENT AGREEMENT AGREEMENT, dated March 18, 1996, by and between E. Phillip Smoot (the "Executive") and Park Electrochemical Corp., a New York corporation (the "Company"). WHEREAS, the Executive is presently employed by the Company as an Executive Vice President; and WHEREAS, the Board of Directors of the Company (the "Board") desires to continue to employ the Executive and the Executive desires to continue to furnish services to the Company on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby accepts such continued employment, on the terms and conditions hereinafter set forth. 2. Term. The period of employment of the Executive by the Company hereunder (the "Employment Period") shall commence effective March 1, 1996 (the "Effective Date") and shall end on February 28, 1999, unless sooner terminated as provided in Section 7; provided, however, that, if a Change in Control (as defined in Section 7(e)) shall have occurred during the Employment Period, the Employment Period shall continue in effect for at least twenty-four (24) months subsequent to the month in which such Change in Control occurs. 3. Position and Duties. During the Employment Period, the Executive shall continue to serve as W an Executive Vice President of the Company and (ii) the President and Chief Executive Officer and a director of Nelco International Corporation, a subsidiary of the Company. In addition, during the Employment Period, the Company will use its best efforts to cause the Executive to be nominated and elected as a member of the Company's Board and, if so elected, the Executive agrees to serve as a director of the Company. The Executive shall report directly to the Company's President. The Executive shall have such responsibilities and authority as may from time to time be assigned to the Executive by the Company's President provided that such responsibilities and authority are consistent with the Executive's positions as stated herein. The Executive agrees to devote substantially all of his working time and efforts to the performance of his duties as set forth herein. 4. Place of Performance. The Executive's place of employment shall be at the principal executive offices of Nelco International Corporation, except for reasonably required travel on the Company's business. 5. Compensation and Related Matters. (a) Base Salary. As compensation for.the performance by the Executive of his obligations hereunder, during the Employment Period, the Company shall pay the Executive a base salary at the rate of $325,000 per annum ("Base Salary"). Base Salary may be increased in the discretion of the Company and, if so increased, shall not thereafter during the Employment Period be decreased. (b) Bonuses. During the Employment Period, the Executive shall be eligible to receive such annual bonus (the "Annual Bonus") as the Company may determine in its discretion and consistent with past practice, based upon the achievement of performance goals as established by the Company at the beginning of each fiscal year. (c) Expenses. The Company shall promptly reimburse the Executive for all reasonable business expenses incurred during the Employment Period and during the Consulting Period (as defined in Section 61 by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. (d) Supplemental Account. Each year during the Employment Period, an amount equal to the excess of W the sum of (x) the amount contributed by the Company to the Park Electrochemical Corp. Employees, Profit-Sharing Plan, as amended (the "Plan"), for such year plus (y) any amounts forfeited by other participants in the Plan during such year, which sum, but for the limitations imposed by section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), and by Section 4.14 of the Plan, would have been allocated to the Executive's account under the Plan, over (ii) the amount of contributions and forfeitures actually credited to the Executive's account for such year, shall be credited by the Company to the separate account previously established and currently maintained by the Company for the Executive (the "Account"). In addition, interest shall be credited annually to the Account at the same rate as net income, gains or profits are earned on the Plan assets. Payments to the Executive from the Account shall be made as and when distributions are made to the Executive from the Plan and in the same proportion of the Account which the Plan distribution bears to the Executive's account balance under the Plan. The parties recognize and agree that the payments to be made by the Company to the Executive from the Account are unsecured obligations of the Company, that the Executive is only a general creditor of the Company in that respect and that the amounts in the Account are assets of the Company which are available to satisfy the claims of the Company's creditors generally. (e) Other Benefits. During the Employment Period, the Executive shall be entitled to participate in all of the employee benefit plans and arrangements currently maintained by the Company, in accordance with the terms of such plans and arrangements, and shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. (f) Automobile. The Company shall continue to furnish to the Executive an automobile in accordance with past practice. 6. Consultancy. Upon expiration of the Employment Period and provided that the Executive has continued in the Company's employ throughout the Employment Period pursuant to this Agreement, then if the Company and the Executive so agree, the Executive shall serve as a consultant to the Company for a period of up to five years (the "Consulting Period"). During the Consulting Period, the Executive shall make himself available to advise and consult with officers and other employees of the Company so that the Company may continue to have the benefit of his experience and knowledge of the affairs of the Company and of his reputation and contacts in the industries in which the Company is engaged in business. The Executive shall be free, during the Consulting Period, to devote the balance of his time and attention to such other business enterprises or activities as he may see fit, subject to the restrictive covenant set forth in Section 11. During the Consulting Period, the Executive's compensation shall be at the rate of $75,000 per annum and he shall be entitled to the same medical and other welfare benefits as are in effect on the date of his retirement. The Consulting Period may terminate at any time upon 60 days' prior written notice by either the Company or the Executive and shall terminate upon the Executive's death. 7. Termination. The Executive's employment hereunder may be terminated during the Employment Period without any breach of this Agreement only under the circumstances set forth in the following subsections (a), (b), (c) and (d): (a) Death. The Executive's employment hereunder shall terminate upon his death. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of his duties hereunder for the entire period of six consecutive months, and within thirty (30) days after written Notice of Termination (as defined in Section 8(a) hereof) is given shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following events: (i) the conviction of the Executive for the commission of a felony; or (ii) the willful and continuing failure by the Executive to substantially perform his duties hereunder (other than such failure resulting from the Executive's incapacity due to physical or mental illness or subsequent to the issuance of a Notice of Termination by the Executive for Good Reason) that has not been fully cured within ten (10) days following the date on which demand for substantial performance is delivered by the Company in writing, specifically identifying the manner in which the Company believes the Executive has not substantially performed his duties; or (iii) the willful misconduct by the Executive (including, but not limited to, breach by the Executive of the provisions of Section 11) that is demonstrably and materially injurious to the Company or its subsidiaries, whether monetarily or otherwise. On and after the occurrence of a Change in Control, the Executive's employment may not be terminated for Cause unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Board at a meeting called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in this Section 7(c) and specifying the particulars thereof in detail. For purposes of this Section 7(c), no act or failure to act on the Executive's part shall be considered "willful" unless done or failed to be done by the Executive in bad faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. (d) Good Reason. On and after the occurrence of a Change in Control, the Executive may terminate his employment during the Employment Period hereunder for Good Reason. "Good Reason" shall mean the occurrence (on or after a Change in Control), without the written consent of the Executive, of an event constituting a material breach of this Agreement by the Company that has not been fully cured within ten (10) days after written notice thereof has been given by the Executive to the Company, provided that, without limiting the generality of the foregoing, any one of the following events shall constitute Good Reason: (i) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (ii) a reduction by the Company in the Executive's Base Salary as in effect immediately prior to the Change in Control; (iii) the relocation of the Executive's principal place of employment to a location more than twenty-five (25) miles from the place of such employment immediately prior to the Change in Control; (iv) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within fifteen (15) days of the date such compensation is due; (v) the failure by the Company to provide the Executive with compensation plans which, in the aggregate, provide the Executive with substantially comparable compensation opportunities to those compensation opportunities for which the Executive was eligible immediately prior to the Change in Control; (vi) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled in accordance with the Company's normal vacation policy in effect at the time of the Change in Control; (vii) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8(a) or that does not comply with Section 7(c), if applicable (and for purposes of this Agreement, no such purported termination shall be effective); or (viii) the failure of a successor to the Company to expressly assume and agree to perform this Agreement pursuant to Section 13(a). The Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) Definition of Change in Control. For purposes of this Agreement, a "Change in Control', of the Company shall mean the occurrence of any one of the following events: (i) any Person (as defined below) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) , directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or a direct or indirect subsidiary thereof with any other corporation other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least a majority of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries other than in connection with the acquisition by the Company or its subsidiaries of a business) representing 35-. or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least a majority of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of this Section 7(e), "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include W the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or Uv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 8. Termination Procedure. (a) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive on and after a Change in Control (other than termination pursuant to Section 7(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 14. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean, as applicable, the date of death or the date specified in the Notice of Termination, which, following a Change in Control, shall not be prior to the date on which a Notice of Termination is given; provided, however, that, following a Change in Control, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined. (c) Compensation During Dispute. If a purported termination occurs on or after a Change in Control, and such termination is disputed in accordance with subsection (b) of this Section 8, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation and employee benefit plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination. Amounts paid under this Section 8 (c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 9. Compensation upon Termination or During Disability. (a) Disability; Death. During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period") I the Executive shall con- tinue to receive his full Base Salary at the rate in effect at the beginning of such period, reduced by any compensation payable to the Executive under the Company's disability plan, if any, as in effect during such period, until his employment is terminated for Disability pursuant to Section 7(b) . For the two-year period following the Executive's termination for Disability pursuant to Section 7(b), the Executive shall receive fifty percent (50%) of his Base Salary, reduced by any compensation payable to the Executive under the Company's disability plan, if any, as in effect during such period. Subsequent to the two-year period following the termination of the Executive's employment pursuant to Section 7 (b), or in the event the Executive's employment is terminated by reason of his death, the Company shall have no further obligations to the Executive under this Agreement and the Executive's benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (b) By Company without Cause or by the Executive for Good Reason. If the Executive's employment is terminated by the Company other than for Cause or Disability or by the Executive for Good Reason, then -- (i) in addition to any amounts due the Executive pursuant to Sections 5(a) or 5(b), the Company shall continue to pay to the Executive (or his legal representatives or estate) his Base Salary as in effect on the Date of Termination for the remainder of the Employment Period or, if greater, for one year; provided, however, that if such termination occurs on or after a Change in Control, then the Company shall pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of Base Salary (at the rate in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination) and the Annual Bonus awarded in respect of the fiscal year immediately prior to the fiscal year in which occurs the Change in Control or the Date of Termination, whichever resulting bonus is greater; and (ii) the Company shall maintain in full force and effect, for the continued benefit of the Executive and his dependents for the remainder of the Employment Period or, if greater, for one year, all employee welfare benefit plans and programs in which the Executive was entitled to participate immediately prior to the Date of Termination, provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs; provided, however, that if such termination occurs on or after a Change in Control, then such benefit plans and programs shall be continued for a period of three (3) years. In the event that the Executive's par- ticipation in any such plan or program is barred, the Company shall arrange to provide the Executive and his dependents with benefits substantially similar to those which the Executive and his dependents would otherwise have been entitled to receive under such plans and programs from which their continued participation is barred. (c) By Company for Cause or by the Executive Other than for Good Reason. If the Executive's employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason, then the Company shall pay the Executive his Base Salary (at the rate in effect at the time Notice of Termination is given) through the Date of Termination, and the Company shall have no additional obligations to the Executive under this Agreement except as set forth in subsection (d) of this Section 9. (d) Upon Expiration of the Agreement. if the Executive's employment is terminated by the Company upon the expiration of the Employment Period, the Company shall W continue to pay to the Executive (or his legal representatives or estate) his Base Salary as then in effect for one year and (ii) continue coverage under the Executive's employee welfare benefit plans and arrangements described in Section 9(b)(iii) for one year; provided, however, the provisions of this Section 9(d) shall not be applicable if the Company and the Executive agree, in accordance with Section 6, that the Executive shall continue to serve as a consultant to the Company. (e) Compensation Plans. Following any termination of the Executive's employment, the Company shall pay the Executive all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termi- nation under any compensation plan or program of the Company, at the time such payments are due. (f) Reduction. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement (the "Severance Payments") or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would not be deductible (in whole or part) by the Company, an affiliate or Person making such payment or providing such benefit as a result of section 280G of the Code, then, to the extent necessary to make such portion of the Total Payments deductible (and after taking into account any reduction in the Total Payments provided by reason of section 28OG of the Code in such other plan, arrangement or agreement), the cash Severance Payments shall first be reduced (if necessary, to zero), and all other Severance Payments shall thereafter be reduced (if necessary, to zero); provided, however, that the Executive may elect (at any time prior to the delivery of a Notice of Termination hereunder) to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. For purposes of this limitation, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel (the "Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), does not constitute a "parachute payment" within the meaning of section 28OG(b)(2) of the Code, including by reason of section 28OG(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses W or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 28OG(b)(4)(B) of the Code or are otherwise not subject to disallowance as deductions by reason of section 28OG of the Code, in the opinion of the Tax Counsel, and (iv) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. (g) Time of Payments. The lump sum payments provided for in Section 9(b) shall be made not later than the fifth day following the Date of Termination; Provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). 10. Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for the Executive by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for the Executive hereunder be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise except as is hereinafter specifically provided in this Section 10. To the extent that the Executive, during the relevant period described in Section 9(b)(ii), shall receive from a subsequent employer benefits similar to those to be provided under Section 9(b)(ii), the benefits to be provided under the provisions of said Section shall be correspondingly reduced. 11. Confidential Information; Noncompetition Requirement. (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all trade secrets, confidential information, and knowledge or data relating to the Company and its subsidiaries and their businesses, which shall have been obtained by the Executive at any time during the Executive's employment by the Company (whether during the Employment Period or otherwise) and which shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). The Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such trade secrets, information, knowledge or data to anyone other than the Company and those designated by the Company. Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 11(a). (b) Noncompetition Requirement. During any period that the Executive is performing services hereunder as an employee or a consultant or in respect of which the Executive is entitled to payment pursuant to Section 9(b)(i) and for an additional period of two (2) years thereafter (the "Additional Period"), the Executive agrees that, without the prior written consent of the Company, he shall not, directly or indirectly, with or without pay, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, manager, investor, lender, advisor, owner, associate or in any other individual or representative capacity, (i) solicit, entice, encourage or otherwise attempt to procure business from any customers (determined as of the Date of Termination) of the Company or a subsidiary thereof for a business that is competitive in any manner whatsoever (a "Competitive Business") with any business in which the Company is then engaged, (ii) solicit, entice or encourage any employee (determined as of the Date of Termination) of the Company or a subsidiary thereof to leave the employ of the Company or any of its subsidiaries, or (iii) engage or participate in any Competitive Business; provided, however, that clause (iii) of this Section 11(b) shall not apply during the Additional Period; and further provided, however, that this Section 11(b) shall have no further force or effect upon the termination of the Executive's employment on or after a Change in Control. If any provision of Section 11(a) or of this Section 11(b) should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such provision shall be modified so that the scope of the provision is reduced only to the minimum extent necessary to render the modified provision valid. (c) Injunctive Relief. In the event of a breach or threatened breach of subsections (a) or (b) of this Section 11, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledging that damages would be inadequate and insufficient. 12. Legal Fees. The Company shall reimburse the Executive for any legal fees and expenses incurred by the Executive following a Change in Control in contesting or disputing any termination of the Executive's employment or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder) other than for any such expenses, costs, liabilities or legal fees incurred as a result of the Executive's bad faith or gross negligence. Such payments shall be made at the time specified in Section 9(g), or within five (5) days after the Executive's request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 12. 13. Successors; Binding Agreement. (a) Company's Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if the Company had terminated his employment on or after a Change in Control without Cause, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termina- tion. In the event of failure of the Company to obtain such assumption and agreement prior to the effective date of any such succession, the Executive shall have no rights or remedies other than as specifically set forth in the preceding sentence. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Executive's Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 14. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: E. Phillip Smoot 218 Apolena Avenue Balboa Island, California 92662 If to the Company: Park Electrochemical Corp. 5 Dakota Drive Lake Success, New York 11042 Attention: President or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and an appropriate officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be binding on all successors to the Company. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. Any action or proceeding relating to this Agreement or any matters arising out of or in connection with this Agreement, and any action for enforcement of any judgment in respect thereof, shall be brought exclusively in the courts of the State of New York or of the United States of America for the Eastern District of New York, and the Company and the Executive each hereby accepts the exclusive jurisdiction of the aforesaid courts and the appellate courts thereof. The Company and the Executive each irrevocably consents to service of process out of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof registered or certified mail, postage prepaid, to the Company or the Executive at their respective addresses referred to in Section 14. All references herein to "Sections" pertain to Sections of this Agreement unless otherwise specified. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 9 and of the Executive under Section 11 shall survive the expiration of the term of this Agreement. The compensation and benefits payable to the Executive under this Agreement shall be in lieu of any other severance benefits to which the Executive may otherwise be entitled upon his termination of employment under any severance plan, program, policy or arrangement of the Company. 16. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 17. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. PARK ELECTROCHEMICAL CORP. /s/ Jerry Shore Name: Jerry Shore Title: Chairman /s/ E. Phillip Smoot E. Phillip Smoot EX-10.12(A) 11 EXHIBIT 10.12(a) FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made on this) 18th day of January, 1996 between CMD SOUTHWEST INC., an Arizona corporation ("Landlord"), and NELCO TECHNOLOGY, INC., an Arizona corporation ("Tenant"). A. Landlord and Tenant previously entered into that certain Lease dated March 24, 1995 ("Lease"), for the lease of certain premises ("Demised Premises") consisting of approximately 58,247 square feet of land together with a building thereon containing approximately 18,601 square feet and commonly known as 1131 W. Fairmont, Tempe, Arizona 85282 according to the terms thereof. B. Landlord and Tenant desire to modify the term of the Lease, all subject to the terms and conditions set forth herein. In consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Definitions. All of the terms used in this First Amendment shall have the same meanings as set forth in the Lease, except to the extent expressly set forth herein. 2. Term. Article 2, Sec. 201 of the Lease is hereby amended as follows: (a) Commencement Date. Notwithstanding anything contained in the Lease to the contrary, the term "Commencment Date" shall mean December 8, 1995; (b) Termination Date. Notwithstanding anything contained in the Lease to the contrary, the term "Termination Date" shall mean December 31, 2005. 3. Full Force and Effect. All of the terms and conditions set forth in the Lease shall remain in full force and effect, except to the extent otherwise expressly set forth in this First Amendment. 4. Conflicts. In the event that any of the provisions of the Lease conflict with any of the terms and provisions of this First Amendment, the terms and conditions of this First Amendment shall prevail. 5. Time of Essence. Time is of the essence of each and every term of this First Amendment. IN WITNESS WHEREOF, said Landlord and Tenant have caused this instrument to be executed by their respective duly authorized officers, all as of the day and year first written above. LANDLORD: CMD SOUTHWEST INC., an Arizona corporation By: /s/ President TENANT: NELCO TECHNOLOGY, INC., an Arizona corporation By: Kevin Brumbaugh Vice President and General Manager EX-10.14(D) 12 EXHIBIT 10.14(d) 1995 EXTENSION TO AMENDMENT TO SECOND EXTENSION OF LEASE This Extension to Amendment to Second Extension of Lease (the "Second Amendment") is made effective on the date of signing by both parties by and between HOLYOKE SUPPLY COMPANY, INC., a Massachusetts corporation with its principal place of business at 200-220 Race Street, Holyoke, Massachusetts 01040 (hereinafter referred to as "Landlord"), of the one part, and DIELECTRIC POLYMERS, INC., a Massachusetts corporation having its principal place of business at 21.8 Race Street, Holyoke, Massachusetts 01040 (hereinafter referred to as "Tenant"), of the other part. WHEREAS, the parties hereto are parties under an Indenture of Lease dated November 1, 1984 (the "Indenture") as extended in accordance with its terms by an Extension of Lease dated May 30, 1986 (the "Extension") a Second Extension of Lease dated as of May 30, 1991 (the "Second Extension"); and an Amendment to Second Extension of Lease dated May 19, 1994 (the "Amendment"); and WHEREAS, pursuant to the Amendment, the lease term expires on November 30, 1995 pursuant to Tenant's exercise of its option to extend the lease term six months from May 31, 1995; and WHEREAS, the parties have agreed to extend the term of the lease for a period of one (1) year, through November 30, 1996; NOW THEREFORE, the Landlord and Tenant hereby agree that all the provisions of the Indenture, Extension, Second Extension and the Amendment (collectively the "Lease") are incorporated herein by reference and shall remain in full force and effect through November 30, 1996 except as modified as follows: 1. Article I, Section 1 is amended in part to provide that the premises demised to the Tenant on the Third Floor of building #1 at 200 Race Street shall consist of the 7,469 square feet occupied by the Tenant at the date of this Agreement. 2. Article II, Section 1 is amended in part to provide that the lease shall be extended for a term of one (1) year, beginning December 1, 1995 and ending November 30, 1996. 3. Article II, Section 2 is amended to provide that if the Tenant is not in material default in any respect under the Lease at the time of its giving of the notice described below, it shall have the right and option to extend said lease for a term of six (6) months expiring May 31, 1997, on all the same terms and conditions, including rent as set forth on paragraph 4 below. The Tenant, if it desires to exercise this option, shall do so by giving the Landlord notice in writing of its intention to do so at least ninety (90) days prior to December 1, 1996, such notice to be delivered by certified mail, return receipt requested, at Landlord's principal place of business. Except as otherwise provided, the term of this Lease shall be automatically extended upon Landlord's receipt of Tenant's extension notice. Tenant shall be in material default if there exists an "Event of Default" as defined under Article XII, Section 1 of the Indenture. 4. Article III, Section 1 is amended by revising Paragraph A to state the rent for Tenant's use of the entire Fourth Floor of the premises (17,000 square feet) during the extended term shall be ONE DOLLAR AND NINETY CENTS ($1.90) per square foot or THIRTY-TWO THOUSAND THREE HUNDRED DOLLARS ($32,300) per year payable in equal monthly installments of $2,691.67 in advance on the first day of each and every month during the extended term and proportionately at said rate for any partial month. Article III, Section 1 is further amended to provide that rent for Tenant's use of the Third Floor of the premises (7,469 square feet) during the extended term shall be ONE DOLLAR and TEN CENTS ($1.10) per square foot or EIGHT THOUSAND TWO HUNDRED SIXTEEN DOLLARS ($8,216) per year payable in equal monthly installments of $684.67 in advance on the first day of each and every month during the extended term and proportionately at said rate for any partial month. 5. Landlord and Tenant agree that all remaining provisions of said Lease shall remain in full force and effect through the extended term except to the extent that said terms are inconsistent with the provisions of this Agreement. WITNESS the execution hereof, under seal, in any number of counterpart copies, each of which counterpart copy shall be deemed to be an original for all purposes as of the day and year first written above. DIELECTRIC POLYMERS, INC., TENANT Dated: 10/19/95 By: /s/ Lawrence G. Kuntz President HOLYOKE SUPPLY COMPANY INC., LANDLORD Dated: 10/19/95 By: /s/ Daniel C. Moriarty, President EX-10.20 13 EXHIBIT 10.20 EMPLOYMENT AGREEMENT AGREEMENT, dated March 18, 1996, by and between E. Phillip Smoot (the "Executive") and Park Electrochemical Corp., a New York corporation (the "Company"). WHEREAS, the Executive is presently employed by the Company as an Executive Vice President; and WHEREAS, the Board of Directors of the Company (the "Board") desires to continue to employ the Executive and the Executive desires to continue to furnish services to the Company on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby accepts such continued employment, on the terms and conditions hereinafter set forth. 2. Term. The period of employment of the Executive by the Company hereunder (the "Employment Period") shall commence effective March 1, 1996 (the "Effective Date") and shall end on February 28, 1999, unless sooner terminated as provided in Section 7; provided, however, that, if a Change in Control (as defined in Section 7(e)) shall have occurred during the Employment Period, the Employment Period shall continue in effect for at least twenty-four (24) months subsequent to the month in which such Change in Control occurs. 3. Position and Duties. During the Employment Period, the Executive shall continue to serve as W an Executive Vice President of the Company and (ii) the President and Chief Executive Officer and a director of Nelco International Corporation, a subsidiary of the Company. In addition, during the Employment Period, the Company will use its best efforts to cause the Executive to be nominated and elected as a member of the Company's Board and, if so elected, the Executive agrees to serve as a director of the Company. The Executive shall report directly to the Company's President. The Executive shall have such responsibilities and authority as may from time to time be assigned to the Executive by the Company's President provided that such responsibilities and authority are consistent with the Executive's positions as stated herein. The Executive agrees to devote substantially all of his working time and efforts to the performance of his duties as set forth herein. 4. Place of Performance. The Executive's place of employment shall be at the principal executive offices of Nelco International Corporation, except for reasonably required travel on the Company's business. 5. Compensation and Related Matters. (a) Base Salary. As compensation for.the performance by the Executive of his obligations hereunder, during the Employment Period, the Company shall pay the Executive a base salary at the rate of $325,000 per annum ("Base Salary"). Base Salary may be increased in the discretion of the Company and, if so increased, shall not thereafter during the Employment Period be decreased. (b) Bonuses. During the Employment Period, the Executive shall be eligible to receive such annual bonus (the "Annual Bonus") as the Company may determine in its discretion and consistent with past practice, based upon the achievement of performance goals as established by the Company at the beginning of each fiscal year. (c) Expenses. The Company shall promptly reimburse the Executive for all reasonable business expenses incurred during the Employment Period and during the Consulting Period (as defined in Section 61 by the Executive in performing services hereunder, provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. (d) Supplemental Account. Each year during the Employment Period, an amount equal to the excess of W the sum of (x) the amount contributed by the Company to the Park Electrochemical Corp. Employees, Profit-Sharing Plan, as amended (the "Plan"), for such year plus (y) any amounts forfeited by other participants in the Plan during such year, which sum, but for the limitations imposed by section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), and by Section 4.14 of the Plan, would have been allocated to the Executive's account under the Plan, over (ii) the amount of contributions and forfeitures actually credited to the Executive's account for such year, shall be credited by the Company to the separate account previously established and currently maintained by the Company for the Executive (the "Account"). In addition, interest shall be credited annually to the Account at the same rate as net income, gains or profits are earned on the Plan assets. Payments to the Executive from the Account shall be made as and when distributions are made to the Executive from the Plan and in the same proportion of the Account which the Plan distribution bears to the Executive's account balance under the Plan. The parties recognize and agree that the payments to be made by the Company to the Executive from the Account are unsecured obligations of the Company, that the Executive is only a general creditor of the Company in that respect and that the amounts in the Account are assets of the Company which are available to satisfy the claims of the Company's creditors generally. (e) Other Benefits. During the Employment Period, the Executive shall be entitled to participate in all of the employee benefit plans and arrangements currently maintained by the Company, in accordance with the terms of such plans and arrangements, and shall be entitled to participate in or receive benefits under any employee benefit plan or arrangement made available by the Company in the future to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. (f) Automobile. The Company shall continue to furnish to the Executive an automobile in accordance with past practice. 6. Consultancy. Upon expiration of the Employment Period and provided that the Executive has continued in the Company's employ throughout the Employment Period pursuant to this Agreement, then if the Company and the Executive so agree, the Executive shall serve as a consultant to the Company for a period of up to five years (the "Consulting Period"). During the Consulting Period, the Executive shall make himself available to advise and consult with officers and other employees of the Company so that the Company may continue to have the benefit of his experience and knowledge of the affairs of the Company and of his reputation and contacts in the industries in which the Company is engaged in business. The Executive shall be free, during the Consulting Period, to devote the balance of his time and attention to such other business enterprises or activities as he may see fit, subject to the restrictive covenant set forth in Section 11. During the Consulting Period, the Executive's compensation shall be at the rate of $75,000 per annum and he shall be entitled to the same medical and other welfare benefits as are in effect on the date of his retirement. The Consulting Period may terminate at any time upon 60 days' prior written notice by either the Company or the Executive and shall terminate upon the Executive's death. 7. Termination. The Executive's employment hereunder may be terminated during the Employment Period without any breach of this Agreement only under the circumstances set forth in the following subsections (a), (b), (c) and (d): (a) Death. The Executive's employment hereunder shall terminate upon his death. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of his duties hereunder for the entire period of six consecutive months, and within thirty (30) days after written Notice of Termination (as defined in Section 8(a) hereof) is given shall not have returned to the performance of his duties hereunder on a full-time basis, the Company may terminate the Executive's employment hereunder for "Disability." (c) Cause. The Company may terminate the Executive's employment hereunder for Cause. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon the occurrence of any of the following events: (i) the conviction of the Executive for the commission of a felony; or (ii) the willful and continuing failure by the Executive to substantially perform his duties hereunder (other than such failure resulting from the Executive's incapacity due to physical or mental illness or subsequent to the issuance of a Notice of Termination by the Executive for Good Reason) that has not been fully cured within ten (10) days following the date on which demand for substantial performance is delivered by the Company in writing, specifically identifying the manner in which the Company believes the Executive has not substantially performed his duties; or (iii) the willful misconduct by the Executive (including, but not limited to, breach by the Executive of the provisions of Section 11) that is demonstrably and materially injurious to the Company or its subsidiaries, whether monetarily or otherwise. On and after the occurrence of a Change in Control, the Executive's employment may not be terminated for Cause unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds (2/3) of the entire membership of the Board at a meeting called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in this Section 7(c) and specifying the particulars thereof in detail. For purposes of this Section 7(c), no act or failure to act on the Executive's part shall be considered "willful" unless done or failed to be done by the Executive in bad faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. (d) Good Reason. On and after the occurrence of a Change in Control, the Executive may terminate his employment during the Employment Period hereunder for Good Reason. "Good Reason" shall mean the occurrence (on or after a Change in Control), without the written consent of the Executive, of an event constituting a material breach of this Agreement by the Company that has not been fully cured within ten (10) days after written notice thereof has been given by the Executive to the Company, provided that, without limiting the generality of the foregoing, any one of the following events shall constitute Good Reason: (i) the assignment to the Executive of any duties inconsistent with the Executive's status as an executive officer of the Company or a substantial adverse alteration in the nature of the Executive's responsibilities from those in effect immediately prior to the Change in Control; (ii) a reduction by the Company in the Executive's Base Salary as in effect immediately prior to the Change in Control; (iii) the relocation of the Executive's principal place of employment to a location more than twenty-five (25) miles from the place of such employment immediately prior to the Change in Control; (iv) the failure by the Company to pay to the Executive any portion of the Executive's current compensation or to pay to the Executive any portion of an installment of deferred compensation under any deferred compensation program of the Company within fifteen (15) days of the date such compensation is due; (v) the failure by the Company to provide the Executive with compensation plans which, in the aggregate, provide the Executive with substantially comparable compensation opportunities to those compensation opportunities for which the Executive was eligible immediately prior to the Change in Control; (vi) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's pension, life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change in Control, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive is entitled in accordance with the Company's normal vacation policy in effect at the time of the Change in Control; (vii) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 8(a) or that does not comply with Section 7(c), if applicable (and for purposes of this Agreement, no such purported termination shall be effective); or (viii) the failure of a successor to the Company to expressly assume and agree to perform this Agreement pursuant to Section 13(a). The Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) Definition of Change in Control. For purposes of this Agreement, a "Change in Control', of the Company shall mean the occurrence of any one of the following events: (i) any Person (as defined below) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) , directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company or a direct or indirect subsidiary thereof with any other corporation other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least a majority of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its subsidiaries other than in connection with the acquisition by the Company or its subsidiaries of a business) representing 35-. or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least a majority of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of this Section 7(e), "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include W the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or Uv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 8. Termination Procedure. (a) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive on and after a Change in Control (other than termination pursuant to Section 7(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 14. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (b) Date of Termination. "Date of Termination" shall mean, as applicable, the date of death or the date specified in the Notice of Termination, which, following a Change in Control, shall not be prior to the date on which a Notice of Termination is given; provided, however, that, following a Change in Control, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined. (c) Compensation During Dispute. If a purported termination occurs on or after a Change in Control, and such termination is disputed in accordance with subsection (b) of this Section 8, the Company shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, salary) and continue the Executive as a participant in all compensation and employee benefit plans in which the Executive was participating when the notice giving rise to the dispute was given, until the Date of Termination. Amounts paid under this Section 8 (c) are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 9. Compensation upon Termination or During Disability. (a) Disability; Death. During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period") I the Executive shall con- tinue to receive his full Base Salary at the rate in effect at the beginning of such period, reduced by any compensation payable to the Executive under the Company's disability plan, if any, as in effect during such period, until his employment is terminated for Disability pursuant to Section 7(b) . For the two-year period following the Executive's termination for Disability pursuant to Section 7(b), the Executive shall receive fifty percent (50%) of his Base Salary, reduced by any compensation payable to the Executive under the Company's disability plan, if any, as in effect during such period. Subsequent to the two-year period following the termination of the Executive's employment pursuant to Section 7 (b), or in the event the Executive's employment is terminated by reason of his death, the Company shall have no further obligations to the Executive under this Agreement and the Executive's benefits shall be determined under the Company's retirement, insurance and other compensation programs then in effect in accordance with the terms of such programs. (b) By Company without Cause or by the Executive for Good Reason. If the Executive's employment is terminated by the Company other than for Cause or Disability or by the Executive for Good Reason, then -- (i) in addition to any amounts due the Executive pursuant to Sections 5(a) or 5(b), the Company shall continue to pay to the Executive (or his legal representatives or estate) his Base Salary as in effect on the Date of Termination for the remainder of the Employment Period or, if greater, for one year; provided, however, that if such termination occurs on or after a Change in Control, then the Company shall pay to the Executive a lump sum amount, in cash, equal to three (3) times the sum of Base Salary (at the rate in effect immediately prior to the occurrence of the circumstance giving rise to the Notice of Termination) and the Annual Bonus awarded in respect of the fiscal year immediately prior to the fiscal year in which occurs the Change in Control or the Date of Termination, whichever resulting bonus is greater; and (ii) the Company shall maintain in full force and effect, for the continued benefit of the Executive and his dependents for the remainder of the Employment Period or, if greater, for one year, all employee welfare benefit plans and programs in which the Executive was entitled to participate immediately prior to the Date of Termination, provided that the Executive's continued participation is possible under the general terms and provisions of such plans and programs; provided, however, that if such termination occurs on or after a Change in Control, then such benefit plans and programs shall be continued for a period of three (3) years. In the event that the Executive's par- ticipation in any such plan or program is barred, the Company shall arrange to provide the Executive and his dependents with benefits substantially similar to those which the Executive and his dependents would otherwise have been entitled to receive under such plans and programs from which their continued participation is barred. (c) By Company for Cause or by the Executive Other than for Good Reason. If the Executive's employment shall be terminated by the Company for Cause or by the Executive other than for Good Reason, then the Company shall pay the Executive his Base Salary (at the rate in effect at the time Notice of Termination is given) through the Date of Termination, and the Company shall have no additional obligations to the Executive under this Agreement except as set forth in subsection (d) of this Section 9. (d) Upon Expiration of the Agreement. if the Executive's employment is terminated by the Company upon the expiration of the Employment Period, the Company shall W continue to pay to the Executive (or his legal representatives or estate) his Base Salary as then in effect for one year and (ii) continue coverage under the Executive's employee welfare benefit plans and arrangements described in Section 9(b)(iii) for one year; provided, however, the provisions of this Section 9(d) shall not be applicable if the Company and the Executive agree, in accordance with Section 6, that the Executive shall continue to serve as a consultant to the Company. (e) Compensation Plans. Following any termination of the Executive's employment, the Company shall pay the Executive all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termi- nation under any compensation plan or program of the Company, at the time such payments are due. (f) Reduction. Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment (whether pursuant to the terms of this Agreement (the "Severance Payments") or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, including the Severance Payments, being hereinafter called "Total Payments") would not be deductible (in whole or part) by the Company, an affiliate or Person making such payment or providing such benefit as a result of section 280G of the Code, then, to the extent necessary to make such portion of the Total Payments deductible (and after taking into account any reduction in the Total Payments provided by reason of section 28OG of the Code in such other plan, arrangement or agreement), the cash Severance Payments shall first be reduced (if necessary, to zero), and all other Severance Payments shall thereafter be reduced (if necessary, to zero); provided, however, that the Executive may elect (at any time prior to the delivery of a Notice of Termination hereunder) to have the noncash Severance Payments reduced (or eliminated) prior to any reduction of the cash Severance Payments. For purposes of this limitation, (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the opinion of tax counsel (the "Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), does not constitute a "parachute payment" within the meaning of section 28OG(b)(2) of the Code, including by reason of section 28OG(b)(4)(A) of the Code, (iii) the Severance Payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses W or (ii)) in their entirety constitute reasonable compensation for services actually rendered within the meaning of section 28OG(b)(4)(B) of the Code or are otherwise not subject to disallowance as deductions by reason of section 28OG of the Code, in the opinion of the Tax Counsel, and (iv) the value of any noncash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Auditor in accordance with the principles of sections 28OG(d)(3) and (4) of the Code. (g) Time of Payments. The lump sum payments provided for in Section 9(b) shall be made not later than the fifth day following the Date of Termination; Provided, however, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay the Executive on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). 10. Mitigation. The Executive shall not be required to mitigate the amount of any payment provided for the Executive by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for the Executive hereunder be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company or otherwise except as is hereinafter specifically provided in this Section 10. To the extent that the Executive, during the relevant period described in Section 9(b)(ii), shall receive from a subsequent employer benefits similar to those to be provided under Section 9(b)(ii), the benefits to be provided under the provisions of said Section shall be correspondingly reduced. 11. Confidential Information; Noncompetition Requirement. (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all trade secrets, confidential information, and knowledge or data relating to the Company and its subsidiaries and their businesses, which shall have been obtained by the Executive at any time during the Executive's employment by the Company (whether during the Employment Period or otherwise) and which shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). The Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such trade secrets, information, knowledge or data to anyone other than the Company and those designated by the Company. Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 11(a). (b) Noncompetition Requirement. During any period that the Executive is performing services hereunder as an employee or a consultant or in respect of which the Executive is entitled to payment pursuant to Section 9(b)(i) and for an additional period of two (2) years thereafter (the "Additional Period"), the Executive agrees that, without the prior written consent of the Company, he shall not, directly or indirectly, with or without pay, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, manager, investor, lender, advisor, owner, associate or in any other individual or representative capacity, (i) solicit, entice, encourage or otherwise attempt to procure business from any customers (determined as of the Date of Termination) of the Company or a subsidiary thereof for a business that is competitive in any manner whatsoever (a "Competitive Business") with any business in which the Company is then engaged, (ii) solicit, entice or encourage any employee (determined as of the Date of Termination) of the Company or a subsidiary thereof to leave the employ of the Company or any of its subsidiaries, or (iii) engage or participate in any Competitive Business; provided, however, that clause (iii) of this Section 11(b) shall not apply during the Additional Period; and further provided, however, that this Section 11(b) shall have no further force or effect upon the termination of the Executive's employment on or after a Change in Control. If any provision of Section 11(a) or of this Section 11(b) should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such provision shall be modified so that the scope of the provision is reduced only to the minimum extent necessary to render the modified provision valid. (c) Injunctive Relief. In the event of a breach or threatened breach of subsections (a) or (b) of this Section 11, the Executive agrees that the Company shall be entitled to injunctive relief in a court of appropriate jurisdiction to remedy any such breach or threatened breach, the Executive acknowledging that damages would be inadequate and insufficient. 12. Legal Fees. The Company shall reimburse the Executive for any legal fees and expenses incurred by the Executive following a Change in Control in contesting or disputing any termination of the Executive's employment or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder) other than for any such expenses, costs, liabilities or legal fees incurred as a result of the Executive's bad faith or gross negligence. Such payments shall be made at the time specified in Section 9(g), or within five (5) days after the Executive's request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 12. 13. Successors; Binding Agreement. (a) Company's Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if the Company had terminated his employment on or after a Change in Control without Cause, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termina- tion. In the event of failure of the Company to obtain such assumption and agreement prior to the effective date of any such succession, the Executive shall have no rights or remedies other than as specifically set forth in the preceding sentence. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Executive's Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 14. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: E. Phillip Smoot 218 Apolena Avenue Balboa Island, California 92662 If to the Company: Park Electrochemical Corp. 5 Dakota Drive Lake Success, New York 11042 Attention: President or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and an appropriate officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement shall be binding on all successors to the Company. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. Any action or proceeding relating to this Agreement or any matters arising out of or in connection with this Agreement, and any action for enforcement of any judgment in respect thereof, shall be brought exclusively in the courts of the State of New York or of the United States of America for the Eastern District of New York, and the Company and the Executive each hereby accepts the exclusive jurisdiction of the aforesaid courts and the appellate courts thereof. The Company and the Executive each irrevocably consents to service of process out of any of the aforesaid courts in any such action or proceeding by the mailing of copies thereof registered or certified mail, postage prepaid, to the Company or the Executive at their respective addresses referred to in Section 14. All references herein to "Sections" pertain to Sections of this Agreement unless otherwise specified. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 9 and of the Executive under Section 11 shall survive the expiration of the term of this Agreement. The compensation and benefits payable to the Executive under this Agreement shall be in lieu of any other severance benefits to which the Executive may otherwise be entitled upon his termination of employment under any severance plan, program, policy or arrangement of the Company. 16. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 17. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. PARK ELECTROCHEMICAL CORP. /s/ Jerry Shore Name: Jerry Shore Title: Chairman /s/ E. Phillip Smoot E. Phillip Smoot EX-11.01 14 EXHIBIT NO. 11.01 PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES COMPUTATION OF FULLY-DILUTED EARNINGS PER SHARE (In thousands, except per share data)
Fiscal year ended 1996 1995 1994 ADJUSTMENT OF NET EARNINGS: Net earnings $24,898 $17,345 $8,062 Adjustments resulting from assumed conversion of 5.5% Convertible Subordinated Notes ("Notes") in fiscal 1996 and 7.25% Convertible Subordinated Debentures ("Debentures") in fiscal 1995 and 1994: Reduction of interest expense and amortization of deferred debt financing costs 81 389 2,476 Related tax effect on above (28) (136) (867) Net earnings, as adjusted $24,951 $17,598 $ 9,671 ADJUSTMENT OF WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING: Weighted average number of common and common equivalent shares outstanding 11,794 10,858 7,986 Add weighted average shares assumed to be issued upon: Conversion of Notes and Debentures 32 504 3,220 Exercise of stock options at period-end market price if higher than average market price for fiscal year 34 208 248 Weighted average number of common and common equivalent shares outstanding, as adjusted 11,860 11,570 11,454 FULLY-DILUTED EARNINGS PER SHARE $ 2.10 $ 1.52 $ .84
EX-22.01 15 EXHIBIT 22.01 SUBSIDIARIES OF PARK ELECTROCHEMICAL CORP. The following table lists Park's subsidiaries and the jurisdiction in which each such subsidiary is organized. Jurisdiction of Name Incorporation Dielectric Polymers, Inc. Massachusetts FiberCote Industries, Inc. Connecticut Grand Rapids Die Casting Corp. Michigan Metclad S.A. France Nelco International Corporation Delaware Nelco GmbH West Germany Nelco Products, Inc. Delaware Nelco Products Pte. Ltd. Singapore Nelco S.A. France Nelco Technology, Inc. Arizona Neltec, Inc. Delaware Neluk, Inc. Delaware New England Laminates Co., Inc. New York New England Laminates (U.K.) Ltd. England Park Advanced Product Development Corp. New York Technocharge Limited England Zin-Plas Corporation Michigan Zin-Plas of Canada, Inc. Canada Zin-Plas Marketing and Business Development Corporation Michigan EX-24.01 16 EXHIBIT 24.01 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements Nos. 33-3777, 33-16650, 33-55383 and 33-63956 on Form S-8 of our report dated April 18, 1996, with respect to the consolidated financial statements and schedule of Park Electrochemical Corp. included in the Annual Report on Form 10-K of Park Electrochemical Corp. for the fiscal year ended March 3, 1996. ERNST & YOUNG LLP New York, New York May 30, 1996 EX-27 17 ART. 5 FDS FOR 10-K
5 This schedule contains summary financial information extracted from the financial statements of Park Electrochemical Corp. and is qualified in its entirety by reference to such financial statements. 1000 year MAR-03-1996 MAR-03-1996 75,970 67,243 44,678 1,857 27,712 217,772 148,715 72,276 298,975 56,807 100,000 1,358 0 0 133,069 298,975 312,966 315,251 242,655 277,891 0 0 96 37,264 12,366 24,898 0 0 0 24,898 $2.11 $2.10
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