-----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, HsjgRfP13ELutQKOJ5qstJv1oU/veAEKGRi1U+PlxLWYfDpoxGqzsB3YhNHm2wYH Y0kP1p/TM3g0UTRsC2mIdA== 0000893220-97-000864.txt : 19970501 0000893220-97-000864.hdr.sgml : 19970501 ACCESSION NUMBER: 0000893220-97-000864 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970430 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROTEL INTERNATIONAL INC CENTRAL INDEX KEY: 0000854852 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 770226211 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10346 FILM NUMBER: 97592302 BUSINESS ADDRESS: STREET 1: 2040 FORTUNE DR STREET 2: STE 102 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084358520 MAIL ADDRESS: STREET 1: 2040 FORTUNE DRIVE STREET 2: STE 102 CITY: SAN JOSE STATE: CA ZIP: 95131 FORMER COMPANY: FORMER CONFORMED NAME: CXR CORP DATE OF NAME CHANGE: 19920703 10-K/A 1 AMENDMENT TO FORM 10-K 1 MICROTEL INTERNATIONAL, INC. FORM 10-K/A FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 2 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- ADDITIONS AND EXHIBITS TO FORM 10-K/A ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 MICROTEL INTERNATIONAL, INC. (Exact Name of Registrant as Specified in its Charter) ================================================================================ 2 3 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The current directors and executive officers of MicroTel are as follows:
Name Age Titles - ---- --- ------ Carmine T. Oliva 54 Chairman of the Board of Directors, President and Chief Executive Officer David Barrett 45 Director Laurence P. 59 Director Finnegan, Jr. Barry E. Reifler 46 Chief Financial Officer Robert Runyon 71 Secretary and a Director Jack Talan 71 Director
CARMINE T. OLIVA was appointed Chairman of the Board, President and Chief Executive Officer of the Registrant upon consummation of the merger with XIT Corporation referred to and more fully described in Items 2 and 7 hereof (the "Merger") on March 26, 1997. He has been the Chairman of the Board of Directors, President and Chief Executive Officer of XIT since its founding in 1983. Prior thereto, he was Senior Vice President and General Manager, ITT Asia Pacific Inc. from 1980 to 1983. Prior to that position, Mr. Oliva held a number of other executive positions with ITT Corporation and its subsidiaries over an eleven-year period. Mr. Oliva is the founder of XIT. Mr. Oliva attained the rank of Captain in the United States Army and is a veteran of the Vietnam War. DAVID BARRETT was appointed as a Director of the Registrant upon consummation of the Merger on March 26, 1997. He has been a partner at Baldwin Brothers, Inc., of Marion, Massachusetts, an investment advisory firm, since January of 1982. He also serves as Chairman of the Finance Committee of Tobey Health Systems, Inc., as a member of the Board of Advisors of Pell Rodman Venture Partners LP of Boston, Massachusetts; as Trustee and Treasurer of Friends Academy and on the Investment Committee of Tabor Academy. LAURENCE P. FINNEGAN, JR. was appointed as a Director of the Registrant upon consummation of the Merger on March 26, 1997. In addition to being a director of XIT since 1985, Mr. Finnegan joined 3 4 XIT as its Chief Financial Officer on a part-time basis in 1994. Mr. Finnegan has held positions with ITT (1970-74) as controller of several divisions, Narco Scientific (1974-1983) as Vice President Finance, Chief Financial Officer and Executive Vice President, and Fischer & Porter (1986-1994) as Senior Vice President, Chief Financial Officer and Treasurer. Since 1994, he has been a principal of Gwyn Allen Ltd., Bethlehem, Pennsylvania, an executive management consulting firm, and President of GA Pipe, Inc., a manufacturing company based in Langhorne, Pennsylvania. BARRY E. REIFLER has been the Chief Financial Officer of MicroTel since February 9, 1996. From 1989 to 1995, Mr. Reifler was the Chief Financial Officer of Kleer-Vu Industries, a publicly-traded manufacturer of photo storage products, and was thereafter a consultant to Kleer-Vu until his appointment as Vice-President and Chief Financial Officer of MicroTel. From 1978 to 1989, Mr. Reifler, a Certified Public Accountant, was with the international public accounting firm of Deloitte and Touche. ROBERT RUNYON was appointed as a Director and Secretary of the Registrant upon consummation of the Merger on March 26, 1997. He is the owner and principal of Runyon and Associates, a human resources and business advisor firm since 1990, and has served XIT both as a director and as consultant in the areas of strategic development and business planning, organization, human resources, and administrative systems. He also consults for companies in the environmental products, marine propulsion systems and architectural services sectors in these same areas. Mr. Runyon's experience from 1970 to 1978 includes various executive positions with ITT Corporation including Vice President, Administration of ITT Grinnell, a manufacturing subsidiary of ITT; from 1963 to 1970 as Vice President, Corporate Planning and Administration of BP Oil Corporation, and director, organization and personnel for its predecessor, Sinclair Oil corporation; and as Senior Vice President, Human Resources, The Great A&P Tea Company from 1978 to 1980. JACK TALAN has been a director of MicroTel since 1995 and was the interim Chairman and Chief Executive Officer of MicroTel from November 15, 1996 until the appointment of Carmine T. Oliva as President and Chief Executive Officer on March 26, 1997. Since March 1993, Mr. Talan has been a Director of World Wide Collectibles, a public company which markets a system designed to assure and protect the integrity of limited edition collectibles, and was the President of that company until his resignation in December of 1996. Since 1990, Mr. Talan has been the Principal and President of Jack Talan, Inc., a sales and marketing consulting company. Additionally, Mr. Talan was the co-founder, a major shareholder, director and Senior Vice President of Arista Corp., a publisher and distributor of educational materials until it was sold in 1985. 4 5 During the year ended December 31, 1996, and prior to consummation of the Merger, the directors and officers of the Company were as follows:
Name Title ---- ----- Daniel E. Dror Chairman of the Board and Chief Executive Officer (through November 15, 1996) Jack Talan Director; Interim Chairman and Chief Executive Officer (11/15/96-3/26/97) William Lewisham Director (resigned 3/26/97) Henry A. Mourad Director (resigned 3/26/97) Barry E. Reifler Chief Financial Officer (since 2/9/96)
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission and the NASDAQ Small Cap Market initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the company. Officers, directors and greater than ten-percent shareholders are required by Securities and Exchange Commission regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended December 31, 1996, the following Section 16(a) reports were not filed on a timely basis: Henry Mourad - -- 3 reports, 5 transactions; William Lewisham -- 2 reports, 2 transactions; Jack Talan -- 2 reports, 2 transactions and Barry Reifler -- 2 reports, 3 transactions. ITEM 11. EXECUTIVE COMPENSATION. 5 6 The Cash compensation paid by the Company during the year ended December 31, 1996 to its Chief Executive Officers and other executive officers earning salary and bonus exceeding $100,000 is presented in the Summary Compensation Table below. SUMMARY COMPENSATION TABLE
Options/ Name and Principal Year Salary Bonus Other Annual Restricted SARs LTIP Payouts $ All Other Position $ Compensation Stock Awards Shares Compensation $ $ (5) $ - ----------------------------------------------------------------------------------------------------------------------------------- Jack Talan, Ended 12/31/96 (1) -0- 10,000 155,000 CEO, From 11/15/96 Ended 12/31/95 -0- 10,000 15,625 5,000 Daniel Dror, CEO, Ended 12/31/96 -0- (2) 25,000 966,846 (3) Until 11/15/96 Ended 12/31/95 174,417 78,125 25,000 Six Months Ended 11,077 (2) 12/31/94 Henry Mourad, Ended 12/31/96 150,000 82,000 President 15,625 Ended 12/31/95 150,000 5,000 Six Months Ended 72,263 40,000 12/31/94 Ended 6/30/94 150,000 20,000 Jacques Moisset, VP Ended 12/31/96 173,106 12,000 (4) Ended 12/31/95 181,132 48,000 Six Months Ended 76,478 12/31/94 Ended 6/30/94 139,132
(1) Jack Talan became Chairman and Chief Executive Officer on 11/15/96, upon Daniel Dror's resignation. At that time, Mr. Talan was authorized $3,000 in fees for previous Board service and $2,500 per month in compensation to serve as Chairman and Chief Executive. Mr. Talan received both the back fees of $3,000 and two months of compensation totaling $5,000 in restricted stock issued at a 20% discount to the market on the date of issuance (for a value of $10,000). (2) The Board of Directors awarded Daniel Dror $144,000 per year beginning July 1, 1994. In 1994, Mr. Dror received four weeks payment of $11,077 and waived the remaining payments. In 1996, Mr. Dror waived all salary payments. (3) Upon his resignation on November 15, 1997, Mr. Dror was awarded a severance package which included a) 50,000 shares of restricted stock with a market value of $118,750, (b) options to acquire 250,000 shares of common stock at an exercise price of $2.375 per share, and (c) options to acquire 300,000 shares of common stock at $.01 per share. The fair market value of the two option grants is estimated at $848,096 using the Black-Scholes Model as a computation methodology. (4) Jacques Moisset is paid in French Francs, which are translated hereon at annual average exchange rates. (5) At 12/31/96, the number and value of the aggregate restricted stock awards for the above named executives was Mr. Talan-5,000 shares valued at $7,500; Mr. Dror-75,000 shares (including those noted in footnote 3 above) valued at $112,500; and Mr. Mourad-5,000 shares valued at $7,500. The shares of Messrs. Talan and Mourad vest ratably over three years beginning March 16, 1995, and Mr. Dror's shares all vested immediately upon his resignation on 11/15/96. 6 7 The following two tables depict stock option grants and exercises by named executives for the year ended December 31, 1996 and the status of outstanding stock options to them at December 31, 1996. OPTIONS/SAR GRANTS GRANTED DURING THE YEAR ENDED DECEMBER 31, 1996
Potential Realizable Value at Assumed Annual Rates of Alternative to Stock Price Appreciation (f) and (g) Individual Grants for Option Term Grant Date Value ------------------------------------------------------- ------------------------ ---------------- (a) (b) (c) (d) (e) (f) (g) (h) - ----------------------------------------------------------------------------------------------------------------------------- Name Options/SARs % of Total Exercise or Expiration 5% ($) 10%($) Grant Date Granted (#) Options/SARs Base Price Date Present Granted to ($/Sh) Value ($) Employees in (3) Fiscal Year - ----------------------------------------------------------------------------------------------------------------------------- Jack Talan 5,000 .3% 3.125 3-16-98 4,512 CEO 50,000 3.4% 2.00 12-31-96 23,474 100,000 6.7% 1.80 12-31-96 47,440 Daniel Dror, 25,000 (1) 1.7% 3.125 11-14-99 18,878 Former CEO 250,000 (2) 16.8% 2.375 11-14-01 288,236 300,000 (1) 20.1% .01 12-3-99 559,860 Henry Mourad 4,000 .3% 3.125 5-14-01 4,993 President 8,000 .5% 3.125 5-2-02 10,843 20,000 1.3% 3.125 7-1-98 16,216 50,000 3.4% 1.80 12-31-96 23,798 Jacques 2,000 .1% 3.125 8-23-00 2,439 Moisset, VP 4,000 .3% 3.125 5-14-01 5,214 6,000 .4% 3.125 5-2-02 1,895
(1) 10,000 options of the 25,000 option repricing and all of the 300,000 option grant were assigned to others by Mr. Dror. (2) This option is exercisable only after Mr. Dror repays a certain indebtedness to the Company approximating $211,000, which amount is due in 5 annual installments and which may be repaid by surrendering the options for value equivalent to the lesser of the future appreciation of the underlying stock over the exercise price or $.50 per share. (3) Grant date value was determined using a modified Black-Scholes pricing model assuming no dividend yield, expected volatility of approximately 56%, risk-free rate of return 6.6%, and time of exercise generally at 2/3 of the remaining exercise period. 7 8 AGGREGATED OPTION/SAR EXERCISES IN 1996 AND OPTION/SAR VALUES AT DECEMBER 31, 1996
(a) (b) (c) (d) (e) - ------------------------------------------------------------------------------------------------ Name Shares Acquired Value Realized Number of Value of on Exercise (#) ($) Securities Unexercised In- Underlying the-money Unexercised Options/SARs at Options/SARs at 12/31/96 ($) 12/31/96 (#) Exercisable/ Exercisable/ Unexercisable Unexercisable - ------------------------------------------------------------------------------------------------ Jack Talan CEO 105,556 43,750 5000/0 0/0 Daniel Dror 265,000/0 0/0 Former CEO (1) Henry Mourad 50,000 22,500 72,000/0 0/0 President Jacques Moisset 60,000/38,400 0/0 VP
(1) Does not include options assigned by Mr. Dror to others; of the options assigned to others, 300,000 options were exercised in 1996 for value realized of $484,500. COMPENSATION OF DIRECTORS. During the year ended December 31, 1996, there were no standard arrangements for compensation of directors. However, on November 15, 1996, Mr. Talan was authorized $3000 in fees for past service on the Board of Directors and $2,500 per month to serve as Chairman and Chief Executive Officer. Additionally, on that date, Mr. Lewisham was authorized $15,000 for past Board service and $4,000 in expense reimbursement. Mr. Talan received his total fees for 1996 of $8,000 in restricted stock of the Company issued at a 20% discount to market (4,445 shares), and Mr. Lewisham received his in cash. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN- CONTROL ARRANGEMENTS. Pursuant to an Employment Agreement dated April 12, 1994, as amended, Henry A. Mourad is employed as President of CXR Telcom. The Agreement provides for an annual salary of $150,000. The Agreement is for a rolling term of two years, such that on April 1 of each year it shall have an unexpired term of two years. In the event of a termination of his employment by the Company without cause, or by Mr. Mourad for good cause (which does not include a change of control), Mr. Mourad shall be entitled until the expiration date of the employment agreement (that is, for up to two years) to receive his salary, an annual amount equal to the average of the three highest annual incentive compensation payments made to Mr. Mourad by the Company prior to such termination, and medical care, pension and similar benefits comparable to those furnished to Mr. Mourad at the time of such termination. In the event of a 8 9 termination for cause, Mr. Mourad is entitled to salary and benefits only through the date of termination. Pursuant to an Employment Agreement dated July 1, 1995, Jacques Moisset is employed as President of CXR S.A. for a term of three years at an annual salary of 885,000 French Francs. There are no provisions in his Employment Agreement for payments upon termination of employment or upon a change in control. Pursuant to an Employment Agreement dated February 9, 1996, as amended, Barry E. Reifler is employed as the Chief Financial Officer of the Company. The Agreement provides for a salary of $150,000 per annum. Pursuant to the Agreement, Mr. Reifler is subject to certain benefits upon a change of control if he determines within three months of the date of the change of control that such change of control constitutes an adverse change in employment circumstances. The Merger constituted a change of control as defined in this agreement. As such, Mr. Reifler has until June 26, 1997 to determine whether such change of control constitutes an adverse change in employment circumstances. If so, Mr. Reifler will be required to give the Company three months notice of his desire to terminate his employment as a result of the change in control, and if such notice is given then at the end of such three month period (i) the Company shall be required to continue salary payments to Mr. Reifler based on an annual salary of $125,000 per year and other benefits he currently receives for a period of two years (ii) the exercise price of a certain 30,000 share option held by Mr. Reifler shall be deemed to be paid and such stock shall be issued to Mr. Reifler as soon as practical (iii) a 10,000 share restricted stock award will vest immediately and (iv) the Company shall make payments to Mr. Reifler to pay income tax liabilities associated with the issuance of stock to Mr. Reifler as noted in (ii) and (iii) above. Pursuant to an Employment Agreement dated January 1, 1996, Carmine T. Oliva is employed as Chairman, President and Chief Executive Officer of XCEL Corporation (now known as XIT Corporation ("XIT")) for a term of five years at an annual salary of $250,000. The agreement is subject to automatic renewal for three successive two year terms commencing on January 1, 2001, unless, during the required notice periods as provided therein, either party gives written notice of its desire not to renew. Mr. Oliva had deferred $104,000.00 in salary prior to the effective date of the Agreement. This and any other Deferred Salary shall be due and payable upon any Redesignation, as defined in the Agreement, of Mr. Oliva by the Board, to offices or positions other than, or in addition to, Chairman, President and Chief Executive Officer and a subsequent resignation by Mr. Oliva due to such Redesignation. If any such Redesignation occurs during the initial term of the Agreement, XIT shall pay Mr. Oliva his annual salary for three years following the effective date of such resignation or until January 1, 2001, whichever is longer. In the event of Mr. Oliva's termination for cause, XIT's obligation to pay any compensation, severance allowance, or other amounts payable under the Agreement terminates on the date of such termination. In the event of a termination without cause, Mr. Oliva shall be paid his annual salary for two 9 10 and one-half years following the effective date of such termination or until January 1, 2001, whichever is longer. If such termination occurs during a renewal period, Mr. Oliva shall be paid his annual salary through the expiration of that particular renewal period as well as any and all other amounts payable pursuant to the Agreement, including deferred salary. XIT may terminate the Agreement upon thirty days written notice in the event of a merger or reorganization of XIT in which the shareholders of XIT immediately prior to such reorganization receive less than fifty percent of the outstanding voting shares of the successor corporation. The Merger did not trigger the application of that termination provision, since, pursuant to the Merger, the former shareholders of XIT were issued approximately 6,199,215 shares of common stock of the Company or approximately 65% of the issued and outstanding common stock. REPORT ON REPRICING OF OPTIONS/SARS. The following table depicts repricing of stock options to any executive officer over the last ten fiscal years. The only such repricings were in the current year ended December 31, 1996. TEN YEAR OPTIONS/SAR REPRICINGS
(a) (b) (c) (d) (e) (f) (g) Name Date Number of Market Exercise New Length of Securities Price of Price at Exercise Original Underlying Stock at Time of Price ($) Option Term Options/SARs Time of repricing Remaining Repriced or Repricing or at Date of Amended (#) or Amendment Repricing Amendment ($) or ($) Amendment (months) - -------------------------------------------------------------------------------------------------------- Jack Talan, 8/15/96 5,000 3.125 5.00 3.125 19 CEO Daniel Dror, 8/15/96 25,000 3.125 5.00 3.125 19 Former CEO Henry Mourad 8/15/96 4,000 3.125 8.125 3.125 57 President 8/15/96 8,000 3.125 10.00 3.125 69 8/15/96 20,000 3.125 5.00 3.125 11 Jacques 8/15/96 2,000 3.125 10.00 3.125 48 Moisset VP 8/15/96 4,000 3.125 8.125 3.125 57 8/15/96 6,000 3.125 10.00 3.125 69 Barry E. 8/15/96 30,000 3.125 6.875 3.125 30 Reifler CFO
For an explanation of the current year's option repricing, see "Report of the Compensation Committee." 10 11 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. During the fiscal year ended December 31, 1996, the Compensation Committee of the Board of Directors consisted of William Lewisham and Jack Talan. From November 15, 1996 through the end of the fiscal year, Mr. Talan also served as President and Chief Executive Officer of the Company. See "Compensation of Directors" and Item 13,"Certain Relationships and Related Transactions" for a description of certain transactions between the Company and Messrs. Talan and Lewisham. REPORT OF THE COMPENSATION COMMITTEE. Prior to the Merger, the Compensation Committee of the Board of Directors (The "Compensation Committee") was composed of the following two independent non-employee directors: Jack Talan and William Lewisham. Mr. Lewisham resigned from the Board on March 26, 1997 as a condition to the Merger. From and after March 26, 1997, the Compensation Committee shall consist of Robert Runyon and David A. Barrett (two independent non-employee directors). COMPENSATION POLICIES. Policies governing the compensation of the Company's executives are established and monitored by the Compensation Committee. All decisions relating to the compensation of the Company's executives during the year ended December 31, 1996 were made by the Compensation Committee. In administering its compensation program, the Compensation Committee attempts to adhere to its belief that compensation should reflect the value created for shareholders while supporting the Company's strategic goals. In doing so, the compensation programs reflect the following themes: 1. The Company's compensation programs should be effective in attracting, motivating, and retaining key executives. 2. There should be a correlation between the compensation awarded to an executive, the performance of the company as a whole, and the executive's individual performance (see the performance graph which follows for a comparison of the Company's performance in relation to market indices). 3. The Company's compensation programs should provide to the executives a financial interest in the Company similar to the interest of the Company's shareholders; and 4. The Company's compensation program should strike an appropriate balance between short and long-term performance objectives. The Company's executives are compensated through a combination of salary and grants of stock options under the Company's stock option plans. The annual salaries of the executives are reviewed from time to time and adjustments are made where necessary in order for the salaries of the Company's executives to be competitive with the salaries paid by similar companies. Stock option grants are considered by the Compensation Committee from time to time. 11 12 The determinations of the compensation of both Mr. Dror and Mr. Talan, during their period of service as Chief Executive Officer, was made in accordance with these principles. The compensation of the Chief Executive Officer will continue to be determined by these principles. Additionally, the option repricings noted above were based on the above principles and were done in order to maintain the relevance of prior stock-based compensation given the then existing market price of the Company's Common Stock. 12 13 COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN* AMONG MICROTEL INTERNATIONAL, INC., THE NASDAQ STOCK MARKET - US INDEX AND THE NASDAQ TELECOMMUNICATIONS INDEX
MicroTel Nasdaq Stock Nasdaq Measurement Period International, Inc. Market-US Telecommunications 6/91 100 100 100 6/92 100 120 120 6/93 35 151 185 6/94 50 153 184 12/94 42 163 186 12/95 77 231 244 12/96 18 284 249
13 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding the beneficial ownership of the Company's common stock as of March 31, 1997 by the following: (i) each person who is beneficial owner of more than five percent (5%) of the Company's outstanding common stock; (ii) each Director; (iii) each of the named executive officers of the Company; and (iv) all Directors and executive officers as a group.
Name and Address Number of Shares of Beneficial Owner Beneficially Percent of Class(1) Owned(1) ------------------- ----------------- ------------------- Capital Source 2,406,358 25.86 Partners(2) c/o Gallagher, Briody & Butler 212 Carnegie Center Suite 402 Princeton, NJ 08540 BNZ, Inc. 638,650 6.86 310 East 4th Avenue La Habra, CA 90631 Carmine T. Oliva 3,752,154(3) 40.32 4290 East Brickell Street Ontario, CA 91761 Laurence P. 132,349(4) 1.42 Finnegan, Jr. 3 Woods Lane Ambler, PA 19002 Robert Runyon 327,302(5) 3.52 10 Eagle Claw Drive Hilton Head, SC 29926 David A. Barrett 268,471(6) 2.89 7 Barnabas Road Marion, MA 02738 Jack E. Talan 251,000(7) 2.70 26 E. 63rd, #11E New York, NY 10021
14 15
Name and Address Number of Shares of Beneficial Owner Beneficially Percent of Class(1) Owned(1) ------------------- ----------------- ------------------- Barry Reifler 40,000(8) * 3071 Green Fairway Cove So. Collierville, TN 38017 Elk International 1,445,000(9) 15.50 Corporation Limited Post Office Box No. 3247 Nassau, Bahamas Daniel Dror 1,445,000(10) 15.50 1412 North Blvd. Houston, TX 77006 All executive 4,771,276 51.27 officers and directors as a group (6 persons)
*(less than 1%) (1) Includes shares of MicroTel Common Stock underlying the warrants, options and convertible securities outstanding and held by the beneficial owner with respect to whom the calculation is made, but does not include shares of Common Stock that may be acquired within more than 60 days after April 1, 1997 upon the exercise or conversion of such warrants, options or convertible securities. (2) Capital Source partners ("CSP") is a New Jersey General Partnership. Carmine T. Oliva is its Managing General Partner and has the authority to vote all of the MicroTel shares owned by CSP. By Virtue of his partnership interest in CSP, Mr. Oliva has the right to receive 498,994 shares of MicroTel Common Stock out of the 2,406,358 owned by CSP. CSP intends to distribute such shares to its partners within 60 days of the date hereof. (3) Includes 2,406,358 shares which will be held by CSP upon consummation of the Merger over which Mr. Oliva has sole voting control and 746,016 shares issuable to Mr. Oliva upon the exercise of MicroTel options and warrants. (4) Includes 88,178 shares which will be issuable to Mr. Finnegan upon the exercise of MicroTel options and warrants. (5) Includes 98,266 shares held by CSP which CSP intends to distribute to Mr. Runyon within 60 days of the date hereof, and 147,207 shares which will be issuable to Mr. Runyon upon the exercise of MicroTel options and warrants. 15 16 (6) Includes 119,556 held by CSP which CSP intends to distribute to Mr. Barrett or a trust of which Mr. Barrett is a trustee within 60 days of the date hereof, and 91,807 shares which will be issuable to Mr. Barrett upon the exercise of MicroTel options and warrants. Also includes 10,886 shares held by various trusts of which Mr. Barrett is the trustee. (7) Includes 5,000 shares issuable to Mr. Talan upon the exercise of MicroTel options, 5,000 shares authorized on March 16, 1995 to Mr. Talan as an incentive award to be earned for continuing services over a three-year period, 21,000 shares issued to Mr. Talan upon completion of the Merger and a 150,000 share award authorized on February 19, 1997 for past and future services to the Company. (8) Includes 30,000 shares issuable upon the exercise of MicroTel options. (9) Includes 540,000 shares owned by Elk International Corporation Limited, 750,000 shares issuable upon the exercise of MicroTel options and 90,000 shares issuable upon the exercise of MicroTel warrants. Also includes 50,000 shares owned by Daniel Dror and 15,000 shares issuable upon the exercise of MicroTel stock options owned by Mr. Dror. See footnote 10 below. (10) Includes 15,000 shares issuable upon the exercise of MicroTel stock options, and the shares and shares underlying options and warrants of Elk International Corporation Limited as set forth in footnote (9) above. Elkana Faiwuszeiwicz, the President and control person of Elk International Corporation Ltd. ("Elk"), is the brother of Mr. Dror. Based upon information contained in Elk's Schedule 13D filed with the Securities and Exchange Commission dated January 25, 1994, Mr. Dror may be deemed a "control" person of Elk and Mr. Dror, Daniel Dror & Company, Inc. ("DDC") and Elk may be deemed to constitute a "group" as those terms are defined under the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Mr. Dror and DDC each disclaim any beneficial ownership in Elk and in stock of the Company owned by Elk. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Daniel Dror was the Company's Chairman and Chief Executive Officer from 1994 until his resignation on November 15, 1996. Elkana Faiwuszeiwicz, the President and control person of Elk International Corporation Ltd. ("Elk"), is the brother of Mr. Dror. Based upon information contained in Elk's Schedule 13D filed with the Securities and Exchange Commission dated January 25, 1994, Mr. Dror may be deemed a "control" person of Elk and Mr. Dror, Daniel Dror & Company, Inc. ("DDC") and Elk may be deemed to constitute a "group" as those terms are defined under the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. Mr. Dror and DDC each disclaim any beneficial ownership in Elk and in stock of the Company owned by Elk. Pursuant to an agreement dated January 5, 1994, the Company issued 300,000 shares of the Company's common stock to the designees of DDC for $600,000 (or $2.00 per share) including 210,000 shares to Elk. Additionally, pursuant to the agreement, the Company issued to Elk warrants to purchase 100,000 shares for $2.50 per share, exercisable at any time prior to December 25, 1995. The Company also entered into a common stock purchase agreement with DDC on March 10, 1994 whereby DDC, or its designee, was to acquire 1,260,000 shares of the Company's common stock for an aggregate of $2,520,000 (or $2.00 per share), payable in cash, or at the option of the Company, in cash, cash equivalents, or marketable securities or any combination thereof. The stockholders of the Company approved the common stock purchase agreement (the Agreement) on April 16, 1994. The Agreement provided for a closing 16 17 by June 30, 1994 contingent upon all conditions to closing being fulfilled. As permitted under the terms of the Agreement, the Board of Directors on July 27, 1994 amended the Agreement, following claims by DDC and its designee raised prior to June 30, 1994 that certain closing conditions had not been satisfied. The amended Agreement required the Company to issue and sell 911,484 shares to Elk as designee of DDC, for an aggregate purchase price of $1,882,967 (based on the previously agreed price of $2.00 per share), in cash, cash equivalents or marketable securities. In September 1994, Elk tendered the assignment of an interest-free promissory note in the amount of $805,555 secured by shares of another public company and transferred a brokerage account to the Company consisting of cash and common stock of $1,077,412 amounting to an aggregate of $1,882,967 (the Company assumed the liability for certain financial instruments amounting to $506,250 which were secured by the cash and common stock investments in the brokerage account). Subsequent to this transfer, a loan of $226,000 was made from the brokerage account to another entity controlled by DDC which loan was payable with 15% interest on December 31, 1995. Although no formal agreements were signed, DDC indicated its intent to reimburse the Company for any loss resulting from the settlement of the financial instruments and indebtedness from the related party. The acceptance of the consideration received and subsequent loan were authorized by Daniel Dror in his capacity as Chairman of the Company's investment committee prior to formal review by the Board of Directors. The Board of Directors subsequently reviewed the consideration tendered under the amended Agreement and determined that it would be in the best interests of the Company to accept payment from Elk with securities less likely to experience significant fluctuations in value. On November 8, 1994 the Company executed a second amendment to the Agreement dated October 16, 1994 with DDC whereby the transactions under the previous amendment were effectively rescinded and the Company agreed to issue and sell 668,725 shares to Elk as designees of DDC, for the aggregate purchase price of $1,337,449 (or $2.00 per share) on or before December 31, 1994. In payment of the purchase price under the second amendment to the Agreement, the Company accepted assignment of a promissory note payable to Elk from a limited partnership in the aggregate amount of $1,444,444 payable on December 31, 1995. The face amount of the promissory note includes the purchase price of $1,337,449 plus $106,995, representing interest on the purchase price at an interest rate of 8% per annum for the period commencing on December 31, 1994, through December 31, 1995. At a board meeting held in December 1995 the Company agreed to accept $250,000 to extend the note to December 15, 1996 and $100,000 as prepaid interest for the extension period. The $350,000 was recognized as income in 1996 over the extension period of the note. As a result of this agreement the Board extended the option period of the remaining 90,000 Elk warrants for two years. Payment of the promissory note 17 18 was secured by escrowed shares of another public company and the shares issued to Elk were being held in escrow and were to be delivered to Elk when the promissory note had been fully satisfied. In June 1996, Elk was given the right to make alternative cash payment to the Company for the stock subscription through December 15, 1996 releasing shares from escrow at the price of $2.00 per share, and to receive a corresponding assignment of proceeds from the promissory note when collected. Elk made payments against the stock subscription aggregating $380,000 through November 14, 1996, releasing 190,000 shares of common stock from the escrow. On November 15, 1996, the Company and Elk entered into an agreement pursuant to which Elk received (i) an option exercisable for a period of three years to purchase 500,000 shares of Common Stock at an exercise price of $2.375 per share, (ii) the extension of an outstanding warrant to purchase 90,000 shares of Common Stock for three years, and (iii) the return to Elk of the $1,444,444 promissory note. In exchange for the foregoing, the remaining shares held in escrow by the Company and the subscription right were cancelled. The costs of this settlement totalling $807,000, including the valuation of the option grant of $700,000, was recorded in the fourth quarter of 1996. Also on November 15, 1996, Mr. Daniel Dror resigned as Chairman and Chief Executive Officer of the Company in anticipation of the pending merger with XIT. Mr. Jack Talan, a director of the Company, was appointed interim Chairman and Chief Executive Officer until consummation of the transaction. Upon his resignation, Mr. Dror (or his designee) received as a severance award for past service: (a) 350,000 shares of the Company's common stock; (b) an extension of the exercise period to November 14, 1999 on options he currently holds to purchase 25,000 shares of the Company's common stock; and (c) options to purchase 250,000 shares of the Company's common stock at a price of $2.375 per share. The latter options are exercisable for a period of 5 years, but only after Mr. Dror repays a certain indebtedness to the Company of approximately $211,000, which amount is due in 5 annual installments and which may be repaid by surrendering the options for value equivalent to the lesser of the future appreciation of the Company's common stock over the exercise price or $.50 per option. On December 3, 1996, it was mutually agreed between the Company and Mr. Dror to substitute an option to acquire 300,000 shares of the Company's Common stock at an exercise price of $.01 per share for 300,000 shares of the previous award and on December 23, 1996 these options were exercised. The compensation expense associated with this grant of $560,000, as well as the value of the 50,000 shares awarded of $119,000 and other costs totaling $82,000 related to the immediate vesting of previous stock based deferred compensation to Mr. Dror and the settlement of certain amounts due the Company by Mr. Dror, were recognized in the fourth quarter of 1996. 18 19 Additionally, during 1996 and 1995, the Company granted 18,000 and 43,000 shares, respectively, as incentive stock awards principally to certain directors and officers, which vest generally over a three-year period. The total value of these shares based on the market price of the Company's common stock on the date of grant totalled $192,000. Compensation expense recognized by the Company for the awards totalled $106,000 and $46,000 for 1996 and 1995, including amortization of related deferred compensation. In October and November of 1996, the Company granted non-qualified stock options to acquire approximately 156,000 shares of the Company's Common Stock to certain officers at an exercise price equal to 80% of the market value on the date of the grant. Compensation expense associated with these grants approximated $48,000. On February 19, 1997, in recognition of past and future services to the Company, Mr. Talan was granted 150,000 restricted shares of the Company's common stock with a market value as of that date of $337,500 ($2.25 per share). On February 25, 1997 through March 5, 1997, Mr. Talan loaned the Company an aggregate of $500,000. Such loans bear interest at the rate of 6% per annum and were repaid on April 25, 1997. 19 20 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this amendment to report to be signed on its behalf by the undersigned, thereunto duly authorized. MICROTEL INTERNATIONAL, INC. Date: April 30, 1997 By: /s/ Carmine T. Oliva ------------------------ Carmine T. Oliva Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons and in the capacities on the dates indicated. Signature Title Date --------- ----- ---- /s/ Carmine T. Oliva Chairman of the April 30, 1997 - ----------------------------- Board of Directors Carmine T. Oliva /s/ David A. Barrett Director April 30, 1997 - ----------------------------- David A. Barrett /s/ Robert B. Runyon Director April 30, 1997 - ----------------------------- Robert B. Runyon /s/ Barry E. Reifler Chief Financial April 30, 1997 - ----------------------------- Officer (Principal Barry E. Reifler Accounting and Financial Officer) /s/ Laurence P. Finnegan, Jr. Director April 30, 1997 - ----------------------------- Laurence P. Finnegan, Jr. /s/ Jack E. Talan Director April 30, 1997 - ----------------------------- Jack E. Talan 20 EX-10.14 2 AGREEMENT W/ELK AND MICROTEL 1 EXHIBIT 10.14 AGREEMENT AGREEMENT, made as the day of November, 1996, between Elk International Corporation, Ltd. ("Elk") and Microtel International, Inc. (the "Company"). WHEREAS, the Company entered into a Common Stock Purchase Agreement (as amended last on October 16, 1994, the "Agreement") with Daniel Dror & Company, Inc. ("DDC") pursuant to which the Company agreed to sell 3,343,623 (pre-split) shares of the Company's common stock to Elk as designee of DDC under the Agreement for $1,337,449 ($.40) per share); and WHEREAS, the Company accepted in payment of the purchase price of these shares (the "Elk shares"), the assignment of a promissory note (the "Promissory Note") from Hardee Capital Partners, Limited ("HCP") payable to Elk in the face amount of $1,444,444, which is due and payable on or before December 15, 1996; and WHEREAS, the Elk shares are being held in escrow to be delivered to Elk upon the payment by Hardee of the Hardee Note to the Company or by Elk directly at $2.00 (post-split) per share; and WHEREAS, the parties wish to terminate the Agreement. NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING; 1. DELIVERIES BY THE COMPANY (i) The Company will issue to Elk, as of the date hereof, an option exercisable to purchase 500,000 shares of the Company's common stock at a price of $2.375 per share (the "Option"). Such Option shall be exercisable for a period of five years from the date hereof. Furthermore, such Option shall be granted unlimited "piggy-back" registration rights, as more fully set forth in the form of the Option which is attached hereto as Exhibit 1. 2 (ii) The warrant currently outstanding granting Elk the right to purchase 90,000 shares of the Company's common stock at a price of $2.50 per share shall be restated and modified as of the date hereof to extend the expiration of the warrant to be exercisable for a period of three years from the date hereof (the "Warrant"). Furthermore, such Warrant shall be granted unlimited "piggy-back" registration rights, as more fully set forth in the form of the restated Warrant which is attached hereto as Exhibit 2. (iii) The Company shall deliver the HCP Promissory Note to Elk. 2. CANCELLATION OF THE AGREEMENT. The Agreement with DDC pursuant to which the Company agreed initially to sell 3,343,623 shares of the Company's common stock to Elk as designee of DDC under the Agreement for $1,337,449, of which a balance of approximately 478,000 (post-split) shares of common stock remain in escrow pending cash payment, shall be terminated insofar as any of such shares of the Company's common stock have not been paid for as of the date hereof. 3. RELEASE OF LIABILITY BY ELK. Intending to be legally bound for itself and its assigns and successors, Elk does hereby relieve, release and forever discharge the Company, its subsidiaries, affiliates and related companies, the stockholders, officers, directors, representatives, servants, agents and employees of the Company, their subsidiaries, affiliates and related companies, and all of their respective successors, assigns, heirs and personal representatives (the foregoing, collectively the "Company Parties"), of and from any and all liabilities, obligations or debts which Elk may have from or against the Company Parties, except for any rights, liabilities or obligations which arise from or out of this Agreement, the Option, the Warrant or any other securities of the Company outstanding in favor of Elk. 2 3 4. RELEASE OF LIABILITY BY THE COMPANY. Intending to be legally bound for itself and its assigns and successors, the Company does hereby relieve, release and forever discharge Elk, its subsidiaries, affiliates and related companies, the stockholders, officers, directors, representatives, servants, agents and employees of Elk, their subsidiaries, affiliates and related companies, and all of their respective successors, assigns, heirs and personal representatives (the foregoing, collectively the "Elk Parties"), of and from any and all liabilities, obligations or debts which the Company may have from or against the Elk Parties, except for any rights, liabilities or obligations which arise from or out of this Agreement, the Option, the Warrant or any other securities of the Company outstanding in favor of Elk. IN WITNESS WHEREOF, the undersigned have executed this Agreement as the date first written above. ELK INTERNATIONAL MICROTEL INTERNATIONAL, INC. CORPORATION LIMITED By: /s/ Elkana Faiwuszewicz By: /s/ Henry A. Mourad -------------------------------- -------------------------------- Elkana Faiwuszewicz, Henry A. Mourad, President President 3 EX-10.15 3 AGREEMENT W/DANIEL DROR 1 EXHIBIT 10.15 AGREEMENT AGREEMENT, made as the 3rd day of December, 1996, between Daniel Dror ("Dror") and Microtel International, Inc. (the "Company"). WHEREAS, Dror was the Chairman and Chief Executive Officer of the Company through November 15, 1996, at which time he resigned all positions which he held as an officer or director of the Company; and WHEREAS, the Company wishes to recognize Mr. Dror's significant contributions to the Company since January 1994, his exemplary services as Chairman and Chief Executive Officer, his numerous financial contributions to the Company and his forbearance of salary and reimbursement of expenses at various times during his tenure with the Company; and WHEREAS, the Company and Dror wish to rescind the Initial Agreement as of the date hereof and provide for the agreement set forth below in order to improve (i) the impact upon the Company's financial reporting of the transaction, and (ii) the terms of the transaction from the perspective of the Company's stockholders. NOW THEREFORE, IN CONSIDERATION OF THE FOREGOING; 1. DELIVERIES BY THE COMPANY (i) The Company will issue to Dror or his designee, as of the date hereof, an option exercisable to purchase 250,000 shares of the Company's common stock at a price of $2.375 per share (the "New Option"). Such New Option shall be exercisable for a period of five years from the date hereof, but none of the New Options shall be exercisable until the promissory note set forth in Section 3 hereof is paid in full. 2 Furthermore, such New Option shall be granted unlimited "piggy-back" registration rights, as more fully set forth in the form of the New Option which is attached hereto as Exhibit 1. (ii) The option currently outstanding granting Dror the right to purchase 25,000 shares of the Company's common stock at $3.125 per share shall be restated and modified as of the date hereof to extend the expiration of the option to be exercisable for a period of three years from the date hereof (the "Old Option"). Furthermore, such Old Option shall be granted unlimited "piggy-back" registration rights, as more fully set forth in the form of the restated Old Option which is attached hereto as Exhibit 2. (iii) The Company shall deliver to Dror or his designee an option exercisable for a period of three years to purchase 300,000 shares of the Company's common stock at a price of $.01 per share. If the Company at any time proposes to register any of its securities under the Securities Act of 1933, as amended (the "1933 Act")(other than pursuant to Form S-8 or other comparable form), the Company shall include the foregoing share of common stock in such registration. The Company shall at such time give prompt written notice to Dror of its intention to effect such registration and of Dror's rights under such proposed registration, and upon the request of Dror delivered to the Company within twenty (20) days after giving of such notice (which request shall specify the number of shares of common stock intended to be disposed of by such Dror), the Company shall include such shares of common stock held by Dror requested to be included in such registration; provided, however, that if, at any time after giving such written notice of the Company's intention to register any of Dror's shares of common stock and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any 2 3 reason not to proceed with such registration statement, the Company may give written notice of such determination to Dror and thereupon shall be relieved of its obligation to register such shares of common stock (but not from its obligation to pay registration expenses in connection therewith or to register the Registerable Securities in a subsequent registration). All expenses incurred in any registration of Dror's common stock under this Agreement shall be paid by the Company, including, without limitation, printing expenses, fees and disbursements of counsel for the Company, all registration and filing fees for Dror's common stock under federal and State securities laws, and expenses of complying with the securities or blue sky laws of any jurisdiction in which Dror reasonably requests the registration of his common stock; provided, however, the Company shall not be liable for (a) any discounts or commissions to any underwriter; (b) any stock transfer taxes incurred; or (c) the fees and expenses of counsel for Dror, provided that the Company will pay the costs and expenses of Company counsel. 2. ASSUMPTION OF CAR PAYMENTS. The Company hereby grants Dror the right to assume all the payment obligations and all rights and obligations with respect thereto for the 1995 BMW automobile currently financed and paid by the Company for Dror's use (the "Financing"). If Dror does not assume the financing by January 15, 1997, he shall return the automobile to the Company without further rights or obligations. 3. EVIDENCE OF INDEBTEDNESS. Dror is indebted to the Company (in the approximate amount of $211,000 as of November 15, 1996, which indebtedness arose in connection with the payment of his personal business expenses by the Company which expenses he subsequently agreed to repay to the Company. Such debt shall be evidenced by a promissory 3 4 note repayable in five annual installments, commencing one year from the date hereof, without interest. Such promissory note, substantially in the form of Exhibit 3 attached hereto, may be repaid by the cancellation of any options for the purchase of the Company's common stock issued to Dror or his designee. The amount credited for the cancellation of options shall be an amount equal to the difference between the exercise price of the options cancelled and the highest "ask" price of the Company's common stock on the day of cancellation, but in no event less than $.50 per option. 4. CONSULTING SERVICES. Dror will, at the Company's request, consult on the business and operations of the Company with the Board of Directors and senior management of the Company until the earlier of (i) 60 days, or (ii) the consummation of a business transaction with XCEL Corporation. Such consultation shall occur by telephonic or in person meetings at times and places mutually acceptable to Dror and the Company. 5. RELEASE OF LIABILITY BY DROR. Intending to be legally bound for himself and his assigns and successors, Dror does hereby relieve, release and forever discharge the Company, its subsidiaries, affiliates and related companies, the stockholders, officers, directors, representatives, servants, agents and employees of the Company, their subsidiaries, affiliates and related companies, and all of their respective successors, assigns, heirs and personal representatives (the foregoing, collectively the "Company Parties"), of and from any and all liabilities, obligations or debts which Dror may have from or against the Company Parties, except for any rights, liabilities or obligations which arise from or out of this Agreement or the options provided for herein or any other securities of the Company outstanding in favor of Dror. 6. RELEASE OF LIABILITY BY THE COMPANY. Intending to be legally bound for itself and 4 5 its assigns and successors, the Company does hereby relieve, release and forever discharge Dror, his affiliates and related companies, the stockholders, officers, directors, representatives, servants, agents and employees of any of such companies (including Daniel Dror & Company, Inc.), their subsidiaries, affiliates and related companies, and all of their respective successors, assigns, heirs and personal representatives (the foregoing, collectively the "Dror Parties"), of and from any and all liabilities, obligations or debts which the Company may have from or against the Dror Parties, except for any rights, liabilities or obligations which arise from or out of this Agreement or the options provided for herein, or any other securities of the Company outstanding in favor of Dror. IN WITNESS WHEREOF, the undersigned have executed this Agreement as the date first written above. MICROTEL INTERNATIONAL, INC. /s/ Daniel Dror By: /s/ Jack Talan - ------------------------- ------------------------- Daniel Dror Jack Talan, Chairman 5 EX-10.20 4 EMPLOYMENT AGREEMNET JACQUES MOISSET 1 EXHIBIT 10.20 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement), is made and entered into as of the 1st day of July 1995, by and between MICROTEL INTERNATIONAL, INC., a Delaware corporation (the "Employer) and JACQUES MOISSET (the "Employee"). WITNESSETH: WHEREAS, the Employer desires to employ the Employee, and the Employee desires to be employed by the Employer, upon the terms and condition hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, the parties do hereby agree as follows: 1. EMPLOYMENT. The Employer shall employ the Employee as President of CXR S.A., a French subsidiary of the Employer for three (3) years (the "Employment Term"), commencing on the date of this Agreement, with an option to renew for three (3) additional years or the death of the Employee. The Employee accepts such employment, agrees to supervise the operations of the CXR S.A. and to perform such other reasonable services of a senior executive nature as shall from time to time be assigned to him by or pursuant to the authorization of the Board of Directors of the Employer. 2. POSITION AND DUTIES. (a) Employment Duties. During the Employment Period (as defined in Section 3) the Executive agrees to serve as President and General Manager of CXR S.A., except as may be modified by the written agreement of the parties hereto. In his capacity as President of CXR S.A., the Executive will be responsible for the day to day operations of CXR S.A., shall have supervision, control over and responsibility for, the general managements and operations of CXR S.A., and shall perform such managerial duties and responsibilities for CXR S.A. which are customarily assumed by executive officers of similar corporations, and shall report directly to the President of MicroTel International, Inc. The Executive will perform such other duties as may from time to time be assigned to him by the respective Board of Directors of the Employer, provided such duties are consistent with and do not interfere with the performance of the duties described herein and are of a type customarily performed by persons of similar titles with similar corporations. The Executive's duties shall not be altered except upon the agreement of the parties in writing. Throughout the 2 Employment Period, and except for illness, vacation periods and leaves of absence granted by the Employer (if any), the Executive shall devote all his business time, attention, skill and efforts to the faithful performance of his duties hereunder, and shall accept such office or offices to which he may be elected by the Board of Directors of CXR or its subsidiaries. The parties agree and acknowledge that Executive's duties under this Agreement will be performed primarily in France. 3. COMPENSATION AND EXPENSE REIMBURSEMENT. (a)(i) The Employer shall pay to the Employee, and the Employee shall accept from the Employer, for the Employee's services during the Employment Term, compensation of Eight hundred eighty five thousand (885,000) French Francs per annum payable in equal monthly installments. In addition the Executive will receive expense reimbursement (which expenses shall be ordinary and reasonable in relation to the business of the Employer) payable in accordance with the Employer's customary payroll policy for payment of executive compensation adjusted by all previous expense reimbursements to the Employee as set forth in paragraph 3 (a) (ii) hereof. (ii) An accounting (the "Accounting") shall be made by the Employer at the end of each calendar quarter to determine the amount of expense reimbursement to the Employee in such calendar quarter. Based on such accounting, the compensation payable prospectively to the Employee to the date of the next following Accounting shall be adjusted accordingly so that each incremental payment prospectively for the period until the next following Accounting, shall be equal, based on the remaining unpaid amount for the current year. (iii) If the Employer has insufficient funds to make the payments contemplated by Section 3(a)(i) hereof (the "Shortfall"), Employee shall have the option to receive shares of common stock of the Employer, par value $.33 (the "Shares"), in an amount necessary to cover the Shortfall. For purposes of this Section 3(a)(iii), the Employee shall receive a number of Shares to cover the Shortfall based on a value per share determined by the Board of Directors of the Employer. (b) Subject to, and in addition to, the provisions of paragraph 2(a) in order to facilitate Employee's duties hereunder, Employer shall make available to Employee during the Employment Term a leased automobile, which leased automobile obligation shall not exceed 4,500 French Francs per month. (c) The Employee shall be entitled to participate on the same basis and subject to the same qualifications as other employees of the Employer in all Employee Benefit Plans (as that term is defined in Section 2(d)) in effect with respect to all salaried employees of the Employer. Page 2 3 (d) During the Employment Term, Employee shall be eligible to participate in all then-operative employee benefit plans of Employer or its affiliates which are applicable generally to the Employer executives of comparable rank to Employee ("Employee Benefit Plans"), including, but not limited to life insurance, if and to the extent that such Employee Benefit Plans are applicable to Employee pursuant to their respective terms and conditions. Nothing contained in this Agreement shall obligate the Employer to adopt or implement any Employee Benefit Plan, or prevent or limit the Employer from amending, terminating, changing the eligibility requirements of or otherwise modifying any Employee Benefit Plan at any time (whether during or after the Employment Term), and Employee's participation in or entitlement under any such Employee Benefit Plan shall at all times be subject in all respects to any such amendment, termination, change or modification. (e) The Employer shall be entitled to a total of four (4) weeks of paid vacation during each twelve (12) month period in the Employment Term, to be taken from time to time during the Employment Term as determined by the Employee. For any period of less than twelve (12) months, four (4) weeks of paid vacation shall be prorated. 3. Stock Option. (a) Grant of Option. The Employer grants to the Employee the right, privilege, and option to purchase two hundred and forty (240,000) of its Common Stock at an exercise price of $.625. (b) Time of Exercise of Option. The option as to the 240,000 Shares of Common Stock may be exercised by the Employee for ten (10) years from the grant date and can be exercised ratably over five (5) years in equal increments beginning one (1) year after the grant. (c) Guarantee. At the end of the six (6) years period, the granted option of two hundred and forty (240,000) thousand shares of Common Stock will be guaranteed to have a market worth of $1,339,512. If for any reason the market value of the above optioned shares is less than $1,339,512 then the Employer will issue to the Employee an amount of shares equivalent to the difference in dollar amount between the market price and $1,339,512, provided however that the net equity value of CXR, S.A. is at least seven (7) million dollars at the end of said period. Equity value is computed as book value, calculated based on a fixed exchange rate of five (5) French Francs to the dollar, not including the following items: 1. Good will; 2. Capitalized Engineering and development costs; and 3. All other intangible assets. Equity value will also be adjusted by adding back the following items: 1. Dividend issued and paid; and 2. Corporate Management fees and charges in excess of the present $180,000 per year. Page 3 4 (d) Method of Exercise. 1. The option shall be exercised by written notice directed to the Employer at its principal place of business, accompanied by check in payment of the option price for the number of Shares of Common Stock specified and paid for. The option may be exercised to purchase all or an number of the Shares of Common Stock specified and paid for. In the event of a portion of the optioned shares of Common Stock is exercised and sold, the guaranteed market value shall be recalculated at the end of the six (6) years period, using the remaining number of optioned shares of Common Stock on a prorate basis; 2. Payment for the Shares of Common Stock may be made by any one of the following methods: (a) by cash or check, (b) upon execution of a note upon terms agreeable to Employee and Employer, and (c) delivery to the company of a like number of shares as the number exercised; and 3. The Company shall make immediate delivery of such Shares of Common Stock, provided that is any law or regulation requires the Company to take any action with respect to the Shares of Common Stock specified in such notice before the issuance thereof, then the date of delivery of such Shares of Common Stock shall be extended for the period necessary to take such action. (e) Reclassification, Consolidation, or Merger. In the event of the sale of CXR S.A. before the end of the six (6) years period, the total of two hundred and forty (240,000) thousand optioned shares of Common Stock will become immediately exercisable. Additionally, if the book value at the time of the sale is less than the projected seven (7) million dollars, the guaranteed market value of $1,339,512, will then be prorated by the ratio of the then present book value at the time of exercise to the projected seven (7) million dollars book value. If for any reason the market value of the above optioned Shares of Common Stock is less than the new guaranteed value at the time of the sale, then the Employer will issue to the Employee an amount of shares equivalent to the difference in dollar amount between the market price and this new guaranteed value. 4. DISABILITY/DEATH OF THE EMPLOYEE. If the Employee shall become unable to perform his duties by reason of illness or incapacity for a continuous period of four (4) months or for more than six (6) months in the aggregate during the Employment Term, then the Employer may, at its option, terminate the Employment Agreement upon thirty (30) days written notice and the payment to the Employee of the compensation in accordance with Paragraph 2 hereof, that has accrued as of the effective date of such termination. If, during the Employment Term, the Employee shall die, the Employer shall pay to the Employee's legal representative, his compensation in accordance with Paragraph 2 hereof, that has accrued as of the date the Employee's death. In the event of the Employee's disability or death, the terms and conditions of the applicable Employee Benefit Plans, if any, shall govern the Employee's (or his estate's) entitlement to receive benefits thereunder. Page 4 5 5. RESTRICTIONS ON COMPETITION. The Employee acknowledges the Employer's vital interest in retaining its employees. During the Employment Term and for a period of one (1) year thereafter commencing with the date of any resignation by the Employee, the Employee shall refrain, unless the Employee first obtains the Employer's written consent: (a) From accepting employment within France with any person, firm, corporation, association or any other entity directly or indirectly in competition with the Employer or any affiliate or subsidiary thereof, or directly or indirectly entering into or in any manner taking part in or lending the Employee's name, counsel or assistance to any venture, enterprise, business or endeavor within the France, either as proprietor, principal, investor, partner, director, officer, employee, consultant, advisor, agent, independent contractor, or in any other capacity whatsoever, for any purpose which would be competitive with any business in which the Employer, or any affiliate or subsidiary thereof, engages during the Employment Term; and (b) From soliciting or inducing, directly or indirectly, whether for the Employee's own account or for the account of any other persons or entity, the termination or resignation of any person who, at any time during the period that the Employee is employed by the Employer and/or during the period from one (1) year thereafter commencing with the date of any resignation by the Employee, is or was an employee of the Employer or any affiliate or subsidiary thereof with the relationship of the Employer or any affiliate or subsidiary thereof. The Employer shall also be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or equity, to obtain damages and reimbursement of its attorneys fees for any breach of this Agreement or to enjoin the violation by the Employee of any provision of this Paragraph 4 provided that the remedies, if any, referred to above shall not be deemed to be exclusive of any other remedies available to the Employer, if any, by judicial proceedings or otherwise, to enforce the performance or observation of the covenants and agreements contained in this Agreement. 6. PROPRIETARY INFORMATION. All information documents, notes, memoranda and intellectual property of any kind received, compiled, produced or otherwise made available to Employee during or in connection with Employee's employment Employer relating in an way to the business of the Employer or of any of its affiliates (the "Confidential Materials") shall be the sole and exclusive property of the Employer and shall in perpetuity (both during and after Employee's employment by the Employer) be maintained in utmost confidence by Employee and held by Employee in trust for the benefit of the Employer. Employee shall not during the Employment Term or at any time thereafter directly or indirectly release or disclose to any other person any Confidential Materials, except with the prior written consent of the Employer or as required by law. Page 5 6 7. NON-DISCLOSURE AND NON-SOLICITATION. (a) During the Employment Term and thereafter (unless consented to in writing by the Employer), the Employee shall not, at any time, directly or indirectly, use or disclose to any persons or entities, except the Employer and its duly authorized personnel, the Employer's customer lists, records, statistics, or other information used by the Employer, its subsidiaries and affiliates in the course of your employment. (b) In addition, for a period of one (1) year commencing with the date any resignation by the Employee, for any reason whatsoever, agrees not to solicit, cause to be solicited, or assist in the solicitation of any person, firm, corporation, association or other entity which is a customer or account of the Employer on the date of termination of the Employee's employment for the purpose of providing any services to any person or entity that are directly competitive with the business and services of the Employer. 8. NOTICES. All notices and other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered, personally or by mail, certified or registered, postage prepaid, return receipt requested, to the address indicated below or to such other address as may be designated by written notice given in the above manner: If to Employer, to: MicroTel International, Inc. 2040 Fortune Drive San Jose, California Attn: Henry Mourad, President With a copy to: Daniel Dror Chairman If to Employee, to: Jacques Moisset 9. SEVERABILITY/MODIFICATION OF INVALID PROVISIONS If any provision of this Agreement shall, for any reason, be judged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Agreement but shall be confined in its operation to the provisions of this Agreement directly involved in the controversy in which such judgment shall have been rendered. If any tribunal or court of appropriate jurisdiction deems any provision hereof (other than for the payment of money) illegal, invalid or unenforceable, said tribunal or court may declare a Page 6 7 modification hereof which most nearly approximates the intention of the parties hereto as reflected in the provision deemed illegal, invalid or unenforceable, and this Agreement shall be legal, valid and enforceable, and the parties hereto agree to be bound by and perform the same, as thus modified. 10. ENTIRE AGREEMENT. No agreements, representations, written or oral, express or implied, with respect to the subject matter of this Agreement have been made by any of the parties which are not expressly set forth in this Agreement. This Agreement sets forth the entire agreement of the parties with respect to its subject matter and supersedes any and all prior and contemporaneous agreements, written or oral, express or implied, of the parties or their representatives, and any such prior or contemporaneous agreements are hereby terminated and cancelled. 11. WAIVER. The failure of one of the parties to insist on strict adherence to any term of this Agreement shall not be deemed a waiver of, or deprive that party of the right to insist in the future on strict adherence to, that term or any other term of the Agreement. 12. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, legal representatives, successors and assigns. This Agreement may not be assigned by either party hereto. 13. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California applicable to contracts made and to be performed wholly within said State, without giving effect to conflict of laws principles. IN WITNESS WHEREOF, the parties hereto have executed or have caused to be executed by its duly authorized officer, this Employment Agreement as of the date first above written. MICROTEL INTERNATIONAL, INC. By: /s/ HENRY MOURAD ------------------------- HENRY MOURAD, President By: /s/ JACQUES MOISSET ------------------------- JACQUES MOISSET, Employee Page 7 EX-10.21 5 EMPLOYMENT AGREEMENT W/ CARMINE OLIVA AND XCEL 1 EXHIBIT 10.21 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of this 1st day of January, 1996, by and between XCEL CORPORATION, a New Jersey corporation with offices at 4290 E. Brickell Street, Ontario, California, 91761-1511 (the "Employer" or the "Company"), and Carmine T. Oliva who resides at 97 Ellisen Road, Watchung, New Jersey 07060 ("Employee"). W I T N E S S E T H WHEREAS, the Employee desires to be employed by the Employer, and the Employer desires to employ the Employee; upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the foregoing and of the mutual Promises, covenants and agreements hereinafter contained the parties hereto agree as follows: I. EMPLOYMENT 1.1 Employment. Subject to the provisions for termination as hereinafter provided, the term of this agreement shall begin on the date first written above and shall terminate on January 1, 2001, (the "Employment Period"). 1.2 Renewal. Subject to the provisions for termination as hereinafter provided, this agreement shall be automatically renewed for three (3) successive two (2) year terms commencing on January 1, 2001, (the "Renewal Periods ") unless, during the 2 - 2 - following periods either party to this Agreement shall notify the other party in writing of its desire not to renew this Agreement; provided, however, any action required to be taken with respect to this Employment Agreement by the Employer shall only be taken after the Management Development and Compensation Committee of the Board of Directors of the Employer approves such action. The required notice periods in order to prevent an automatic renewal of this Agreement shall be as follows: Period During Which Notice Of Non-Renewal Must Be Given Renewal Period ---------------------------- -------------- 11/1/99 to 1/1/00 1/1/01 to 1/1/03 11/1/01 to 1/1/02 1/1/03 to 1/1/05 11/1/03 to 1/1/04 1/1/05 to 1/1/07 1.3 Duties. Subject to Section 1.4, the Employee hereby promises to perform and discharge well and favorably the duties of Chairman, President and Chief Executive Officer and to perform services in such additional capacities as may be directed by the Board of Directors (the "Board") in accordance herewith. As Chairman, President and Chief Executive Officer, the Employee's duties shall consist of the usual and customary duties of his position and he shall be subject to the direction and control of the Board. Further the Employee shall at all times have the authority as shall reasonably be required to enable him to discharge such duties in an efficient manner. 3 - 3 - 1.4 Redesignation. The Board may, in its discretion, elect or appoint the Employee to offices or positions other than, or in addition to, Chairman, President and Chief Executive Officer (hereinafter the "Redesignation") by providing the Employee with prompt written notice of the Redesignation. If any Redesignation and related addition to and/or reduction of Employee's duties results in a substantial net change in the scope of the Employee's responsibilities, the Employee may elect, in his sole discretion, not to accept such Redesignation and to resign upon providing written notice of his resignation to the Employer not less than thirty (30) days after the Employee has been provided with written notice of the Redesignation. In such event, the Employer shall pay, if such Redesignation occurs during the Employment Period, the Employee his annual salary, as provided herein, for three (3) years following the effective date of such resignation or until January 1, 2001, whichever is the longer period. In the event that the Redesignation shall occur at any time after the Employment Period, and during one of the Renewal Periods, the Employer shall pay the Employee his annual salary, as provided herein, for three (3) years following the effective date of such resignation. All sums owing hereunder in the event of a Redesignation and a subsequent resignation by the Employee shall be due and payable within thirty (30) days of the effective date of such resignation. Furthermore, in the event of such Redesignation and subsequent resignation, all Deferred Salary, 4 - 4 - including $104,000 deferred prior to the effective date of this agreement, (hereinafter referred to as the "Deferred Salary") and/or other monies owed the Employee under any voluntary or company-imposed compensation deferral program, shall also be payable within thirty (30) days of the effective date of such resignation. These amounts shall be paid in cash in accordance with policies and procedures covering the Employee and all similarly-situated Company employees at that time. 1.5 Other Business Activities. The Employee shall devote his full time, attention and energies to the business of the Company and shall not, so long as he remains in the employ of the Company, be engaged in any other employment or business of substantial nature, whether or not such business activity is pursued for gain or profit, without the written consent of the Company. Nothing contained herein, however, shall be construed as preventing the Employee from (i) making passive investments of his assets in such form or manner as he desires, provided such investments: (a) do not require the Employee to render service in the operations or affairs of the firms, corporations or other entities in which such investments are made, and (b) are not made in any business directly or indirectly competing with the Employer or its subsidiaries or affiliated corporations, if any, unless the stock of such company is listed on a national stock exchange and the Employee owns less than three percent (3%) of the outstanding voting securities, or (ii) becoming a member of the Board of Directors of any other 5 - 5 - corporation that the Employee desires, provided that the corporation upon whose Board the Employee becomes a member of is not, in the sole discretion of the Employer's Board of Directors, in competition with the business of the Employer. The Company shall provide the Employee with adequate office and support staff to accomplish the objectives for which he is employed and in order to perform the duties as set forth herein. II. COMPENSATION 2.1 Annual Salary. Subject to the provisions for deferral set forth in Section 2.2 below, the Employer shall pay to the Employee in compensation for the Employee's services hereunder, a base salary of $250,000 per annum, subject to the cessation of the current salary abatement program, payable in equal periodic installments in accordance with the customary payroll policy of the Employer. The Employee shall also be eligible to receive merit or promotional increases in accordance with the Employer's annual review, or other general review of its officer compensation. 2.2 Deferred Compensation. As noted in Section 1.4 above, the Employee deterred $104,000 of salary (the Deferred Salary") in an earlier period for the Company's benefit. The Deferred Salary shall be payable once the Employer has reported two consecutive profitable fiscal quarters during the Employment Period or the renewal Periods. Furthermore, the Deferred Salary shall be payable in equal monthly installments over a one year period once the two consecutive quarters of cumulative 6 - 6 - profitability have been recorded. Alternatively, the Employee, at his sole discretion, may convert the Employer's Deferred Salary obligations into any program established by the Employer to discharge its obligations to employees under any compensation abatement or similar deferral procedure. The converted amounts will be valued in the new program on a basis equitable and in accordance with the procedure used to establish the values for all other participants in such program. Notwithstanding any other provision to the contrary contained in this Section 2.2, in the event of any resignation of the Employee pursuant to Section 1.3 or as a result of the Employee's notification to the Employer that he does not desire to renew this Agreement as required under Section 1.2 hereof, or in the event of any termination pursuant to Sections 3.1, 3.2, 3.4, or 3.5 all Deferred Salary or other deferred compensation shall be payable within thirty (30) days of such termination thereof. 2.3 Expenses. The Employer agrees to reimburse the Employee against his receipts for all reasonable business expenses incurred by him during the Employment Period in connection with the performances of his services hereunder. 2.4 Bonus. The Employer agrees that the Employee will be entitled to participate in any bonus or similar plan approved by the Employer's Board of Directors. 2.5 Stock Purchase Warrants. As a condition to his entering into this Employment Agreement, Employee is entitled to purchase, subject to the provisions of the warrant ("Warrant"), from XCEL Corporation, at $5.00 per share, two hundred fifty 7 - 7 - thousand (250,000) shares of the company's common stock, no-par value ("Common Stock") at any time during the period commencing on the date of the Warrant, January 1, 1996, to 5:OO p.m. New York City time, December 31, 2000. 2.6 Stock Options and other Incentive Plans. The Employee shall continue to be eligible to participate in any Incentive Stock Option or Non-qualified Stock Option Plan, or other incentive plans duly approved by the Board of Directors for implementation within the Company. 2.7 Insurability: Right to Insure. Employee represents and warrants to the Company that on the date hereof he is, and upon the commencement of the Employment Period he will be, insurable at standard premium rates. Employee agrees that the Employer shall have the right during the Employment Period to insure the life of Employee by a policy or policies of insurance (including that presently in force) in such amount or amounts as it may deem necessary or desirable, and Employer shall be the beneficiary of any such policy and shall pay the premiums or other costs thereof. The Employer shall have the right, from time to time, to modify any such policy or policies of insurance or to take out new insurance on the life of the Employee. Employee agrees, upon request, at any time or times prior to the commencement of or during the Employment Period to sign and deliver any and all documents and to submit to any physical or other reasonable examinations which may be required in connection with any such policy or policies of insurance or modifications thereof. 8 - 8 - 2.8 Personal Guarantee/Capital Preservation Insurance. The Company will provide a life insurance policy on Employee's life, in the amount of $1 million, payable to Employee's estate in the event of his death during the life of this agreement and any extensions thereof. This benefit is in return for, and will protect the estate from financial loss arising from, any and all personal guarantees which the Employee provided in favor of the Corporation, as required by various corporate lenders. It will also enable such estate to exercise all warrants and options pertaining to the Company's capital stock, thereby preserving to his heirs the Employee's equity in the Company, which is a privately held entity with illiquid shares. 2.9 Additional Benefits. The Employee shall be entitled to the customary and usual medical, insurance, fringe and other benefits made available to the Employer's employees generally. 9 - 9 - III. TERMINATION 3.1 Termination due to Death. If during the Employment Period Employee shall die, this Agreement shall terminate, except that the compensation or other amounts payable hereunder, including all of the Employee's Deferred Salary payable pursuant to Section II of this Agreement, to or for the benefit of Employee shall be paid for one (1) year following the death of the Employee to such person or persons as Employee may designate by notice to the Employer from time to time or, in the absence of such designation, to his legal representatives. 3.2 Termination due to Disability. If during the Employment Period Employee shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder (i) for a period of 180 consecutive days, or (ii) for shorter periods aggregating 18O days during any period of eighteen consecutive months, the Employer may at any time after the last day of the 180 consecutive days of disability or the day on which the shorter periods of disability shall have equaled an aggregate of 180 days, by 10 days written notice to Employee (but before Employee had recovered from such disability), terminate this Agreement. Notwithstanding such disability, the Employer shall continue to pay Employee compensation or other amounts payable hereunder, including all of the Employee's Deferred Salary 10 - 10 - payable pursuant to Section II of this Agreement, to or for the benefit of Employee up to and including the date two (2) years after the effective date of such termination. 3.3 Termination for Cause. The Employer may at any time during the Employment Period, by notice, terminate this Agreement and discharge Employee for cause, whereupon the Employer's obligation to pay any compensation, severance allowance, or other amounts payable hereunder to or for the benefit of Employee shall terminate on the date of such discharge, notwithstanding anything herein contained to the contrary. As used herein the term "for cause" shall be deemed to mean and include chronic alcoholism; drug addiction; misappropriation of any money or other assets or properties of the Employer or its subsidiaries; willful violation of specific and lawful written directions from the Board of Directors of the Employer; failure or refusal to perform the services required of Employee under this Agreement; willful disclosure of trade secrets or other confidential information resulting in substantial detriment to the Company as documented by the Employer under oath or affirmation; conviction in a court of competent jurisdiction of any crime involving the funds or assets of the Company including, but not limited to, embezzlement and larceny; any civil or criminal misconduct or personal misbehavior which is detrimental to the image, reputation, welfare or security of the Employer where such 11 - 11 - misconduct or misbehavior and judgment have been documented by the Employer under oath or affirmation; and any other acts or Omissions that constitute grounds for cause under the laws of the State of New Jersey, California or Illinois. 3.4 Termination Without Cause. The Employer may terminate this Agreement without cause at any time upon sixty (60) days written notice to the Employee. In the event the Employer does terminate this Agreement without it being "for cause", the Employee, if requested in writing by the Employer, shall continue to render services at full compensation until the effective date of such termination. Thereafter, during the Employment Period, the Employee shall be paid his Annual Salary for two and one-half (2 1/2) years following the effective date of such termination or until January 1, 2001 whichever is the longer period. in the event such termination pursuant to this Section 3.4 occurs during any of the Renewal Periods, the Employee shall be paid his Annual Salary through the expiration of that particular Renewal Term as well as all and other amounts payable hereunder including the Employee's Deferred Salary. Termination "without cause" shall include the ceasing of operations due to bankruptcy and/or the general inability of the Employer to meet the Employer's obligations as they become due. 3.5 Termination upon Sale of Business. Employer may terminate this Agreement upon thirty (30) days written notice 12 - 12 - to Employee upon the happening of any of the following events: a. Sale by Employer of substantially all of its assets; b. Sale, exchange or other disposition of two-thirds or more of the outstanding capital stock of the Employer; c. Merger or reorganization of the Employer in which the shareholders of the Employer immediately prior to such merger or reorganization receive less than fifty percent (50%) of the outstanding voting shares of the successor corporation; provided, however, that upon any termination pursuant to this Section 3.5, the Employer shall pay in a lump sum within thirty (30) days of the occurrence of any of the events described in this Section 3.5 or, at Employee's election, in installments, the Employee's Annual Salary and all other amounts payable hereunder, including the Employee's Deferred Salary for two and one-half (2 1/2) years following the effective date of such termination or until January 1, 2001, whichever is the longer period. In the event such termination pursuant to this Section 3.5 occurs during any of the Renewal Periods, the Employee shall he paid his Annual Salary to the expiration of that particular Renewal Term as well as all other amounts payable hereunder, including the Employee's Deferred Salary. 13 - 13 - 3.6 Consequences of Termination. (a) In the event of a termination of this Agreement for any reason and unless otherwise agreed in writing by the parties hereto, (i) the principal and interest of all loans made by the Employee and by members of Employee's family to Employer shall on the effective date of such termination become due and, payable and shall be paid in full as soon as practicable thereafter notwithstanding any agreements to the contrary; (ii) all personal guarantees given by the Employee and the Employee's family on behalf of the Employer shall be voided no later than the effective date of such termination and written evidence thereof shall be provided as soon thereafter as practicable; (iii) all other obligations incurred by the Employee on behalf of the Employer, including any and all lease obligations signed by the Employee related to the performance of his duties hereunder, including but not limited to residence lease agreements between the Employee and third parties shall be voided on or about the effective date of such termination or fully assumed by the Employer; (iv) all loan collateral pledged by the Employee or members of Employee's family shall be returned to the Employee and other pledgers as soon as practicable, and replaced by collateral of similar value therefore by the Company and (v) all Deferred Salary which shall have accrued on or before the effective date of termination shall be paid as described in this Agreement. It is the expressed understanding of the parties hereto that as soon as practicable after the effective date of the Employee's termination of employment, or 14 - 14 - termination of the lease relating to the occupancy of a certain domicile used by the Employee and other business related persons, all personal property of the Employee will be returned to the principal place of residence of the Employee at the expense of the Employer. (b) In the event that the Employer fails to comply in full with the requirements of subparagraph (a) of this section, the Employee's Annual Salary shall be paid, or continue to be paid, until compliance is rendered in full, and such payments shall be in addition to any severance payments and not set off against same. IV. COVENANTS NOT TO COMPETE 4.1 The Employee agrees that (i) during the Employment Period and any renewals thereof, or in the event of a termination pursuant to Section 3.3 and, thereafter for a period of two years or (ii) in the event of a termination pursuant to Sections 3.4 or 3.5 and for the period from the effective date of such termination until the expiration of a period of twelve months thereafter, or (iii) until the expiration of a period of twelve months following his resignation upon Redesignation for the Interim Period as defined in Section 1.3, he will not act as a principal, agent, employee, employer, consultant, control person, stockholder, director or co-partner of any person, firm business entity other than the Employer, or in any individual 15 - 15 - representative capacity whatsoever, directly or indirectly, without the express consent of the Employer: (a) engage or participate or be employed in any business whose products or services are competitive with that of the Employer in the World; provided, however, that the ownership by the Employee of not more than three percent (3%) of a corporation or similar business venture shall not be deemed to be a violation of this covenant as long as the Employee does not become a controlling person or actively involved in the management of such corporation or business venture; (b) approach, solicit business from, or otherwise do business or deal with any customer of the Employer in connection with any product or service competitive with any provided by the Employer; provided, however, the Employee may approach, solicit business from, or otherwise do business or deal with any subsidiary or division of any customer of the Employer provided that such customer's division or subsidiary does not provide a product or service competitive with any provided by the Employer. (c) approach, counsel, solicit, assist to solicit or attempt to induce any person who is then in the employ of the Employer its affiliates or subsidiaries to leave the employ of the Employer or employ or attempt to employ on behalf of any person or entity any such person or persons who at any time 16 - 16 - during the preceding six months was in the employ of the Employer; (d) aid or counsel any other person, firm, corporation or business entity to do any of the above. For purposes of this Section 4.1, the term "customer" shall mean (i) any person or entity who was a customer of the Employer at any time during the last two months of the Employee's employment by the Employer; (ii) any prospective customer to whom the Employer had made a presentation (or similar offering of product(s)) during the last year of the Employee's employment by the Employer. The Employee acknowledges (i) that his position with the Employer requires the performance of services which are special, unique, extraordinary and intellectual in character and places him in a position of confidence and trust with the customers and employees of the Employer, through which, among other things, he shall obtain knowledge of such organizations "technical information" and "know-how" and become acquainted with their customers, in which matters such organizations have substantial proprietary interests, (ii) that the restrictive covenants act forth above are necessary in order to protect and maintain such proprietary interests and the other legitimate business interests of the Company, and (iii) that the Employer would not have entered into this Agreement unless such covenants were included herein. 17 - 17 - The Employee also acknowledges that the business of the Employer Presently extends throughout the World, that he has personally supervised or engaged in such business on behalf of Employer, or will do so pursuant to the terms of this Agreement, and, accordingly, it is reasonable that the restrictive covenants set forth above are not more limited as to geographic area than is set forth therein. The Employee also represents to the Employer that the enforcement of such covenants will not prevent the Employee from earning a livelihood. If any of the provisions of this Section, or any part thereof, it hereinafter construed to be invalid or unenforceable, the same shall not affect the remainder of such provision or provisions, which shall be given full effect, without regard to the invalid portions. If any of the provisions of this Section, or any part thereof, is held to be unenforceable because of the duration of such provision, the area covered thereby or the type of conduct restricted therein, the parties agree that the court making such determination shall have the power to modify the duration, geographic area and/or other terms of such provision and, as so modified, said provision shall then be enforceable. In the event that the courts of any one or more jurisdictions shall hold such provisions wholly or partially unenforceable by reason of the scope thereof or otherwise, it is the intention of the parties 18 - 18 - hereto that such determination not bar or in any way affect the Employer's right to the relief provided for herein in the Courts of any other jurisdictions as to breaches or threatened breaches of such Provisions in such other jurisdictions, the above provisions as they relate to each jurisdiction being, for this Purpose, severable into diverse and independent covenants. V. CONFIDENTIAL INFORMATION 5.1 DISCLOSURE OF INFORMATION. The Employee recognizes and acknowledges that the financial information, trade secrets, technical information and confidential or proprietary information of the Employer, including such information as may exist from time to time, and information as to the identity of customers or prospective customers of the Employer and other similar items, are valuable. special and unique assets of the Employer's business, access to and knowledge of which are essential to the performance of the duties of the Employee hereunder. The Employee will not, during or after the term hereof, in whole or in part, disclose such secrets or confidential, technical or proprietary information to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall the Employee make use of any such property or information for his own purpose or for the benefit of any person, firm, corporation or other entity (except the Employer) under any 19 - 19 - circumstances, during or after the term hereof, provided that after the term hereof these restrictions shall not apply to such secrets or information which are then in the public domain (provided that the Employee was not responsible directly or indirectly, for such secrets or information entering the public domain without the consent of the Employer). 5.2 Ownership of Inventions. All of the Employee's right, title and interest in all developments or improvements devised or conceived by the Employee, alone or with others, during his working hours, as well as in all developments or improvements devised or conceived by the Employee, alone or with others, which relate to any business in which the Employer is then engaged or contemplating engaging, regardless of when devised or conceived, is the exclusive property of the Employer. The Employee shall promptly disclose all such developments and improvements to the Employer. The Employee shall not use or disclose any such developments or improvements, other than in furtherance of the Employer's business, without the Employer's prior written consent. 5.3 Return Memoranda. Employee hereby agrees to deliver promptly to the Employer on termination of his employment, or at any other time the Employer may so request, all memoranda, notes, records, reports, manuals, drawings and other documents (and all copies thereof) relating to the Employer's business and all property associated therewith, which he may then possess or have under his control. 20 - 20 - VI. INJUNCTIVE RELIEF 6.1. The Employee acknowledges that the remedy at law for any breach or threatened breach Of Articles IV and V hereof by the Employee will be inadequate, and that, accordingly, the Employer shall, in addition to all other available remedies (including without limitation seeking such damages as it can show it has sustained by reason of such breach), be entitled to injunctive relief without being required to post bond or other security and without having to prove the inadequacy of the available remedies at law. The Employee agrees not to plead or defend on grounds of adequate remedy at law or any similar defense in any action by the Employer against him or injunctive relief or for specific performance of any of his obligations pursuant to Articles IV and V hereof. Nothing herein shall be construed as prohibiting the Employer from pursuing any other remedies for such breach or threatened breach. VII. MISCELLANEOUS PROVISIONS 7.1 Notices and Communications. All notices and communications hereunder shall be in writing and shall be hand delivered or sent postage prepaid by registered or certified mail, return receipt requested, to the address first above written or to such other address of which notice shall have been given in the manner herein provided. 21 - 21 - 7.2 Entire Agreement. All Prior and contemporaneous agreements and understandings between the parties with respect to the subject matter of this Agreement are superseded by this Agreement, and this Agreement constitutes the entire understanding between the parties. This Agreement may not be modified, amended, changed or discharged except by a writing signed by the parties hereto, and then only to the extent therein set forth. 7.3 Assignment. This Agreement may be assigned by the Employer and shall be binding upon and inure to the benefit of the Employees assigns and successors. The services to be performed by the Employee pursuant to this Agreement may not be assigned by the Employee. 7.4 Waiver. No waiver of any breach of this Agreement or of any objection to any act or omission connected herewith shall be implied or claimed by any party, or be deemed to constitute a consent to any continuation of such breach, act or omission, unless in a writing signed by the party against whom enforcement of such waiver or consent is sought, and then only to the extent therein set forth. 7.5. Indemnification. The Employer will indemnify Employee, to the maximum extent permitted by applicable law and the Bylaws of the Company, against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or other 22 - 22 - reason of his being an officer, director or employee of the Employer or any subsidiary or affiliate thereof. 7.6 Section Headings. The section headings of this Agreement are solely for the purpose of convenience and shall neither be adeemed a part of this agreement nor used in any interpretation thereof. 7.7 Governing Law. This agreement and the relationship of the parties shall be governed by, and construed in accordance with, the laws of the state of New Jersey, or until such time as the Company's state of incorporation may be changed to another state within the United States, at which point the relationship of the parties would then be governed by, and construed in accordance with, the laws of the new state of incorporation. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the day and year first above written. XCEL CORPORATION Dated: 1/1/96 BY: /s/ Robert B. Runyon ----------------------------- Robert B. Runyon, Chairman, Management Development and Compensation Committee, Board of Directors Dated: 1/1/96 /s/ Carmine T. Oliva ----------------------------- Carmine T. Oliva, Employee EX-10.22 6 SECURITY AND LOAN AGREEMENT IMPERIAL BANK 1 EXHIBIT 10.22 IMPERIAL BANK Member FDIC SECURITY AND LOAN AGREEMENT (ACCOUNTS RECEIVABLE AND/OR INVENTORY) This Agreement is entered into between XCEL Corporation a, NJ Corporation (herein called "Borrower") and IMPERIAL BANK (herein called "Bank"). 1. Bank hereby commits, subject to all the terms and conditions of this Agreement and prior to the termination of its commitment as hereinafter provided, to make loans to Borrower from time to time in such amounts as may be determined by Bank up to, but not exceeding in the aggregate unpaid principal balance. the following Borrowing Base: 75.000 % of Eligible Accounts 12.500 % of the Value of Inventory Not to Exceed $500,000.00 and in no event more than $3,250,000.00 2. The amount of each loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank (herein called "Loan Account") and Bank shall credit the Loan Account with all loan repayments made by Borrower. Borrower promises to pay Bank on or before the tenth day of each month, interest on the average daily unpaid balance of the Loan Account during the immediately preceding month at the rate of One percent (1.000%) per annum in excess of the rate of interest which Bank has announced as its prime lending rate ("Prime Rate") which shall vary concurrently with any change in such Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the loan account is outstanding divided by 360, which shall for interest computation purposes be considered one year. Bank at its option may demand payment of any or all of the amount due under the Loan Account including accrued but unpaid interest at any time. Such notice may be given verbally or in writing and should be effective upon receipt by Borrower. The amount of interest payable each month by Borrower shall not be less than a minimum monthly charge of $ 250.00. Bank is hereby authorized to charge Borrower's deposit account(s) with Bank for all sums due Bank under this Agreement. 3. Requests for loans hereunder shall be in writing duly executed by Borrower in a form satisfactory to Bank and shall contain a certification setting forth the matters referred to in Section 1, which shall disclose that Borrower is entitled to the amount of loan being requested. 4. As used in this Agreement, the following terms shall have the following meanings: A. "Accounts" means any right to payment for goods sold or leased, or to be sold or to be leased, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables. B. "Inventory" means all of the Borrower's goods, merchandise and other personal property which are held for sale or lease, including those held for display or demonstration or out on lease or consignment or to be furnished under a contract of service or are raw materials, work in process or materials used or consumed, or to be used or consumed in Borrower's business, and shall include all property rights, patents, plans, drawings, diagrams, schematics, assembly and display materials relating thereto. C. "Collateral" means any and all personal property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest. D. "Eligible Accounts" means all of Borrower's Accounts excluding, however, (1) all Accounts under which payment is not received within days from any invoice date, (2) all Accounts against which the account debtor or any other person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Account and (3) any Accounts if the account debtor or any other person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower. Eligible Accounts shall only include such accounts as Bank in its sole discretion shall determine are eligible from time to time. E. "Value of Inventory" means the value of Borrower's Inventory determined in accordance with generally accepted accounting principles consistently applied excluding, however, the amount of progress payments, pre-delivery payments, deposits and any other sums received by Borrower in anticipation of the sale and delivery of Inventory, all Inventory on consignment or lease to others, and all property on consignment or lease from others to Borrower. 5. Borrower hereby assigns to Bank all Borrower's present and future Accounts, including all proceeds due thereunder, all guaranties and security therefor and all merchandise giving rise thereto, and hereby grants to Bank a continuing security interest in all Borrower's Inventory and in all proceeds and products thereof, whether now owned or hereafter existing or acquired, including all moneys in the Collateral Account referred to in Section 6 hereof, as security for any and all obligations of Borrower to Bank, whether now owing or hereafter incurred and whether direct, indirect, absolute or contingent. So long as Borrower is indebted to Bank or Bank is committed to extend credit to Borrower, Borrower will execute and deliver to Bank such assignments, including Bank's standard forms of Specific or General Assignment covering individual Accounts, notices, financing statements, and other documents and papers as Bank may require in order to affirm, effectuate or further assure the assignment to Bank of the Collateral or to give any third party, including the account debtors obligated on the Accounts, notice of Bank's interest in Collateral. 6. Until Bank exercises its rights to collect the Accounts and Inventory proceeds pursuant to paragraph 10, Borrower will collect with diligence all Borrower's Accounts and Inventory proceeds, provided that no legal action shall be maintained thereon or in connection therewith without Bank's prior written consent. Any collection of Accounts or Inventory proceeds by Borrower, whether in the form of cash, checks, notes, or other instruments for the payment of money (properly endorsed or assigned where required to enable Bank to collect same), shall be in trust for Bank, and Borrower shall keep all such collections separate and apart from all other funds and property so as to be capable of identification as the property of Bank and deliver said collections, together with the proceeds of all cash sales, daily to Bank in the identical form received. The proceeds of such collections when received by Bank may be applied by Bank directly to the payment of Borrower's Loan Account or any other obligation secured hereby. Any credit given by Bank upon receipt of said proceeds shall be conditional credit subject to collection. Return items at Bank's option may be charged to Borrower's general account. All collections of the Accounts and Inventory proceeds shall be set forth on an itemized schedule, showing the name of the account debtor, the amount of each payment and such other information as Bank may request. 7. Until Bank exercises its rights to collect the Accounts or Inventory proceeds pursuant to paragraph 10, Borrower may continue its present policies with respect to returned merchandise and adjustments. However, Borrower shall immediately notify Bank of all cases involving returns, repossessions, and loss or damage of or to merchandise represented by the Accounts or constituting Inventory and of any credits, adjustments or disputes arising in connection with the goods or services represented by the Accounts or constituting Inventory and, in any of such events, Borrower will immediately pay to Bank from its own funds (and not from the proceeds of Accounts or Inventory) for application to Borrower's Loan Account or any other obligation secured hereby the amount of any credit for such returned or repossessed merchandise and adjustments made to any of the Accounts. Until payment is made as provided herein or until release by Bank from its security interest, all merchandise returned to or 2 repossessed by Borrower shall be set aside and identified as the property of Bank and Bank shall be entitled to enter upon any premises where such merchandise is located and take immediate possession thereof and remove same. 8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation, that Borrower is duly organized and existing in the State of its incorporation and the execution, delivery and performance hereof are within Borrower's corporate powers, have been duly authorized and are not in conflict with law or the terms of any charter, by-law or other incorporation papers, or of any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is found or affected; (ii) Borrower is, or at the time the collateral becomes subject to Bank's security interest will be, the true and lawful owner of and has, or at the time the Collateral becomes subject to Bank's security interest will have, good and clear title to the Collateral, subject only to Bank's rights therein; (iii) Each Account is, or at the time the Account comes into existence will be, a true and correct statement of a bona fide indebtedness incurred by the debtor named therein in the amount of the Account for either merchandise sold or delivered (or being held subject to Borrower's delivery instructions) to, or services rendered, performed and accepted by, the account debtor; (iv) That there are or will be no defenses, counterclaims, or setoffs which may be asserted against the Accounts; and (v) any and all financial information, including information relating to the Collateral, submitted by Borrower to Bank, whether previously or in the future, is or will be true and correct. 9. Borrower will: (1) Furnish Bank from time to time such financial statements and information as Bank may reasonably request and inform Bank immediately upon the occurrence of a material adverse change therein; (ii) Furnish Bank periodically, in such form and detail and at such times as Bank may require, statements showing aging and reconciliation of the Accounts and collections thereon, and reports as to the Inventory and sales thereof; (iii) Permit representatives of Bank to inspect the Inventory and Borrower's books and records relating to the Collateral and make extracts therefrom at any reasonable time and to arrange for verification of the Accounts, under reasonable procedures, acceptable to Bank, directly with the account debtors or otherwise at Borrower's expense; (iv) Promptly notify Bank of any attachment or other legal process levied against any of the Collateral and any information received by Borrower relative to the Collateral, including the Accounts, the account debtors or other persons obligated in connection therewith, which may in any way affect the value of the Collateral or the rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon demand for any and all legal costs, including reasonable attorney's fees, and other expense incurred in collecting any sums payable by Borrower under Borrower's Loan Account or any other obligation secured hereby, enforcing any term or provision of this Security Agreement or otherwise or in the checking, handling and collection of the Collateral and the preparation and enforcement of any agreement relating thereto; (vi) Notify Bank of each location at which the Inventory is or will be kept, other than for temporary processing, storage or similar purposes, and of any removal thereof to a new location and of each office of Borrower at which records of Borrower relating to the Accounts are kept; (vii) Provide, maintain and deliver to Bank policies insuring the collateral against loss or damage by such risks and in such amounts, forms and companies as Bank may require and with loss payable solely to Bank, and, in the event Bank takes possession of the Collateral, the insurance policy or policies and any unearned or returned premium thereon shall at the option of Bank become the sole property of Bank, such policies and the proceeds of any other insurance covering or in any way relating to the Collateral, whether now in existence or hereafter obtained, being hereby assigned to Bank; (viii) Do all acts necessary to maintain, preserve and protect all Inventory, keep all Inventory in good condition and repair and not to cause any waste or unusual or unreasonable depreciation thereof, and (ix) In the event the unpaid balance of Borrower's Loan Account shall exceed the maximum amount of outstanding loans to which Borrower is entitled under Section 1 hereof, Borrower shall immediately pay to Bank, from its own funds and not from the proceeds of Collateral, for credit to Borrower's Loan Account the amount of such excess. 10. Bank may at any time, without prior notice to Borrower, collect the Accounts and Inventory proceeds and may give notice of assignment to any and all account debtors, and Borrower does hereby make, constitute and appoint Bank its irrevocable, true and lawful attorney with power to receive, open and dispose of all mail addressed to Borrower, to endorse the name of Borrower upon any checks or other evidences of payment that may come into the possession of Bank upon the Accounts or as proceeds of Inventory; to endorse the name of the undersigned upon any document or instrument relating to the Collateral; in its name or otherwise, to demand, sue for, collect and give acquittances for any and all moneys due or to become due upon the Accounts; to compromise, prosecute or defend any action, claim or proceeding with respect thereto; and to do any and all things necessary and proper to carry out the purpose herein contemplated. 11. Until Borrower's Loan Account and all other obligations secured hereby shall have been repaid in full, Borrower shall not sell, dispose of or grant a security interest in any of the Collateral other than to Bank, or execute any financing statements covering the Collateral in favor of any secured party or person other than Bank. 12. Should: (i) Default be made in the payment of any obligation, or breach be made in any warranty, statement, promise, term or condition, contained herein or hereby secured; (ii) Any statement or representation made for the purpose of obtaining credit hereunder prove false; (iii) Bank deem the Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become insolvent or make an assignment for the benefit of creditors; or (v) Any proceeding be commended by or against Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt or moratorium law or statute; then in any such event, Bank may, at its option and without demand first made and without notice to Borrower, do any one or more of the following: (a) Terminate its obligation to make loans to Borrower as provided in Section 1 hereof; (b) Declare all sums secured hereby immediately due and payable; (c) Immediately take possession of the Collateral wherever it may be found, using all necessary force so to do, or require Borrower to assemble the Collateral and make it available to Bank at a place designated by Bank which is reasonably convenient to Borrower and Bank, and Borrower waives all claims for damages due to or arising from or connected with any such taking; (d) Proceed in the foreclosure of Bank's security interest and sale of the Collateral in any manner permitted by law, or provided for herein; (e) Sell, lease or otherwise dispose of the Collateral at public or private sale, with or without having the Collateral at the place of sale, and upon terms and in such manner as Bank may determine, and Bank may purchase same at any such sale; (f) Retain the Collateral in full satisfaction of the obligations secured thereby; (g) Exercise any remedies of a secured party under the Uniform Commercial Code. Prior to any such disposition, Bank may, at its option, cause any of the Collateral to be repaired or reconditioned in such manner and to such extent as Bank may deem advisable, and any sums expended therefor by Bank shall be repaid by Borrower and secured hereby. Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any such action shall not estop or prevent Bank from pursuing any further remedy which it may have hereunder or by law. If a sufficient sum is not realized from any such disposition of Collateral to pay all obligations secured by this Security Agreement, Borrower hereby promises and agrees to pay Bank any deficiency. 13. If any writ of attachment, garnishment, execution or other legal process be issued against any property of Borrower, or if any assessment for taxes against Borrower, other than real property, is made by the Federal or State government or any department thereof, the obligation of Bank to make loans to Borrower as provided in Section 1 hereof shall immediately terminate and the unpaid balance of the Loan Account, all other obligations secured hereby and all other sums due hereunder shall immediately become due and payable without demand, presentment or notice. 14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports and other types of documents and records submitted to Bank in connection with the transactions contemplated herein at any time subsequent to four months from the time such items are delivered to Bank. 15. Nothing herein shall in any way limit the effect of the conditions set forth in any other security or other agreement executed by Borrower, but each and every condition hereof shall be in addition thereto. *16. Additional Provisions: See Exhibit "A" Addendum to Security and Loan Agreement attached Executed this 29th day of February, 1996 XCEL CORPORATION -------------------------- (Name of Borrower) BY: /s/ Carmine T. Oliva ------------------------------- (Authorized Signature and Title) Carmine T. Oliva, Chairman, President & CEO IMPERIAL BANK BY: /s/ Doug Mead BY: ------------------------------- -------------------------------- Doug Mead, Vice President Title (Authorized Signature and Title) * If none, Insert "None" 3 EXHIBIT "A" ADDENDUM TO SECURITY AND LOAN AGREEMENT ("SECURITY AND LOAN AGREEMENT") BETWEEN XCEL CORPORATION AND IMPERIAL BANK DATED: February 29, 1996 This Addendum is made and entered into February 29, 1996, between XCEL CORPORATION ("Borrower") and Imperial Bank ("Bank"). This Addendum amends and supplements the Security and Loan Agreement. In the event of any inconsistency between the terms herein and the terms of the Security and Loan Agreement, the terms herein shall in all cases govern and control. All capitalized terms herein, unless otherwise defined herein, shall have the meaning set forth in the Security and Loan Agreement. 1. Any commitment of Bank, pursuant to the terms of the Security and Loan Agreement to make advances against Eligible Accounts shall expire on January 15, 1997, subject to Bank's right to renew said commitment at its sole discretion. Any renewal of the commitment shall not be binding upon the Bank unless it is in writing and signed by an officer of the Bank. Bank shall endeavor to give Borrower notice of its intention to not renew sixty (60) days prior to any maturity date or any extended maturity date. 2. Definitions: a. Eligible Accounts. Eligible Accounts as defined in the Security and Loan Agreement is amended to include, in addition to Borrower's Accounts, Accounts of Hycomp, Inc. ("Hycomp") meeting the criteria set forth therein and herein. b. Value of Inventory. Value of Inventory as defined in the Security and Loan Agreement is amended to include, in addition to the value of Borrower's Inventory, Inventory of Hycomp meeting the criteria set forth therein and herein. 3. Borrower represents and warrants that: a. Litigation. Except as previously disclosed in writing to Bank, there is no litigation or other proceeding pending or threatened against or affecting Borrower in excess of $25,000, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority. b. Financial Condition. The balance sheet of Borrower as of September 30, 1995, and the related profit and loss statement on that date, a copy of which has heretofore been delivered to Bank by Borrower, and all other statements and data submitted in writing by Borrower to Bank in 4 EXHIBIT A Page 2 connection with this request for credit are true and correct, and said balance sheet and profit and loss statement truly present the financial condition of Borrower as of the date thereof and the results of the operations of Borrower for the period covered thereby, and have been prepared in accordance with generally accepted accounting principles on a basis consistently maintained. Since such date, there have been no materially adverse changes. Borrower has no knowledge of any liabilities, contingent or otherwise, at such date not reflected in said balance sheet, and Borrower has not entered into any special commitments or substantial contracts which are not reflected in said balance sheet, other than in the ordinary and normal course of its business, which may have a materially adverse effect upon its financial condition, operations or business as now conducted. c. Trademarks, Patents. Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with valid trademarks, trade names, copyrights patents and license rights of others. d. Tax Status. Borrower has no liability for any delinquent state, local or federal taxes, and, if Borrower has contracted with any government agency, Borrower has no liability for renegotiation of profits. 4. Borrower agrees that so long as it is indebted to Bank, it will not, without Bank's written consent: a. Type of Business. Management. Make any substantial change in the character of its business; or make any change in its executive management. b. Outside Indebtedness. Create, incur, assume or permit to exist any indebtedness for borrowed moneys other than loans from Bank except obligations now existing as shown in financial statement dated September 30, 1995, excluding those being refinanced by Bank and except for indebtedness specifically subordinated to all indebtedness to Bank in an amount not to exceed $500,000; or sell or transfer, either with or without recourse, any accounts or notes receivable or any moneys due to become due. c. Liens and Encumbrances. Create, incur, assume any mortgage, pledge, encumbrance, lien or charge of any kind (including the charge upon property at any time purchased or acquired under conditional sale or other title retention agreement) upon any asset now owned or hereafter acquired by it, other than (i) liens for taxes not delinquent and liens in Bank's favor and (ii) obligations secured by equipment or automotive vehicles purchased in the ordinary course of Borrower's business in an amount not to exceed $100,000. d. Loans, Investments, Secondary Liabilities, Make any loans or advances to any person or other entity other than in the normal and ordinary course of its business as now conducted or make any investment(s), in any fiscal year, in the aggregate, in excess of $25,000 in the 5 EXHIBIT A Page 3 securities of any person or other entity other than the United States Government; or guarantee or otherwise become liable upon the obligation of any person or other entity, except by endorsement of negotiable instruments for deposit or collection in the ordinary and normal course of its business. e. Acquisition or Sale of Business; Merger or Consolidation. Purchase or otherwise acquire the assets or business of any person or other entity; or liquidate, dissolve, merge or consolidate, or commence any proceedings therefor; or sell any assets except in the ordinary and normal course of its business or fixed assets, or any property or other assets necessary for the continuance of its business as now conducted, including without limitation the selling, of any property or other asset accompanied by leasing back of same. f. Dividends, Stock Payments. Declare or pay any dividend (other than dividends payable in common stock of Borrower, or that amount necessary for company related income tax payments) or make any other distribution of any of its capital stock now outstanding or hereafter issued or purchase, redeem or retire any such stock. Nothing in this agreement shall be deemed to prohibit Borrower from establishing any employee stock benefit plans. g. Capital Expenditures. Make or incur obligations for capital expenditures in excess of $750,000 in any one fiscal year period. h. Lease Liability. Make or incur liability for payments of rent under leases of real property in excess of $1,000,000 and personal property in excess of $100,000 in any one fiscal year. 5. Should there be a default under the Security and Loan Agreement, the General Security Agreement or under the Note, all obligations, loans and liabilities of Borrower to Bank, due or to become due, whether now existing or hereafter arising, shall at the option of the Bank, become immediately due and payable without notice or demand, and Bank shall thereupon have the right to exercise all of its default rights and remedies, provided, however, that with respect to an non-monetary defaults, Borrower shall have thirty (30) days from notice from Bank of any such default to cure same and with respect to any monetary default, Borrower shall have ten (10) days from the date of such default to cure same. 6. In addition to the provisions in the Security and Loan Agreement, Eligible Accounts shall only include such accounts as Bank in its sole discretion shall determine are eligible from time to time. "Eligible Accounts" shall also NOT include any of the following: a. Accounts with respect to which the account debtor is an officer, director, shareholder, employee, subsidiary or affiliate of Borrower. b. Accounts with respect to which 25% or more of the account debtor's total accounts or obligations outstanding to Borrower are more than 90 days from invoice date are not eligible. 6 EXHIBIT A Page 4 c. For accounts representing more than 20% of total accounts receivable, the balance in excess of the 20% is not eligible. However, the Bank may deem, at its sole discretion, the entire amount, or any portion thereof, eligible and with respect to Diebold, Inc., balances up to and including 30% shall be eligible. d. Accounts with respect to international transactions unless insured by an insurance company acceptable to the Bank or covered by letters of credit issued or confirmed by a bank acceptable to the Bank. e. Credit balances greater than 90 days from invoice date. f. All accounts sold to and purchased from a company of common name/ownership, whereby a potential offset exists. g. Accounts over 90 days from invoice date. h. Consignment or guaranteed sales. i. Bill and hold accounts. j. Equipment rental offsets. k. Collection accounts (aged up to 90 days from invoice date). 7. Borrower may borrow against eligible inventories consisting of raw materials, deemed acceptable by Bank, up to $500,000 sub-limit within the line, contingent upon borrowing base availability, and supported by monthly inventory certification submitted by Borrower to the Bank. Inventory eligible for advances under the Security Agreement shall NOT include the following: a. Goods on consignment. b. Inventory reserve amounts. c. Inventory not insured, naming Bank as loss payee. d. Obsolete inventory. e. Inventory located in areas making it difficult to verify its existence, or which will cause undue expense in liquidation due to transportation costs, or other logistical reasons. 7 EXHIBIT A Page 5 8. All financial covenants and financial information referenced herein shall be interpreted and prepared in accordance with generally accepted accounting principles applied on a basis consistent with previous years. Compliance with financial covenants shall be calculated on a consolidated basis. 9. Borrower affirmatively covenants that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank, it will: a. Maintain a minimum tangible net worth (meaning the excess of all assets, excluding any value for goodwill, trademarks, patents, copyrights, organization expense and other similar intangible items, over its liabilities, less subordinated debt) on a quarterly basis, of not less than $3,300,000. b. Maintain working capital (Borrower's current assets minus current liabilities) of not less than $900,000. c. Maintain a current ratio of at least 1.05 to 1.0. Current ratio is the ratio of current assets to current liabilities. d. Maintain a maximum ratio of total debt to tangible net worth of 3.50 to 1.0. e. Maintain minimum ratio of Cash Flow (meaning the Borrower's net profit after taxes and dividends, exclusive of non-recurring income, to which depreciation, amortization, and other non-cash expenses are added for the 12 month period immediately preceding the date of calculation) to Debt Service (meaning that portion of Borrower's long term liabilities and capital leases coming due within 12 months after the date of calculation) of not less than 1.25 to 1.00. f. Maintain all significant bank accounts and banking relationship with Bank. g. Not show a net loss for any two consecutive quarters nor at any fiscal year end. h. Within 15 working days from each month-end, deliver to Bank an accounts receivable aging reconciled to the general ledger of Borrower, a detailed accounts payable aging reconciled to the Borrower's general ledger and setting forth the amount of any book overdraft or the amount of checks issued but not sent, and an inventory certification outlining both inventory composition and activity for the month. All the foregoing will be in form satisfactory to the Bank. Also provide the Bank on a quarterly basis or more frequently if demanded by Bank, a complete address list of all active customers. i. Within 45 days after the end of each fiscal quarter, deliver to Bank a profit and loss statement and a balance sheet in form satisfactory to Bank all certified by an officer of Borrower. All such financial information shall be prepared in accordance with generally accepted accounting 8 EXHIBIT A Page 6 principles consistently applied, and shall include consolidating balance sheet and profit and loss information. j. Within 90 days after end of Borrower's fiscal year, deliver to Bank the same financial statements as otherwise provided quarterly together with Changes in Financial Position Statement, with the audited opinion by an independent certified public accountant selected by Borrower but acceptable to Bank. Financial information shall include supplemental consolidating balance sheet and profit and loss statements. k. Rights and Facilities. Maintain and preserve all rights, franchises and other authority adequate for the conduct of its business; maintain its properties, equipment and facilities in good order and repair; conduct its business or partnership, maintain and preserve its existence. l. Insurance. Maintain public liability, property damage and workers' compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses. Borrower shall provide evidence of property insurance in amounts and types acceptable to the Bank. Bank to be named as loss payee. m. Taxes and Other Liabilities. Pay and discharge, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and governmental changes upon or against it or any of its properties, and any of its liabilities at any time existing, except to the extent and so long as: (a) The same are being contested in good faith and by appropriate proceedings in such manner as not to cause any materially adverse effect upon its financial condition or the loss of any right of redemption from any sale thereunder; and (b) It shall have set aside on its books reserves segregated to the extent required by generally accepted accounting practice) deemed adequate with respect thereto. n. Records and Reports. Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles on a basis consistently maintained; permit Bank's representatives to have access to, and to examine its properties, books and records at all reasonable times. 10. The rate of interest applicable to the Loan Account shall be 1.00% per year in excess of the rate of interest which Bank has announced as its prime lending rate ("Prime Rate") which shall vary concurrently with any change in such Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the loan account is outstanding divided by 360, which shall, for interest computation purposes, be considered one year. 9 EXHIBIT A Page 7 The default rate of interest shall be five percent per year in excess of the rate otherwise applicable. 11. Pricing for issuance of Commercial and/or Stand-By Letters of Credit will be Bank's standard rates and charges as announced from time to time. 12. Miscellaneous Provisions. Failure or Indulgence Not Waiver. No failure or delay on the part of your Bank or any holder or Notes Issued hereunder, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof or of any other right, power or privilege. All rights and remedies existing under this agreement or any not issued in connection with a loan that your Bank may make hereunder, are cumulative to, not exclusive of, any rights or remedies otherwise available. 13. Cross Default. Any default under any obligation of XCEL Arnold Circuits, Inc., to Bank shall be a default hereunder and Bank shall have all the rights set forth in the Security and Loan Agreement for defaults thereunder. 14. This Addendum is executed by and on behalf of the parties as of the date first above written. XCEL CORPORATION "BORROWER" BY: /S/ CARMINE T. OLIVA -------------------------- CARMINE T. OLIVA, CHAIRMAN OF THE BOARD, PRESIDENT AND CEO IMPERIAL BANK "BANK" BY:/S/ NUNILO SOLER ----------------------- Nunilo Soler TITLE: VICE PRESIDENT EX-10.23 7 XIT NOTE AND CREDIT AGREEMNET IMPERIAL BANK 1 IMPERIAL BANK EXHIBIT 10.23 Member FDIC NOTE $ 750,000.00 Los Angeles, California. November 20, 1996 On November 30, 2001, and as hereinafter provided, for value received, the undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking corporation, or order, at its Los Angeles Regional Office, the principal sum of $750,000.00 or such sums up to the maximum if so stated, as the Bank may now or hereafter advance to or for the benefit of the undersigned in accordance with the terms hereof, together with interest from date of disbursement or N/A, whichever is later, on the unpaid principal balance [ ] at the rate of _____ per year [X] at the rate of 1.250% per year in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in such Prime Rate, or $250.00, whichever is greater. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance is outstanding, divided by 360, which shall, for interest computation purposes, be considered one year. Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal [ ] in addition to principal beginning December 30, 1996, and if not so paid shall become a part of the principal. All payments shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal [X] (if checked). Principal shall be payable in installments of $_____ or more, each installment on the 30TH day of each MONTH, beginning December 30, 1996. Advances not to exceed any unpaid balance owing at any one time equal to the maximum amount specified above, may be made at the option of Bank. Any partial prepayment shall be applied to the installments, if any, in inverse order of maturity. Should default be made in the payment of principal or interest when due, or in the performance or observance, when due, of any item, covenant or condition of any deed of trust, security agreement or other agreement (including amendments or extensions thereof) securing or pertaining to this note, at the option of the holder hereof and without notice or demand, the entire balance of principal and accrued interest then remaining unpaid shall (a) become immediately due and payable, and (b) thereafter bear interest, until paid in full, at the increased rate of 5% per year in excess of the rate provided for above, as it may vary from time to time. Defaults shall include, but not be limited to, the failure of the maker(s) to pay principal or interest when due; the filing as to each person obligated hereon, whether as maker, co-maker, endorser or guarantor (individually or collectively referred to as the "Obligor") of a voluntary or involuntary petition under the provisions of the Federal Bankruptcy Act; the issuance of any attachment or execution against any asset of any Obligor; the death of any Obligor; or any deterioration of the financial condition of any Obligor which results in the holder hereof considering itself, in good faith, insecure. If any installment payment, interest payment, principal payment or principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any payment past due or less than the total unpaid principal balance after maturity. If this note is not paid when due, each Obligor promises to pay all costs and expenses of collection and reasonable attorneys fees incurred by the holder hereof on account of such collection, plus interest at the rate applicable to principal, whether or not suit is filed hereon. Each Obligor shall be jointly and severally liable hereon and consents to renewals, replacements and extensions of time for payment hereof, before, at, or after maturity; consents to the acceptance, release or substitution of security for this note; and waivers demand and protest and the right to assert any statute of limitations. Any married person who signs this note agrees that recourse may be had against separate property for any obligations hereunder. The indebtedness evidenced hereby shall be payable in lawful money of the United States. In any action brought under or arising out of this note, each Obligor, including successor(s) or assign(s) hereby consents to the application of California law, to the jurisdiction of any competent court within the State of California, and to service of process by any means authorized by California law. No single or partial exercise of any power hereunder, or under any deed of trust, security agreement or other agreement in connection herewith shall preclude other or further exercises thereof or the exercise of any other such power. The holder hereof shall at all times have the right to proceed against any portion of the security for this note in such order and in such manner as such holder may consider appropriate, without waiving any rights with respect to any of the security. Any delay or omission on the part of the holder hereof in exercising any right hereunder, or under any deed of trust, security agreement or other agreement, shall not operate as a waiver of such right, or of any other right, under this note or any deed of trust, security agreement or other agreement in connection herewith. *See Addendum attached XIT CORPORATION BY: /s/ Carmine T. Oliva - ------------------------------- ------------------------ - ------------------------------- ------------------------ - ------------------------------- ------------------------ EX-10.24 8 XCEL ARNOLD CIRCUITS NOTE AND CREDIT AGREEMENT 1 IMPERIAL BANK EXHIBIT 10.24 Member FDIC SECURITY AND LOAN AGREEMENT (ACCOUNTS RECEIVABLE) This Agreement is entered into between XCEL ARNOLD CIRCUITS, INC., a Corporation (herein called "Borrower") and IMPERIAL BANK (herein called "Bank"). 1. Bank hereby commits, subject to all the terms and conditions of this Agreement and prior to the termination of its commitment as hereinafter provided, to make loans to Borrower from time to time in such amounts as may be determined by Bank up to, but not exceeding in the aggregate unpaid principal balance, the following Borrowing Base: 80.000% of Eligible Accounts and in no event more than $1,500,000.00 2. The amount of each loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank (herein called "Loan Account") and Bank shall credit the Loan Account with all loan repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid balance of Borrower's Loan Account on demand and (b) on or before the tenth day of each month, interest on the average daily unpaid balance of the Loan Account during the immediately preceding month at the rate of One percent (1.000%) per annum in excess of the rate of interest which Bank has announced as its prime lending rate ("Prime Rate") which shall vary concurrently with any change in such Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the loan account is outstanding divided by 360, which shall for interest computation purposes be considered one year. Bank at its option may demand payment of any or all of the amount due under the Loan Account including accrued but unpaid interest at any time. Such notice may be given verbally or in writing and should be effective upon receipt by Borrower. The amount of interest payable each month by Borrower shall not be less than a minimum monthly charge of $250.00. Bank is hereby authorized to charge Borrower's deposit account(s) with Bank for all sums due Bank under this Agreement. 3. Requests for loans hereunder shall be in writing duly executed by Borrower in a form satisfactory to Bank and shall contain a certification setting forth the matters referred to in Section 1, which shall disclose that Borrower is entitled to the amount of loan being requested. 4. As used in this Agreement, the following terms shall have the following meanings: A. "Accounts" means any right to payment for goods sold or leased, or to be sold or to be leased, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables. B. "Collateral" means any and all personal property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest. C. "Eligible Accounts" means all of Borrower's Accounts excluding, however, (1) all Accounts under which payment is not received within 90 days from any invoice date, (2) all Accounts against which the account debtor or any other person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Account and (3) any Accounts if the account debtor or any other person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower. Eligible Accounts shall only include such accounts as Bank in its sole discretion shall determine are eligible from time to time. 5. Borrower hereby assigns to Bank all Borrower's present and future Accounts, including all proceeds due thereunder, all guaranties and security therefor, and hereby grants to Bank a continuing security interest in all moneys in the Collateral Account referred to in Section 6 hereof, as security for any and all obligations of Borrower to Bank, whether now owing or hereafter incurred and whether direct, indirect, absolute or contingent. So long as Borrower is indebted to Bank or Bank is committed to extend credit to Borrower, Borrower will execute and deliver to Bank such assignments, including Bank's standard forms of Specific or General Assignment covering individual Accounts, notices, financing statements, and other documents and papers as Bank may require in order to affirm, effectuate or further assure the assignment to Bank of the Collateral or to give any third party, including the account debtors obligated on the Accounts, notice of Bank's interest in the Collateral. 6. Until Bank exercises its rights to collect the Accounts pursuant to paragraph 10, Borrower will collect with diligence all Borrower's Accounts, provided that no legal action shall be maintained thereon or in connection therewith without Bank's prior written consent. Any collection of Accounts by Borrower, whether in the form of cash, checks, notes, or other instruments for the payment of money (properly endorsed or assigned where require to enable Bank to collect same), shall be in trust for Bank, and Borrower shall keep all such collections separate and apart from all other funds and property so as to be capable of identification as the property of Bank and deliver said collections daily to Bank in the identical form received. The proceeds of such collections when received by Bank may be applied by Bank directly to the payment of Borrower's Loan Account or any other obligation secured hereby. Any credit given by Bank upon receipt of said proceeds shall be conditional credit subject to collection. Returned items at Bank's option may be charged to Borrower's general account. All collections of the Accounts shall be set forth on an itemized schedule, showing the name of the account debtor, the amount of each payment and such other information as Bank may request. 7. Until Bank exercises its rights to collect the Accounts pursuant to paragraph 10, Borrower may continue its present policies with respect to returned merchandise and adjustments. However, Borrower shall immediately notify Bank of all cases involving returns, repossessions, and loss or damage of or to merchandise represented by the Accounts and, in any of such events, Borrower will immediately pay to Bank from its own funds (and not from the proceeds of Accounts or Inventory) for application to Borrower's Loan Account or any other obligation secured hereby the amount of any credit for such returned or repossessed merchandise and adjustments made to any of the Accounts. 8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation, that Borrower is duly organized and existing in the State of its incorporation and the execution, delivery and performance hereof are within Borrower's corporate powers, have been duly authorized and are not in conflict with law or the terms of any charter, by-law or other incorporation papers, or of any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is found or affected; (ii) Borrower is, or at the time the collateral becomes subject to Bank's security interest will be, the true and lawful owner of and has, or at the time the Collateral becomes subject to Bank's security interest will have, good and clear title to the Collateral, subject only to Bank's rights therein; (iii) Each Account is, or at the time the Account comes into existence will be, a true and correct statement of a bona fide indebtedness incurred by the debtor named therein in the amount of the Account for either merchandise sold or delivered (or being held subject to Borrower's delivery instructions) to, or services rendered, performed and accepted by, the account debtor; (iv) That there are or will be no defenses, counterclaims, or setoffs which may be asserted against the Accounts; and (v) any and all financial information, including information relating to the Collateral, submitted by Borrower to Bank, whether previously or in the future, is or will be true and correct. 2 9. Borrower will: (i) Furnish Bank from time to time such financial statements and information as Bank may reasonably request and inform Bank immediately upon the occurrence of a material adverse change therein; (ii) Furnish Bank periodically, in such form and detail and at such times as Bank may require, statements showing aging and reconciliation of the Accounts and collections thereon; (iii) Permit representatives of Bank to inspect the Borrower's books and records relating to the Collateral and make extracts therefrom at any reasonable time and to arrange for verification of the Accounts, under reasonable procedures, acceptable to Bank, directly with the account debtors or otherwise at Borrower's expense; (iv) Promptly notify Bank of any attachment or other legal process levied against any of the Collateral and any information received by Borrower relative to the Collateral, including the Accounts, the account debtors or other persons obligated in connection therewith, which may in any way affect the value of the Collateral or the rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon demand for any and all legal costs, including reasonable attorney's fees, and other expense incurred in collecting any sums payable by Borrower under Borrower's Loan Account or any other obligation secured hereby, enforcing any term or provision of this Security Agreement or otherwise or in the checking, handling and collection of the Collateral and the preparation and enforcement of any agreement relating thereto; (vi) Notify Bank of each location and of each office of Borrower at which records of Borrower relating to the Accounts are kept; (vii) Provide, maintain and deliver to Bank policies insuring the Collateral against loss or damage by such risks and in such amounts, forms and companies as Bank may require and with loss payable solely to Bank, and, in the event Bank takes possession of the Collateral, the insurance policy or policies and any unearned or returned premium thereon shall at the option of Bank become the sole property of Bank, such policies and the proceeds of any other insurance covering or in any way relating to the Collateral, whether now in existence or hereafter obtained, being hereby assigned to Bank; and (viii) In the event the unpaid balance of Borrower's Loan Account shall exceed the maximum amount of outstanding loans to which Borrower is entitled under Section 1 hereof, Borrower shall immediately pay to Bank, from its own funds and not from the proceeds of Collateral, for credit to Borrower's Loan Account the amount of such excess. 10. Bank may at any time, without prior notice to Borrower, collect the Accounts and may give notice of assignment to any and all account debtors, and Borrower does hereby make, constitute and appoint Bank its irrevocable, true and lawful attorney with power to receive, open and dispose of all mail addressed to Borrower, to endorse the name of Borrower upon any checks or other evidences of payment that may come into the possession of Bank upon the Accounts to endorse the name of the undersigned upon any document or instrument relating to the Collateral; in its name or otherwise, to demand, sue for, collect and give acquittances for any and all moneys due or to become due upon the Accounts; to compromise, prosecute or defend any action, claim or proceeding with respect thereto; and to do any and all things necessary and proper to carry out the purpose herein contemplated. 11. Until Borrower's Loan Account and all other obligations secured hereby shall have been repaid in full, Borrower shall not sell, dispose of or grant a security interest in any of the Collateral other than to Bank, or execute any financing statements covering the Collateral in favor of any secured party or person other than Bank. 12. Should: (i) Default be made in the payment of any obligation, or breach be made in any warranty, statement, promise, term or condition, contained herein or hereby secured; (ii) Any statement or representation made for the purpose of obtaining credit hereunder prove false; (iii) Bank deem the Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become insolvent or make an assignment for the benefit of creditors; or (v) Any proceeding be commended by or against Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt or moratorium law or statute; then in any such event, Bank may, at its option and without demand first made and without notice to Borrower, do any one or more of the following: (a) Terminate its obligation to make loans to Borrower as provided in Section 1 hereof; (b) Declare all sums secured hereby immediately due and payable; (c) Immediately take possession of the Collateral wherever it may be found, using all necessary force so to do, or require Borrower to assemble the Collateral and make it available to Bank at a place designated by Bank which is reasonably convenient to Borrower and Bank, and Borrower waives all claims for damages due to or arising from or connected with any such taking; (d) Proceed in the foreclosure of Bank's security interest and sale of the Collateral in any manner permitted by law, or provided for herein; (e) Sell, lease or otherwise dispose of the Collateral at public or private sale, with or without having the Collateral at the place of sale, and upon terms and in such manner as Bank may determine, and Bank may purchase same at any such sale; (f) Retain the Collateral in full satisfaction of the obligations secured thereby; (g) Exercise any remedies of a secured party under the Uniform Commercial Code. Prior to any such disposition, Bank may, at its option, cause any of the Collateral to be repaired or reconditioned in such manner and to such extent as Bank may deem advisable, and any sums expended therefor by Bank shall be repaid by Borrower and secured hereby. Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any such action shall not estop or prevent Bank from pursuing any further remedy which it may have hereunder or by law. If a sufficient sum is not realized from any such disposition of Collateral to pay all obligations secured by this Security Agreement, Borrower hereby promises and agrees to pay Bank any deficiency. 13. If any writ of attachment, garnishment, execution or other legal process be issued against any property of Borrower, or if any assessment for taxes against Borrower, other than real property, is made by the Federal or State government or any department thereof, the obligation of Bank to make loans to Borrower as provided in Section 1 hereof shall immediately terminate and the unpaid balance of the Loan Account, all other obligations secured hereby and all other sums due hereunder shall immediately become due and payable without demand, presentment or notice. 14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports and other types of documents and records submitted to Bank in connection with the transactions contemplated herein at any time subsequent to four months from the time such items are delivered to Bank. 15. Nothing herein shall in any way limit the effect of the conditions set forth in any other security or other agreement executed by Borrower, but each and every condition hereof shall be in addition thereto. *16. Additional Provisions: Subject to Credit Agreement of 9/6/95 and any amendments thereto. See Addendum attached. Executed this 17th day of September, 1996 XCEL ARNOLD CIRCUITS, INC. ------------------------------ (Name of Borrower) BY: /s/ Harry K. James, President -------------------------------- (Authorized Signature and Title) IMPERIAL BANK BY: /s/ Nunilo Soler, VP BY: ------------------------- ---------------------------------- Title (Authorized Signature and Title) *IF NONE, INSERT "NONE" 3 Addendum to Security and Loan Agreement dated September 17, 1996. If any installment payment, interest payment, principal payment or principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any payment past due or less than the total unpaid principal balance after maturity. All payments shall be applied first to any late charges owing, then to interest and the remainder, if any, to principal. XCEL ARNOLD CIRCUITS, INC. BY: /s/ Harry K. James ---------------------------- ---------------------------- EX-10.25 9 XCEL ARNOLD CIRCUITS NOTE AND CREDIT AGREEMENT 1 EXHIBIT 10-25 IMPERIAL BANK Member FDIC NOTE $1,000,000.00 Los Angeles, California, September 6, 1995 On October 1, 2000, and as hereinafter provided, for value received, the undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking corporation, or order at its Los Angeles Regional office, the principal sum of $1,000,000.00 or such sums up to the maximum if so stated, as the Bank may now or hereafter advance to or for the benefit of the undersigned in accordance with the terms hereof, together with interest from date of disbursement or N/A , whichever is later, on the unpaid principal balance ____ at the rate of ___% per year X at the rate of 1.250% per year in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in such Prime Rate, or $250.00, whichever is greater. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance is outstanding, divided by 360, which shall, for interest computation purposes, be considered one year. Interest shall be payable _X_ monthly __ quarterly __ included with principal _X_ in addition to principal, beginning November 1, 1995, and if not so paid shall become a part of the principal. All payments shall be applied first to interest, and the remainder, if any, on principal, __X__ (if checked), Principal shall be payable in installments of $16,667.00, or more, each installment on the 1st day of each month, beginning November 1, 1995. Advances not to exceed any unpaid balance owing at any one time equal to the maximum amount specified above, may be made at the option of Bank. Any partial prepayment shall be applied to the installments, if any, in inverse order of maturity. Should default be made in the payment of principal or interest when due, or in the performance or observance, when due, of any item, covenant or condition of any deed of trust, security agreement or other agreement (including amendments or extensions thereof) securing or pertaining to this note, at the option of the holder hereof and without notice or demand, the entire balance of principal and accrued interest then remaining unpaid shall (a) become immediately due and payable, and (b) thereafter bear interest, until paid in full, at the increased rate of 5% per year in excess of the rate provided for above, as it may vary from time to time. Defaults shall include, but not be limited to, the failure of the maker (a) to pay principal or interest when due; the filing as to each person obligated hereon, whether as maker, co-maker, endorser or guarantor (individually or collectively referred to as the "Obligor") of a voluntary or involuntary petition under the provisions of the Federal Bankruptcy Act; the Issuance of any attachment or execution against any asset of any Obligor; the death of any Obligor; or any deterioration of the financial condition of any Obligor which results in the holder hereof considering itself, in good faith, insecure. If any installment payment or principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay a late charge in the amount of 5% of the payment so due and unpaid. In addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any installment past due or less than the total unpaid principal balance after maturity. If this note is not paid when due, each Obligor promises to pay all costs and expenses of collection and reasonable attorney's fees incurred by the holder hereof on account of such collection, plus interest at the rate applicable to principal, whether or not suit is filed hereon. Each Obligor shall be jointly and severally liable hereon and consents to renewals, replacements and extensions of time for payment hereof, before, at, or after maturity; consents to the acceptance, release or substitution of security for this note; and waives demand and protest and the right to assert any statute of limitations. Any married person who signs this note agrees that recourse may be had against separate property for any obligations hereunder. The indebtedness evidenced hereby shall be payable in lawful money of the United States. In any action brought under or arising out of this note, each Obligor, including successor(s) or assign(s) hereby consents to the application of California law, to the jurisdiction of any competent court within the State of California, and to service of process by any means authorized by California law. No single or partial exercise of any power hereunder, or under any deed of trust, security agreement or other agreement in connection herewith shall preclude other or further exercises thereof or the exercise of any other such power. The holder hereof shall at all times have the right to proceed against any portion of the security for this note in such order and in such manner as such holder may consider appropriate, without waiving any rights with respect to any of the security. Any delay or omission on the part of the holder hereof in exercising any right hereunder, or under any deed of trust, security agreement or other agreement, shall not operate as a waiver of such right, or of any other right, under this note or any deed of trust, security agreement or other agreement in connection herewith. This Note is being executed together with that certain Credit Agreement, dated September 6, 1995 between the Borrower and the Bank (the "Credit Agreement"). To the extent the terms of this Note and the terms of the Credit Agreement are inconsistent, the terms of the Credit Agreement shall govern. XCEL ARNOLD CIRCUITS, INC. _______________________________ __________________________________ _______________________________ By:_______________________________ _______________________________ __________________________________ 2 CREDIT AGREEMENT This Credit Agreement (the " Agreement") is made and entered into on September 6, 1995 by and between XCEL Arnold Circuits, Inc. a New Jersey corporation, ("Borrower") and Imperial Bank, a California banking corporation ("Bank"). Borrower wishes to secure certain credit accommodations from Bank and Bank is willing to provide credit accommodations all as provided in this Agreement. In consideration of mutual covenants and conditions hereof, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.01 TOTAL COMMITMENT. Subject to the terms and conditions of this Agreement, Bank shall make available to Borrower from time to time during the term of this Agreement the credit facilities specified herein up to the aggregate principal amount of Two Million ($2,000,000) Dollars (the "Total Commitment"). The Total Commitment shall be comprised of (a) a revolving credit commitment (the "Revolving Credit Commitment") as provided in Section 1.02 hereof, and (b) a term loan (the "Term Loan") as provided in Section 1.03 hereof. 1.02 REVOLVING CREDIT COMMITMENT. Subject to the terms and conditions of this Agreement, between the date of this Agreement and January 15, 1997 (the "Revolving Commitment Termination Date"), provided that no event of default then has occurred and is continuing, Bank will provide the Revolving Credit Commitment of One Million Dollars ($1,000,000) for (a) loans for general working capital purposes, and (b) the issuance of Sight, Usance, or Standby Letters of Credit ("Letters of Credit"), provided, however, that the aggregate of the Letters of Credit, and Revolving Loans at any one time shall not exceed the Revolving Credit Commitment. No Letter of Credit shall expire after the Revolving Commitment Termination Date. AVAILABILITY. Notwithstanding the above, advances and letters of credit issued under Bank's Revolving Credit Commitment will not exceed 80% of Eligible Accounts Receivable. Eligible Accounts means all of Borrower's Accounts excluding, however, (1) all Accounts under which payment is not received within 90 days from any invoice date, (2) all Accounts against which the account debtor or any other person obligated to make payment thereon 3 asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Account, (3) any Accounts if the account debtor or any other person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower, (4) any accounts with respect to which 25% or more of the account debtor's total accounts or obligations outstanding to Borrower are more than 90 days from invoice date, (5) for accounts (excluding Motorola) representing more than 20% of total accounts receivable, the balance in excess of the 20% is not eligible, (6) salesmen's accounts for promotional purposes, (7) accounts with respect to international transactions unless insured by an insurance company acceptable to Bank or covered by letters of credit or confirmed by a bank acceptable to Bank, (8) credit balances greater than 90 days from invoice date, (9) government receivables, unless specifically assigned to Bank, and (10) accounts with respect to which the account debtor is an officer, director, shareholder, employee, subsidiary, or affiliate of Borrower. Eligible Accounts shall only include such accounts as Bank in its sole discretion shall determine are eligible from time to time. 1.03 TERM LOAN. Bank will make a Term Loan to Borrower in the amount of One Million Dollars ($1,000,000), which is subject to the terms and conditions of this Agreement. Borrower's obligation to repay the principal amount of the Term Loan, together with accrued interest thereon, is evidenced by a promissory note issued by Borrower in favor of Bank on the standard form used by Bank to evidence its commercial loans. The Term Loan provides for payment of principal in sixty (60) consecutive monthly installments, each in an amount equal to Sixteen Thousand Six Hundred Sixty Six Dollars ($16, 666.00), commencing on November 1, 1995, until October 1, 2000 (the "Term Loan Maturity Date"), on which date all unpaid principal and accrued interest on the Term Loan shall be due and payable. 2. COLLATERAL 2.01 SECURITY PROVIDED BY BORROWER. To secure the payment and performance of all obligations of Borrower to Bank, Borrower shall have granted a first priority security interest in all of Borrower's accounts, deposit accounts, instruments, chattel paper, documents, general intangibles, inventory, equipment, furniture and fixtures, now owned or hereafter acquired by Borrower, all proceeds and insurance proceeds of the foregoing, all guarantees and other security therefor, and all of Borrower's books and records relating thereto (including computer-stored information and all software relating thereto), and all contract rights with third parties relating to the maintenance of any such books, records and information. 3. REPRESENTATIONS OF BORROWER Borrower represents and warrants that: 4 3.01 EXISTENCE AND RIGHTS. Borrower is a corporation duly organized and existing and in good standing under the laws of New Jersey, without limit as to the duration of its existence and is authorized and in good standing to do business in the State of California; Borrower has corporate powers and adequate authority, rights and franchises to own its property and to carry on its business as now conducted, and is duly qualified and in good standing in each State in which the character of the properties owned by it therein or the conduct of its business makes such qualification necessary; and Borrower has the power and adequate authority to make and carry out this Agreement. Borrower has no investment in any other business entity. 3.02 AGREEMENT AUTHORIZED. The execution, delivery and performance of this Agreement are duly authorized and do not require the consent or approval of any governmental body or other regulatory authority; are not in contravention of or in conflict with any law or regulation or any term or provision of Borrower's articles of incorporation, by-laws, as the case may be, and this Agreement is the valid, binding and legally enforceable obligation of Borrower in accordance with its terms; subject only to bankruptcy, insolvency or similar laws affecting creditors rights generally. 3.03 NO CONFLICT. The execution, delivery and performance of this Agreement are not in contravention of or in conflict with any agreement, indenture or undertaking to which Borrower is a party or by which it or any of its property may be bound or affected, and do not cause any lien, charge or other encumbrance to be created or imposed upon any such property by reason thereof. 3.04 LITIGATION. There is no litigation or other proceeding pending or threatened against or affecting Borrower which if determined adversely to Borrower or its interest would have a material adverse effect on the financial condition of Borrower, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority. 3.05 FINANCIAL CONDITION. The pro-forma opening statement of Borrower as of August 1, 1995, a copy of which has heretofore been delivered to Bank by Borrower, and all other statements and data submitted in writing by Borrower to Bank in connection with this request for credit are true and correct, and said balance sheet truly presents the financial condition of Borrower as of the date thereof, and has been prepared in accordance with generally accepted accounting principles on a basis consistently maintained. Since such date there have been no material adverse changes in the ordinary course of business. Borrower has no knowledge of any liabilities, contingent or otherwise, at such date not reflected in said balance sheet, and Borrower has not entered into any special commitments or substantial contracts which are not reflected in said balance sheet, other than in the ordinary and normal course of its business, which may have a materially adverse effect upon its financial condition, operations or business as now conducted. 5 3.06 TITLE TO ASSETS. Borrower has good title to its assets, and the same are not subject to any liens or encumbrances other than those permitted by Section 5.03 hereof. 3.07 TAX STATUS. Borrower has no liability for any delinquent state, local or federal taxes, and, if Borrower has contracted with any government agency, Borrower has no liability for renegotiation of profits. 3.08 TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with the valid trademarks, trade names, copyrights, patents and license rights of others. 3.09 REGULATION U. The proceeds of the Loan shall not be used to purchase or carry margin stock (as defined within Regulation U of the Board of Governors of the Federal Reserve system). 4. AFFIRMATIVE COVENANTS OF BORROWER Borrower agrees that so long as it is indebted to Bank, under borrowings, or other indebtedness, it will, unless Bank shall otherwise consent in writing: 4.01 RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and other authority adequate for the conduct of its business; maintain its properties, equipment and facilities in good order and repair; conduct its business in an orderly manner without voluntary interruption and, if a corporation or partnership, maintain and preserve its existence. 4.02 INSURANCE. Maintain public liability, property damage and workers' compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses and/or in the exercise of good business judgment. 4.03 TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become delinquent and before penalties accrue thereon, all taxes, assessments and governmental charges upon or against it or any of its properties, and all its other liabilities at an time existing, except to the extent and so long as: a. The same are being contested in good faith and by appropriate proceedings in such manner as not to cause any materially adverse affect upon its financial condition or the loss of any right of redemption from any sale thereunder; and 6 b. It shall have set aside on its books reserves (segregated to the extent required by generally accepted accounting practice) deemed by it adequate with respect thereto. 4.04 WORKING CAPITAL. Maintain Net Current Assets (i.e. working capital) of not less than $-0-, as computed and determined in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower. 4.05 NET WORTH. Maintain Tangible Net Worth [meaning stockholders' equity, plus preferred stock, less any value for goodwill, trademarks, patents, copyrights, leaseholds, organization expense, amounts due from officers, shareholders and affiliates, and other similar intangible items] of not less than $1,500,000. Minimum Tangible Net Worth shall increase annually, beginning with the fiscal year ending September 30, 1996 by 60% of net income after tax (without taking into consideration any net losses) for fiscal year, plus 95% of the net proceeds of any stock offering. 4.06 DEBT TO NET WORTH. Borrower's ratio of total liabilities divided by Tangible Net Worth shall not exceed 2.00 to 1.00. 4.07 CASH FLOW RATIO. Borrower shall maintain a minimum ratio of Cash Flow to Debt Service of not less than 1.40 to 1.00. Compliance with this section shall be measured at the end of each fiscal year beginning with the fiscal year ending September 30, 1996. For the purposes of this section, "Debt Service" shall mean that portion of the Borrower's long-term liabilities, capitalized leases and preferred stock coming due within twelve (12) months after the date of calculation and "Cash Flow" shall mean Borrower's net profit after taxes and dividends (including dividends paid on preferred stock), exclusive of nonrecurring income, to which depreciation, amortization and other noncash expenses are added for the twelve (12) month period immediately preceding the date of calculation. 4.08 RECORDS AND REPORTS. Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles on a basis consistently maintained; permit Bank's representatives to have access to, and to examine its properties, books and records at all reasonable times and upon reasonable notice during normal business hours; and furnish Bank: a. QUARTERLY FINANCIAL STATEMENT. Within forty-five (45) days after the close of each quarter of each fiscal year of Borrower, commencing with the quarter next ending, a balance sheet, profit and loss statement and reconciliation of Borrower's fund balance accounts as of the close of such period and covering operations for the portion of Borrower's fiscal year ending on the last day of such period all in reasonable detail, prepared in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower; 7 b. ANNUAL FINANCIAL STATEMENT. As soon as available, and in any event within ninety (90) days after the close of each fiscal year of Borrower, a report of audit of Company as of the close of and for such fiscal year, all in reasonable detail, prepared on an AUDITED basis by an independent certified public accountant selected by Borrower and reasonable acceptable to Bank, in accordance with generally accepted accounting principles on a basis consistently maintained by Borrower and certified by an appropriate officer of Borrower; c. Within ninety (90) days after the end of the fiscal year ended of Borrower, a certificate of the chief financial officer of Borrower, stating that Borrower has performed and observed each and every covenant contained in this Agreement to be performed by it and that no event has occurred and no condition then exists which constitutes an event of default hereunder or would constitute such an event of default upon the lapse of time or upon the giving of notice and the lapse of time specified herein; or, if any such event has occurred or any such condition exists, specifying the nature thereof; d. Promptly after the receipt thereof by Borrower, copies of any detailed audit reports submitted to Borrower by independent accountants in connection with each annual or interim audit of the accounts of Borrower made by such accountants; e. Such other information relating to the affairs of Borrower as the Bank reasonably may request from time to time: f. Within fifteen (15) days after and as of the end of each month, copies of Borrower's accounts payable and accounts receivable agings, along with completed Borrowing Base Certificate. g. In connection with each fiscal year end financial statement furnished to Bank hereunder, any management letter of Borrower's independent certified public accountant. h. Financial statement of Carmine T. Oliva annually. i. XCEL Corporation's audited financial statement within 90 days of fiscal year end. 5. NEGATIVE COVENANTS OF BORROWER Borrower agrees that so long as it is indebted to Bank, it will not, without Bank's written consent: 5.01 TYPE OF BUSINESS; MANAGEMENT; EXECUTIVES' COMPENSATION. Make any substantial change in the character of its business; or make any change in its executive management. 8 5.02 OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness for borrowed moneys other than loans from the Bank except obligations now existing as shown in the pro-forma financial statement dated August 1, 1995; excluding (1) those obligations being refinanced by Bank, or sell or transfer, with or without recourse, any accounts or notes receivable or any moneys due to become due. (2) those obligations to BNZ Incorporated under the Subordinated Promissory Note in the principal amount of $200,000 dated the date hereof. 5.03 LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge, encumbrance, lien or charge of any kind upon any asset now owned, other than liens fir taxes not delinquent and liens in Bank's favor except for those already projected to exist as of September 30, 1995 including those Subordinated Liens in favor of BNZ Incorporated. 5.04 LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances to any person or other entity, other than in the ordinary and normal course of its business as now conducted or make any investment in the securities of any person or other entity other than the United States Government; or guarantee or otherwise become liable upon the obligation of any person or other entity, except by endorsement of negotiable instruments for deposit or collection in the ordinary and normal course of its business. 5.05 ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or otherwise acquire the assets or business of any person or other entity; or liquidate, dissolve, merge or consolidate, or commence any proceedings, therefor; or sell any assets except in the ordinary and normal course, of its business as now conducted; or sell, lease assign, or transfer any substantial part of its business or fixed assets, or any property or other assets necessary for the continuance of its business as now conducted, including without limitation the selling of any property or other asset accompanied by the leasing back of the same. 5.06 CAPITAL EXPENDITURES. Make or incur obligations for capital expenditures, which includes purchase money indebtedness or capital lease obligations in excess of an additional $400,000 in any one fiscal year. 5.07 LEASE LIABILITY. Make or incur additional liability for payments of rent under leases of real property in excess of $100,000 and personal property in excess of $100,000 in any on fiscal year. 5.08 DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than dividends payable on the preferred stock issued in connection with the purchase of the assets of Arnold Circuits, Inc. so long as there are no defaults under this Agreement) or make any other distribution on any of its capital stock now outstanding or hereafter issued or purchase, redeem or retire any of such stock. 6. EVENTS OF DEFAULT 9 The occurrence of any of the following events of default shall, at Bank's option, terminate Bank's commitment to lend and make all sums of principal and interest then remaining unpaid on all Borrower's indebtedness to Bank immediately due and payable, all without demand, presentment or notice, all of which are hereby expressly waived: 6.01 FAILURE TO PAY NOTE. Failure to pay any installment of principal or interest on any indebtedness of Borrower to Bank, ten (10) days after its due date, and notice of non-payment from Bank. 6.02 BREACH OF COVENANT. Failure of Borrower to perform any other term or condition of this Agreement binding upon Borrower. 6.03 BREACH OF WARRANTY. Any of Borrower's representations or warranties made herein or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false or misleading in any respect at the time it was made. 6.04 INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or admit its inability to pay its debts as they mature; or make an assignment for the benefit of creditors; or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business. 6.05 JUDGMENTS, ATTACHMENTS. Any money judgment in excess of $25,000, writ or warrant of attachment, or similar process shall be entered or filed against Borrower or any of its assets and shall remain unvacated, unbonded or unstayed for a period later than five days prior to the date of any proposed sale thereunder. 6.06 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower and, if instituted against it, shall be consented to. 7. MISCELLANEOUS PROVISIONS 7.01 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of Bank or any holder of Notes issued hereunder, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or any note issued in connection with a loan that Bank may make hereunder, are cumulative to, and not exclusive of, any rights or remedies otherwise available. 7.02 NOTICE OF DEFAULT. Borrower shall promptly notify Bank in writing of the occurrence of any event of default hereunder or any event which upon notice and lapse of time would be an event of default. 10 7.03 OPERATING ACCOUNTS. Borrower shall maintain all significant business deposit accounts at Bank. 7.04 ATTORNEY'S FEES. Borrower will pay promptly to Bank without demand after notice, with interest thereon from the date of expenditure at the rate applicable to the Loan, reasonable attorneys' fees and all costs and expenses paid or incurred by Bank in collecting or compromising the Loan after the occurrence of an event of default, whether or not suit is filed. If suit is brought to enforce any provision of this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and court costs in addition to any other remedy or recovery awarded by the court. 7.05 ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank hereunder shall be cumulative and not alternative and shall be in addition to all rights, powers and remedies given to Bank by law against Borrower or any other person, including but not limited to Bank's rights of setoff or banker's lien. 7.06 INUREMENT. The benefits of this Agreement shall inure to the successors and assigns of Bank and the permitted successors and assigns of Borrower. 7.07 APPLICABLE LAW. This Agreement and all other agreements and instruments required by Bank in connection therewith shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby agree to submit. 7.08 OFFSET. In addition to and not in limitation of all rights of offset that Bank or other holder of the Loan may have under applicable law, Bank or other holder of the Notes shall, upon the occurrence of any Event of Default or any event which with the passage of time or notice would constitute such an Event of Default, have the right to appropriate and apply to the payment of the Loan any and all balances, credits, deposits, accounts or monies of Borrower then or thereafter with Bank or holder, within ten (10) days after the Event of Default, and notice of the occurrence of any Event of Default by Bank to Borrower. 7.09 SEVERABILITY. Should any one or more provisions of the Agreement be determined to be illegal or unenforceable, all other provisions nevertheless shall be effective. 7.10 TIME OF THE ESSENCE. Time is hereby declared to be of the essence of this Agreement and of every part hereof. 7.11 INTEGRATION CLAUSES. Except for documents and instruments specifically referenced herein, the Agreement constitutes the entire agreement between Bank and Borrower regarding the Loan, and all prior communications verbal or written between Borrower and Bank shall be of no further effect or evidentiary value. In the event of a conflict or inconsistency among any other documents and instruments and this Agreement, the provisions of this Agreement shall prevail. 11 7.12 ACCOUNTING. All accounting terms shall have the meanings applied under generally accepted accounting principles unless otherwise specified. 7.13 This Agreement may be modified only by a writing signed by both parties hereto. This Agreement is executed on behalf of the parties by duly authorized officers as of the date first above written. IMPERIAL BANK ("BANK") By: /s/ Douglas W. Mead ----------------------------------- Douglas W. Mead Vice President XCEL ARNOLD CIRCUITS, INC. ("BORROWER") By: /s/ Carmine T. Oliva, ----------------------------------- Carmine T. Oliva, Chairman and CEO By: /s/ Harry James ----------------------------------- Harry James, President EX-10.26 10 XCEL ARNOLD CIRCUITS NOTE AND CREDIT AGREEMENT 1 EXHIBIT 10.26 [LOGO] IMPERIAL BANK Member FDIC NOTE $750,000.00 Los Angeles, California April 30, 1996 On April 30, 2001, and as hereinafter provided, for value received, the undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking corporation, or order, at its Los Angeles Regional office, the principal sum of $750,000.00 or such sums up the maximum if so stated, as the Bank may now or hereafter advance to or for the benefit of the undersigned in accordance with the terms hereof, together with interest from date of disbursement or N/A, whichever is later, on the unpaid principal balance [ ] at the rate of % per year [X] at the rate of 1.250% per year in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in such Prime Rate, or $250.00, whichever is greater. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance is outstanding, divided by 360, which shall, for interest computation purposes, be considered one year. Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal [X] in addition to principal [ ] beginning May 30, 1996, and if not so paid shall become a part of the principal. All payments shall be applied first to interest, and the remainder, if any, on principal. [X] (If checked), Principal shall be payable in installments of $12,500.00, or more, each installment on the 30th day of each month, beginning May 30, 1996. Advances not to exceed any unpaid balance owing at any one time equal to the maximum amount specified above, may be made at the option of Bank. Any partial prepayment shall be applied to the installments, if any, in inverse order of maturity. Should default be made in the payment of principal or interest when due, or in the performance or observance, when due, of any item, covenant or condition of any deed of trust, security agreement or other agreement (including amendments or extensions thereof) securing or pertaining to this note, at the option of the holder hereof and without notice or demand, the entire balance of principal and accrued interest then remaining unpaid shall (a) become immediately due and payable, and (b) thereafter bear interest, until paid in full, at the increased rate of 5% per year in excess of the rate provided for above, as it may vary from time to time. Defaults shall include, but not be limited to, the failure of the maker(s) to pay principal or interest when due; the filing as to each person obligated hereon, whether as maker, co-maker, endorser or guarantor (individually or collectively referred to as the "Obligor") of a voluntary or involuntary petition under the provisions of the Federal Bankruptcy Act; the issuance of any attachment or execution against any asset of any Obligor; the death of any Obligor; or any deterioration of the financial condition of any Obligor which results in the holder hereof considering itself, in good faith, insecure. [ ] If any installment payment of principal balance payment due hereunder is delinquent ten or more days, Obligor agrees to pay a late charge in the amount of 5% of the payment so due and unpaid, in addition to the payment; but nothing in this paragraph is to be construed as any obligation on the part of the holder of this note to accept payment of any installment past due or less than the total unpaid principal balance after maturity. If this note is not paid when due, each Obligor promises to pay all costs and expenses of collection and reasonable attorney's fees incurred by the holder hereof on account of such collection, plus interest at the rate applicable to principal, whether or not suit is filed hereon. Each Obligor shall be jointly and severally liable hereon and consents to renewals, replacements and extensions of time for payment hereof, before, at, or after maturity; consents to the acceptance, release or substitution of security for this note; and waives demand and protest and the right to assert any statute of limitations. Any married person who signs this note agrees that recourse may be had against separate property for any obligations hereunder. The indebtedness evidenced hereby shall be payable in lawful money of the United States. In any action brought under or arising out of this note, each Obligor, including successor(s) or assign(s) hereby consents to the application of California law, to the jurisdiction of any competent court within the State of California, and to service of process by any means authorized by California law. No single or partial exercise of any power hereunder, or under any deed of trust, security agreement or other agreement in connection herewith shall preclude other or further exercise of any other such power. The holder hereof shall at all times have the right to proceed against any portion of the security for this note in such order and in such manner as such holder may consider appropriate, without waiving any rights with respect to any of the security. Any delay or omission on the part of the holder hereof in exercising any right hereunder, or under any deed of trust, security agreement or other agreement, shall not operate as a waiver of such right, or of any other right, under this note or any deed of trust, security agreement or other agreement in connection herewith. XCEL ARNOLD CIRCUITS, INC. - --------------------------------- ---------------------------------- BY /s/ Carmine T. Oliva - --------------------------------- ---------------------------------- EX-10.27 11 LEASE AGREEMENT BETWEEN XIT AND P&S 1 EXHIBIT 10.27 LEASE AGREEMENT P&S DEVELOPMENT AND XCEL CORPORATION REFERENCE DATE SEPTEMBER 15th, 1990 4290 E. Brickell St. Ontario, CA 91761 2 LEASE 1. PARTIES This lease, dated, for reference purposes only, September 15, 1990, is made by and between P&S Development, a California General Partnership (herein called "Lessor") and Xcel Corporation, a New Jersey Corporation (herein called "Lessee"). 2. PREMISES 2.1. PREMISES Lessor hereby leases to the Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the conditions set forth herein, real property situated in the County of San Bernardino, State of California commonly known as 4290 Brickell Avenue in the City of Ontario and described as those certain premises shown on Exhibit "A" attached hereto and incorporated herein by this reference containing approximately 62,111 square feet of floor space, along with parking indicated on Exhibit "A" herein referred to as "Premises" and personal property shown in Exhibit "B". 2.2. VEHICLE PARKING Lessee shall be entitled to 155 vehicle parking spaces, assigned and shown on Exhibit "A". 2.2.1 Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or invitees to be loaded, or parked in areas other than those designated by Lessor for such activities. 2.2.2 If Lessee permits or allows any of the prohibited activities described in paragraph 2 of this Lease, then Lessor shall have the right, with reasonable notice and allowing rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to the responsible party. 2.2.3 The gated truck yard will be shared with other tenants. Landlord will have final decision process in determining any disputes as to security of gates or storage of equipment. 1 3 3. TERM 3.1. INITIAL TERM The initial term of the Lease shall be for a period of six (6) months ("Initial Term") following the Lease Commencement Date as defined herein. The Lease and rental payments, as referenced herein below, shall commence on September 15, 1990 ("Commencement Date"). 3.2 OPTION TERM If Lessee is not in material breach of any material Lease provision, Lessee shall have the right to extend the initial term of the lease, upon meeting the conditions of each extension, for one Option Term ("Option Term(s)") of four years six months and three successive Option Terms of five years defined as follows: A. First Option Term: The first option shall also be conditional upon Lessor's review and approval of Lessee's financial statements dated as of a date following Lessee's contemplated restructuring with Becton Dickinson & Company audited by a Certified Public Accountant ("Financial Statements"). If and only if, Lessor approves the Financial Statements and Lessee is not in material breach of any other lease covenant, condition and/or restriction, Lessee shall have the right ("First Option") to extend the Initial Term of the Lease for a period of four (4) years and six (6) months. Lessee shall deliver the Financial Statements to Lessor no later than 15 days prior to the end of the Initial Term. P&S will not seek other tenants during the Initial Term of the Lease and Lessor will not disapprove Lessee financial statements based on a comparison of other possible (prospective) tenants, but only on Lessor's evaluation (in his sole discretion) of the Lessee's ability to make future rent payments. If Lessor does not approve the Lessee's financial statements, Lessor will provide Lessee an additional 90 days to vacate the Premises under terms of Section 23 of this Lease. B. Additional Option Term: If Lessee is not in material breach of any lease covenant, condition and/or restrictions during any of the Option Terms and if Lessee exercises its First Option, Lessee shall be entitled to three successive option periods five (5) years each ("Additional Option Terms") upon meeting all conditions required by Lease. 2 4 4. RENT 4.1. BASE RENT Lessee shall pay to Lessor, as Base Rent for the Premises, without any offset or deduction, except as may be otherwise expressly provided in this Lease, on the 15th day of each month of the term hereof, monthly payments in advance of $19,785.50. Rent for the initial lease term is $118,713.00. Lessee shall pay Lessor upon execution hereof $19,785.50 as Base Rent for the first months rent. Rent shall be payable in lawful money of the United States to Lessor at the address stated herein or to such other persons or at such other places as Lessor may designate in writing. Rent is based on $.35 per square foot with an estimated square footage of 56,530 square feet. Tenant will have the right to use 62,111 square feet as shown as Exhibit "A". Lessee will only pay for 56,530 square feet. Lessor has the right, throughout the term of the Lease, to wall off, at Lessor's sole cost and expense, and use additional space for other tenants as long as the Lessor does not take over more than 6,000 square feet or more than 3 roll up doors (as shown on Exhibit "A"). Square footage and doors taken by Landlord will be adjacent to the common demising wall. Lessee will pay a base rent of $0.35 per square foot for 62,111 square feet beginning in month seven (7) if the first option is taken. The 62,111 square feet will be adjusted for any square footage taken by Lessor for other tenants which will reduce Lessee's base rent, total rent, additional rent and operating expense by a proportionate amount. 4.1.1. Additional Rent: If the first option is exercised, the Base Rent shall be increased by an amount equal to $.01 per square foot multiplied by the area of the Demised Premises upon the expiration of the first, second, third and fourth years following the Commencement Date, (September 15, 1990), the base rent plus the additional rent, mentioned in this paragraph, shall be titled Total Rent ("Total Rent"); 4.1.2. Additional Option Term: Except with respect to Lessee's exercise of the first option, upon Lessee's exercise of the second, third or fourth option to extend the Lease, the new Total Rent per month shall equal to the greater of: i. The previous fiscal months Total Rent adjusted for cost of living as stated in Section 4.1.3.A; or ii. The current market rent ("Market Rent") per square foot for similar facilities multiplied by the area of the Demised Premises. There will be no adjustments for current market rents for the initial option period (First Option Term). 3 5 To evaluate comparable rents Lessor and Lessee will, at least 100 days prior to the commencement of another option term, choose a reputable local broker who is familiar with the California Commerce Center to provide their estimate of market rents for the subject property. In the event that the Lessor and the Lessee cannot agree on a mutual broker for the purpose of determining the current fair market rental for the upcoming option at least 90 days prior to the expiration of the current term, then the Lessor and the Lessee shall each appoint a broker within 5 days thereafter with the expectation that both brokers shall attempt to mutually agree on fair current market rent for the upcoming option period. In the event that the designated brokers cannot arrive at such fair current market rent within 15 days of their appointment, then each of these brokers must mutually select a third broker for the purpose of making this determination. The determination of the three brokers will be binding and conclusive evidence on the Lessor and the Lessee as to fair current market rent for the upcoming option period. If there is a cost for any broker's evaluation both parties will pay one-half the cost. 4.1.3. Cost of Living Increases: The Total Rent, Base Rent plus the Additional Rent, shall be increased upon the following basis (operating expenses are not part of the cost of living adjustments): A. Initial Term and First Option Term: During the Initial Term of the Lease, if the First Option is initiated, the Total Rent shall be prospectively increased by the Consumer Price Index at the end of every successive 18 month period from the Commencement Date in an amount not less than 4% per annum and not greater than 8% per annum multiplied by the Total Rent. (For example, the monthly Total Rent for month 19 shall be equal to a minimum of 106% (for each of the next 18 months) and a maximum of 112% (for each of the next 18 months) of the previous monthly Total Rent.); B. Additional Option Term: During any Additional Option Term, of the Lease the Total Rent shall be increased prospectively, in addition to that shown in Section 4.1.2, by the Consumer Price Index at the end of every successive 24 month period after the Additional Option Term starts in an amount not less than 4% per annum and not greater than 8% per annum multiplied by the Total Rent, on a prorata basis. (For example, the monthly Total Rent for month 25 of any Additional Option Term shall be equal to a minimum of 108% and a maximum of 116% of the previous monthly Total Rent.). 4 6 4.2. OPERATING EXPENSES Lessee shall pay to Lessor during the term hereof, in addition to the Total Rent, as hereinafter defined, all Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions. These expenses will be due and payable even during times in which Total Rents may be deferred. Lessee will not be responsible for the payment of any interest or principal on any mortgage debt incurred by the Lessor in connection with the mortgage of the premises: a) "Operating Expenses" is defined for purposes for this Lease as all reasonable and necessary costs incurred by Lessor, if any, for: i) The operation, repair and maintenance, in neat, clean, good order and condition, of the following: aa) The parking areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways, landscaped areas (to include both on-site landscape areas as well as those street landscape areas maintained by the California Commerce Center), striping, bumpers, irrigation systems, parking lot exterior lighting, facilities signs, windows, doors, roof, glass, air conditioning maintenance, fences and gates. Lessee is only responsible for the repair and maintenance of items for normal wear and tear. Lessee will not be responsible for items of a structural nature that break or need repair unless Lessee was the cause for the repair requirement. (Items considered structural in nature, which are the responsibility of the Lessor, are defined as follows: Any walls existing at the time of the signing of the Lease, excluding walls erected by Lessee; Any footings, foundations, or concrete ground floor; the second floor supports; roof supports, beams, columns required for the structural integrity of the roof or lateral support for the building (excluding roof coverings for weather barrier); Shear/demising walls, window openings and frames (other than breakage); Door frames (excluding door repair). Reserves will be collected monthly for the replacement of asphalt, paint, roof coverings, air conditioning units, landscaping and other items which will wear or need replacements over a period of time. Items which can be handled by the Lessee directly, will be contracted by the Lessee to a third party at Lessor's request. This request can include those items mentioned in paragraphs aa), bb) and cc) of this section: bb) Trash disposal services (Trash containers and disposal services may be allocated and billed to each tenant in a manner deemed reasonable by the lessor); 5 7 cc) Any other reasonable and necessary service to be provided by Lessor that is elsewhere in this Lease stated to be an "Operating Expense"; (ii) The cost of the premiums for the liability and property insurance policies to be maintained by Lessor under Section 7 hereof; (iii) The amount of the real and personal property tax to be paid by Lessor under Section 8 hereof; iv) The cost of water, gas and electricity or other utilities used on the premises, if not directly metered and assigned to a particular tenant; v) Property Management; vi) Association Fees; b) The inclusion of the improvements, facilities and services set forth in Section 8 and the definition of Operating Expenses shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the premises already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same. c) Lessor shall estimate Lessee's annual Operating Expenses, and Lessee shall pay for Operating Expenses monthly on the same day of each month as the payment of the Total Rent. Lessor shall deliver to Lessee within sixty (60) days after the expiration of each calendar year a reasonably detailed statement showing Lessee's actual operating Expenses incurred during the preceding year. If Lessee's payments under this paragraph 4.2 during said preceding year exceed Lessee's costs as indicated on said statement, Lessee shall be entitled to a refund of any excess payment in the amount of such overpayment as a credit toward rent. If Lessee's payments under this paragraph during said preceding year were less than Lessee's cost as indicated on said statement, Lessee shall pay to Lessor the amount of the deficiency within ten (10) days after delivery by Lessor to Lessee of said statement. Notwithstanding the above provisions, Lessor hereby agrees to defer reserves for Non-structural Items (shown in 4.2.1) during the Initial Term of the Lease (six (6) months). If and only if the First Option is initiated will the Lessee make up the deferred reserves for Non-Structural Items. If the First Option is initiated then the Lessee will make six (6) monthly payments (starting with the 7th month from the Commencement Date of the 6 8 Lease) equal to the amounts deferred for the initial six (6) month term of the Lease. These payments will be in addition to any and all other payments required by this Lease. 4.2.1. Lessor currently estimates, for the upcoming year of operation, but does not guarantee, the following annual Operation Expenses on the Subject Property to equal approximately:
ENTIRE BUILDING ANNUAL COST --------------------------- Real Estate Taxes $ 60,163 California commerce Association Dues for Street Landscape Maintenance 3,060 Insurance 12,750 Parking Lot Sweeping 2,400 Landscaping on Site 6,000 Common Utilities 6,000 Maintenance 6,000 Reserves for Non-Structural Items 25,000 -------- $121,373
Property Management expenses shall be equal to 5% of the Gross Income. Gross income is defined as all moneys collected for Total Rents and Operating Expenses by the Lessor from the Lessee. Utilities and common expenses shall be billed for the estimated amount utilized or proportioned. Lessee shall be responsible to pay for their prorata share of Operating Expenses where their prorata percentage shall equal the dividend of the area of the Demised Premises divided by the area of the Total Leasable area of the Subject Property (Approximately: 59.7% = 56,530 / 94,698) If the first option is taken, then the common area expense will increase to 65.6% = 62,111 / 94,698, where 94,698 is the square footage of rentable space for the total building. If the total rentable space either increases or decreases, then the common area expenses will adjusted to reflect the change; 4.2.2. Deferred Rent: The rent for the second month ("Deferred Rent") of the Initial Term shall be due October 15, 1990. Lessee shall have the right to: A. Pay the rent when due or, B. Pay one-half of the Deferred Rent on November 15, 1990 and the remaining one-half on December 15, 1990. This shall be in addition to the Total Rent due and payable for November and December, 1990 and any other charges. 4.2.3. Estimated Last Months Rent: An amount equal to $26,000.00, Twenty Six Thousand Dollars and No Cents ("Estimated Last Months Rent"), shall be due upon the signing of the Lease, however, Lessee shall have the right to pay the Estimated Last 7 9 Months Rent in two equal installments on January 15, 1991 and February 15, 1991 in addition to normal rents and other charges due. The Estimated Last Months rent shall apply toward the last months rent of any Lease Term. In the event the actual last months rent is less or more than the Estimated Last Months rent, the difference shall either be paid by Lessee or credited to Lessee, respectively, at the beginning of the last month of the Lease Term; 4.2.4. Security Deposit: A deposit of $25,000.00, Twenty Five Thousand Dollars and No Cents ("Security Deposit"), shall be due upon signing of the Lease as a Security Deposit; however Lessee shall have the right to pay the security Deposit in two equal installments on March 15, 1991 and April 15, 1991, in addition to the Total Rent for those months and any other charges. Simple Interest, payable to Lessee shall accrue on the Security Deposit at a rate equal to Bank of Americas six (6) 'month Certificate of Deposit rate for that period of time; 4.2.5. Additional Financing: In the event that Lessee receives financing from any entity ("Loan Proceeds"), Lessee shall pay the Deferred Rent, Security Deposit, and/or Estimated Last Months Rent, upon the earlier of the funding of the Loan Proceeds or the due date for the same, Lessee will have the right to use the first $400,000.00 to cover Lessee's moving expenses; 4.2.6. Warrants: Lessee shall grant to Lessor stock warrants for the right to buy 30,000 shares of Lessee's common stock at a exercise price of $5.00 per share (Warrants), for terms and conditions as shown in Exhibit "F" as consideration for Lessor agreeing to Lease the Demised Premises to Lessee. The Warrants shall be exchangeable for warrants or options in the new entity if Lessee merges with Scientific Imaging Instruments or any other third party. The Warrants are an inducement to Lessor to consider leasing the Demised Premises to Lessee and in no manner shall be considered payment for any rent, expense or deposit nor will Lessor consider conversion of the Warrants in payment for the same. In the event that Lessee does not consummate the transaction contemplated in this Lease Proposal, Lessor shall not be entitled to receive any Warrants; 5. USE 5.1. USE The Premises shall be used and occupied only for the manufacturing and distribution of electrical components and for such other legal uses not inconsistent with the present character and use of the premises or any other use which is reasonably comparable. 8 10 5.2. CONDITIONS OF PREMISES a) Lessor shall deliver the Premises to Lessee clean and free of debris on the Lease commencement date and Lessor warrants to Lessee that the plumbing, lighting, air conditioning, heating, and loading doors in the Premises shall be in good operating con dition on the Lease commencement date. Lessor also warrants that the premises is in structurally sound condition for the Lessee's intended uses throughout the term of the Lease. In the event that it is determined that a non-structural warranty, contained in Section 5.2a), 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 sole cost, rectify such violation. Lessee's failure to give such written notice to Lessor within One Hundred and Twenty (120) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. 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. Lessor agrees to indemnify and hold harmless the Lessee from and against any and all claims, damages or liabilities (whether or not caused by negligence), including civil or criminal fines, arising out of or relating to any environmental contamination of the premises or failure of the premises to comply with any applicable federal, state or local environmental law or regulation or ordinance other than contamination or failure to comply caused solely by the actions of Lessee. 6. MAINTENANCE, REPAIRS, ALTERATIONS 6.1-1. LESSEE OBLIGATIONS a) Subject to the provisions of paragraph 5 (Use), Lessee, at Lessee's expense, shall keep in good order, condition and repair the Premises including, without limiting the generality of the foregoing, all plumbing, heating, ventilating and air conditioning systems, electrical and lighting facilities and equipment within the Premises, fixtures, interior surfaces of exterior walls, door operation and plate glass along with the personal property indicated on Exhibit "B". Lessee will also be responsible for any damage they cause to structural items normally covered by Landlord as shown in Section 4.2 a) i) aa). 9 11 b) If Lessee fails to perform Lessee's obligations under this paragraph 6. 1 or under any other paragraph of this Lease, Lessor may enter upon the Premises (ten (10) days prior written notice shall be required), perform such obligations on Lessee's behalf and put the Premises in good order, condition and repair, and to bill Lessee together with Lessee's next Rent 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 acts of the elements accepted, clean and free of debris. Lessee shall repair any damage to the Premises or personal property occasioned by the installment or removal of Lessee's trade fixtures, alterations, 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, permanently installed space heaters, air conditioning, personal property shown on Exhibit "B", plumbing and fencing on the Premises in good operating condition. 6.1.2. LESSOR'S OBLIGATIONS Lessor will be responsible for the repair of any structural component of the building throughout the term of the Lease (to include options). Lessor is obligated to maintain the structural integrity of the premises and to make any repairs to those items that are structural unless said repairs were required due to the Lessee's act or omission. 6.2. ALTERATIONS AND ADDITIONS a) Lessee shall not, without Lessor's prior written consent, make any alterations, improvements or additions on or about the Premises including nonstructural alterations to the Premises. In any event, Lessee shall not make change or alteration to the exterior of the Premises. Lessor may require at Lessors option that Lessee remove any or all of said improvements, additions or utility installations at the expiration of the term and restore the Premises to their prior condition. b) Any alterations, improvements or additions in or about the Premises that Lessee shall desire to make will require the Lessee to acquire 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. Lessor's consent shall not be unreasonably withheld or unduly delayed. Lessee will post appropriate notices to insure Lessor is not liable of any costs and Lessee will provide insurance naming Lessor as additional insured, prior to construction a list of subcontractors will be provided to Lessor. 10 12 c) The Lessee agrees that it will not permit any mechanics or other liens to stand against the Premises for work or material furnished Lessee; provided, however, that Lessee shall have the right to contest the validity of any lien or claim. The Lessee shall immediately pay any judgment rendered against it with all proper costs and charges and shall have said lien released without cost to the Lessor. d) At the expiration of this Lease or any extension thereof, Lessee will not remove any property comprising such alteration or change made at Lessee's expense. Lessor has the option to require Lessee to remove any or all improvements. Lessee shall repair any physical damage to the Premises occa- sioned by the removal thereof. Any and all permanent fixtures, lighting, partitions, unit heaters, air conditioners, drinking fountains which Lessee may install within or upon the Premises shall remain the personal property of the Lessor and shall in no way be considered attached to or a part of the realty. e) Upon installation of any permanent improvements mentioned in this section all such permanent improvements become the property of the Lessor unless the above mentioned option to remove said permanent improvements is invoked by Lessor and said improvements will not be liened or attached by Lessee's creditors or lenders. 6.3. PERSONAL PROPERTY Lessor agrees to leave for lessee's use, items shown on Exhibit "B". All items are to remain on the premises. All items will continue to be owned by the Lessor. Lessee agrees to maintain all items, at Lessee's expense, in good working condition and will insure that all equipment, at the termination of the Lease, remains in good working order with only normal wear and tear. Lessor is not responsible for any cost that Lessee incurs for the hook up, installation or change of phone number required by Lessee. 6.4. TENANT IMPROVEMENTS BY LESSOR Lessor will not be making any Tenant improvements to the building for Lessee. All improvements required by Lessee will be accomplished by Lessee at Lessee's expense in accordance to terms mentioned in this Lease, to include any electrical change. Lessee will not use more than 600 amps of the existing approximate 1,200 amp system. Lessor may, at his option and expense, adjust the Lessee's electrical system and electrical room to accommodate future tenants in the unoccupied section of the building while allowing 600 amps to Lessee. Until Lessor requires additional amperage, Lessee may use greater than 600 amps. 11 13 Upon Lessor's request, Lessee will relinquish the use of any amperage above 600 amps in order for the Lessor to use such electrical power for other tenants. The expense in making modifications to the electrical panel, in order release to the Landlord additional amperage, will be paid by the Lessee, if such changes were caused by modifications to the electrical panel by the Lessee in order to obtain the additional amperage. Lessor may access up to three (3) loading docks and maneuvering area, as shown in Exhibit "A" (Future Deletion Area) for future tenant use. Lessor will pay for walling off the newly acquired area and securing same. The maximum floor space taken will be 6,000 square feet. Any floor area taken will reduce Lessee's Base and Total Rent, and operating expense by a proportionate amount. 7. INSURANCE; INDEMNITY 7.1. INSURANCE Lessee covenants and agrees to maintain at Lessee's expense, during the term of this Lease, or any renewal thereof general liability insurance with comprehensive public liability and property damage coverage with not less than $3,000,000.00 combined single limit for both bodily injury and property damage. 7.2. LIABILITY INSURANCE - LESSOR Lessor shall obtain and keep in force (to be billed to Lessee) 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 in an amount not less than $3,000,000.00 combined single limits. 7.3. PROPERTY INSURANCE Lessor shall obtain and keep in force (to be billed to Lessee) during the term of this Lease a policy or policies of insurance covering loss or damage to the premises improvements, but not Lessee's personal property, fixtures, equipment, personal property listed on Exhibit "B" and tenant improvements, in an amount not to exceed the full replacement value thereof, providing against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, flood, earthquake, water damage to include water damage due to fire sprinklers, smoke damage, special extended perils ("all risk", as such term is used in the insurance industry), plate glass insurance and such other reasonable and necessary insurance. In addition, Lessor shall obtain and keep in force, during the term of this Lease, a policy of rental value insurance with loss payable to Lessor, which insurance shall also cover all Operating 12 14 Expenses for said loss the deductible amount under the casualty insurance policies relating to the Premises shall be paid by Lessor, unless said loss is the result of Lessee's negligent acts. 7.4. PAYMENT OF PREMIUM INCREASES a) Insurance Escalation. The Lessee shall pay, as additional rent, the cost of any increase in the premium if the increase is due to hazards caused by Lessee. The Lessee will pay for said increase for the whole building and not just Lessee's percentage of building. 7.5. INSURANCE POLICIES a) Lessee shall not do or permit to be done anything which shall invalidate the insurance policies carried by Lessor. Lessee shall deliver to Lessor copies of liability insurance policies required under paragraph 7.1 or certificates evidencing the existence and amounts of such insurance prior to the commencement date of this Lease. Any change, cancellation or reduction of insurance coverage that will affect the obligations of Lessee hereunder shall not occur until after reasonable notice of Lessor. b) Lessee or Lessor has the right to terminate the Lease if the Lessee's Premises is damaged more than 50% and Lessor does not repair all damages, to the Lessee's Premises, within 45 days from the day of the occurrence. 7.6. WAIVER OF SUBROGATION Lessee and Lessor on behalf of themselves, and their respective insurers, hereby release and relieve the other, and waive their entire right of recovery against the other, for any loss or damage arising out of or incident to the perils required to be insured against under Section 7.3 of this Lease Agreement, whether to their respective property or its contents, which perils occur in, on or about the Premises or whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessor and Lessee shall give notice to the insurance carrier or carriers that the foregoing mutual Waiver of subrogation is contained in this Lease Agreement and shall obtain endorsements waiving any right of subrogation which the insurer may otherwise have against the noninsuring party. 7.7. INDEMNITY a) Lessee agrees to indemnify and hold harmless Lessor throughout the term of this Lease from and against any and all cost and property negligent liability for injury to persons or for damage to in, on or about the Premises, arising out of any acts or omissions of the Lessee, its agents, contrac- 13 15 tors, employees or invitees. Lessee will insure Lessor will be named as additionally insured for all insurance policies. Lessee will hold Lessor harmless for damages caused by shared fire sprinkler system. Lessee will not be responsible for structural repairs that the Lessor would otherwise be liable for under paragraph 6.1.2. b) Lessor indemnifies Lessee for any and all costs and liability for injury to persons or for damage to property, in, on or about the Premises, arising out of any negligent acts or omissions or willful acts of the Lessor, its agents, contractors or employees or invitees. Additionally, Lessee will not be responsible for the willful acts or negligence of other tenants. 8. REAL AND PERSONAL PROPERTY TAXES 8.1. PAYMENT OF TAXES a) Lessor shall pay the real and personal property tax, as defined in paragraph 8.3 and 8.4, applicable to the premises subject to reimbursement by Lessee of such taxes in accordance with the provisions of paragraph 4.2. Notwithstanding provisions in this section, Lessee will not be liable for taxes due to increases caused by other tenants for improvements which the other tenant installed. Lessee will only be liable for their proportionate share of taxes based on their percentage of building as shown on paragraph 4.2.1. along with any increase in taxes due to Lessee's tenant improvements. b) Provided the first option is initiated, for the four year period from September 15, 1990 until September 14, 1994, the Lessee's proportionate share of real property taxes will not in crease more than the greater of $10,000.00 or 25% of Lessee's proportionate share of the total property tax bill increase. 8.2. ADDITIONAL IMPROVEMENTS Lessee shall be responsible for paying increases in real property tax specified in the tax assessor's records and work sheets as being caused by additional improvements placed upon the premises. Lessee shall also pay to Lessor at the time that Operating Expenses are payable under Section 4 the entirety of tax and of any increase in real property tax if assessed for reasons of additional improvements. 8.3. 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 or any por- 14 16 tion thereof by any authority having the direct or indirect power to tax, including any city, county, 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 any portion thereof, 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 to be put in the future for tract improvements, or iv) which is imposed as a result of a transfer, whether 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 for the refinancing of property loans, or v) which is imposed by reason of this transaction, any modifications or changes hereto, or any transfers hereof. 8.4. 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 and on personal property of Lessor's as shown on Exhibit "B". 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 to Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property. 15 17 8.5. 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. Where services cannot be separately metered Lessor will charge Lessee for their appropriate expense. 9. ASSIGNMENT AND SUBLETTING 9.1. LESSOR'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 the 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 without the need for notice to Lessee. 9.2. LESSEE AFFILIATE Notwithstanding the provisions of paragraph 9.1 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 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, all of which are referred to as "Lessee Affiliate", provided that before such assignment shall be effective said assignee shall assume, 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. 9.3. TERMS AND CONDITIONS OF ASSIGNMENT Regardless of Lessor's consent, no assignment shall release Lessee of Lessee's obligations hereunder or alter the primary liability of Lessee to pay the Base Rent and Lessee's Proportionate Share of operating Expenses, and to perform all other obligations to be performed by Lessee hereunder. Lessor may accept rent from any person other than Lessee pending approval or disapproval of such assignment. Neither a disapproval of such assignment nor the acceptance of rent shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the breach of any of the terms or conditions of this paragraph or this Lease. Consent to one assignment shall not be deemed con- 16 18 sent to any subsequent assignment. 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 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 actions shall not relieve Lessee of liability under this Lease. 9.4. TERMS AND CONDITIONS APPLICABLE TO SUBLETTING Regardless of Lessor's consent, the following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be included in subleases: a) Notwithstanding the provisions of paragraph 9.1, no sublease entered into by Lessee shall be effective unless and until it has been approved in writing by Lessor. In entering into any sublease, Lessee shall use only such form of sublease as is satisfactory to Lessor, and once approved by Lessor, such sublease shall not be changed or modified without Lessor's prior written consent. Any sublessee shall, by reason of entering into a sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every obligation herein to be performed by Lessee other than such obligations as are contrary to or inconsistent with provisions contained in a sublease to which Lessor has expressly consented in writing. b) If Lessee's obligations under this Lease have been guaranteed by third parties, then a sublease, and Lessor's consent thereto, shall not be effective unless said guarantors give their written consent to such sublease and the terms thereof. c) The consent by Lessor to any subletting shall not release Lessee from its obligations or alter the primary liability of Lessee to pay the rent and perform and comply with all of the obligations of Lessee to be performed under this Lease. d) In the event of any default under this Lease, Lessor or Lessee may proceed directly against the other, any guarantors or any one else responsible for the performance of this Lease, including the sublessee, without first exhausting remedies against any other person or entity responsible therefor to the other or any security held by Lessor or Lessee provided reasonable notice is given from one party to the other. 17 19 e) In the event Lessee shall default in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of Lessee under such sublease from the time of the exercise of said option to that of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to Lessee or for any other prior defaults of Lessee under such sublease. f) Each and every consent required of Lessor under this Lease shall also require the consent of Sublessor under any Sublease. g) Notwithstanding the provisions of paragraph 14 no sublease shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. h) Lessor's written consent to any subletting of the Premises by Lessee shall not constitute an acknowledgment that no default then exists under this Lease of the obligations to be performed by Lessee nor shall such consent be deemed a waiver of any then existing default, except as may be otherwise stated by Lessor at the time. i) With respect to any subletting to which Lessor has consented, Lessor agreed to deliver a copy of any notice of default by Lessee to the sublessee. Such sublessee shall have the right to cure a default of Lessee within ten (10) days after service of said notice of default upon such sublessee, and the sublessee shall have a right of reimbursement and offset from and against Lessee for any such defaults cued by the sublessee. 10. DEFAULT; REMEDIES 10.1. DEFAULT The occurrence of any one or more or the following events shall constitute a material default of this Lease by Lessee: a) The abandonment of the Premises by Lessee. b) 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 twenty (20) days after written notice thereof from lessor to Lessee. c) Except as otherwise provided in this Lease, the failure by Lessee to observe and perform any of the covenants conditions and provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (b) above, where such 18 20 failure shall continue for a period of thirty (30) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's noncompliance is such that more than thirty (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 thirty (30) day period and thereafter diligently prosecutes such cure to completion. To the extent permitted by law, such thirty (30) day notice shall constitute and sole and exclusive notice required to be given to Lessee under applicable Unlawful Detainer statutes. d) i) The making of Lessee of any general arrangement or general assignment for the benefit of creditors; ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); iii) The appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or iv) The attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event that any provision of this paragraph 10.1(d) is contrary to any applicable law, such provision shall be of no force or effect. No lien by creditors of Lessee will have the right to attach those items mentioned in Section 6 and personal property shown on Exhibit "B". 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 subtenant of Lessee's obligation hereunder, was materially false. 10.2. REMEDIES In the event of any such material default by Lessee, Lessor may at any time thereafter, with reasonable notice or demand and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default: a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by 19 21 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 reasonable avoided. b) Maintain Lessee's right to possession in which case have vacated or 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. 10.3. LATE CHARGE Lessee hereby acknowledges that late payment by Lessee to Lessor of Total Rent, Lessee's Proportionate Share of Operating Expenses or other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be ex tremely 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 Property. Accordingly, if any installment of Total Rent, Operating Expenses, or any other sum from Lessee shall not be received by Lessor or Lessor's designee within ten (10) days after such amount shall be due and said amount remains unpaid ten (10) days subsequent to Lessor giving notice to Lessee, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. 11. CONDEMNATION If all or such portion of the Premises or the building, of which the Premises are a part of, is brought into a condemnation proceeding, and renders the Premises substantially unusable, in the Lessor's judgment, if the uses stated in Section 5 when taken by eminent domain, Lessor, at its option, may terminate this lease by serving upon Lessee a written notice of its intention so to do within thirty (30) days after the condemnation judgment 20 22 shall be entered, or title is conveyed to the condemning authority. Upon such termination the rent shall be apportioned to the termination date and the unearned rent paid in advance shall be refunded to Tenant. If a portion of the Premises is taken by eminent domain, but such taking does not render the remainder of the Premises substantially unusable, in Landlord's judgment, for the uses stated in Section 5 hereof, this lease shall continue in effect, but a just proportion of the rent shall abate during the remainder of the term. If the partial taking is more than 10% of the Lease premises, then the Lessee will have the right to terminate the Lease. If Lessee terminates the Lease, notwithstanding anything to the contrary herein contained, Lessee shall be entitled to the part of the condemnation award attributable to the loss of leasable value, diminution or loss of trade fixtures and relocation expenses. In the event of any total or partial taking, Lessee shall have the right to prosecute such claim as Lessee may have under the law against authorities and to recover such award as Lessee may be independently entitled to, or to share in the award if under the law only one award is made; and in the latter event if Lessor fails or refuses to institute or prosecute the necessary action, jointly in the name of Lessee and Lessor if legally necessary. 12. BROKER'S FEE Lessor and Lessee together with Coldwell Banker and William C. Johnson and Associates agree that previous listing agreements and commission schedules have been modified, as to this lease, with terms and conditions shown on Exhibit "G". 13. ESTOPPEL CERTIFICATE - FINANCIAL STATEMENTS a) Lessee (as "responding party") shall at any time upon no less that ten (10) days' prior written notice from the Lessor ("requesting party") execute, acknowledge and deliver to the requesting party a statement in writing: i) certifying that this Lease is modified and in full force and effect (or, if mailed, 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; ii) acknowledging that there are not, to the respond ing party's knowledge, any incurred defaults on the part of the requesting party, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrance of the Premises or of the business of the requesting party; and 21 23 iii) a certified financial statement verifying the credit worthiness of the tenant for refinance lender or potential purchaser. b) At the requesting party's option, the failure to deliver such statement within such time shall be a material default of this Lease by the party who is to respond, without any further notice to such party, or it shall be conclusive upon such party that: i) this Lease is in full force and effect, without modification except as may be represented by the requesting party, and ii) there are no incurred defaults in the requesting party's performance, and iii) if Lessor is the requesting party, not more than one month's rent has been paid in advance. 14. LESSOR'S LIABILITY The term "Lessor" as used herein shall mean only the owner or owners, at the time in question, of the fee title in the event of any transfer of such title or interest, Lessor herein named (and in case 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. Lessee has the legal right to pursue action against the Landlord for matters that relate to the Landlord's ownership of the property during his holding, even after the Landlord sells the property. 15. 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. 16. 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 (but in no case higher than 2 points over Bank of America prime, or if Bank of America is not in existence no more than 2 points over the prime rate established by a nationally recognized bank) from the date due. Payment of such interest 22 24 shall not excuse or cure any default by Lessee under this Lease; provided however, that interest shall not be payable on the Late Charges incurred by Lessee under provisions in Section 10-3. 17. TIME OF ESSENCE Time is of the essence with respect to the obligations to be performed under this Lease. 18. ADDITIONAL RENT All monetary obligations of Lessee to Lessor under the terms of this Lease, including but not limited to Operating Expenses, insurance and tax expenses payable shall be deemed to be rent. 19. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS This Lease contains all agreements of the parties with respect to any matter mentioned herein. No prior or contemporaneous 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 any cooperating broker on this transaction nor the Lessor or any employee 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 the Premises or the Property 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. 20. NOTICES Any notices or demands to be served upon the Lessor hereunder shall be in writing and shall be deposited in the United States mail, sent certified or registered, return receipt requested, addressed to: To Lessee: XCEL CORPORATION 4290 East Brickell St. Ontario, CA 91762 To Lessee ST. JOHN, OBERDORF, WILLIAMS, Council: EDINGTON & CURTIN Attorneys at Law One Gateway Center Newark, New Jersey 07102-5311 Attn: Thomas P. Gallagher 23 25 To Lessor: P&S DEVELOPMENT 4420 East Miraloma Avenue Suite M Anaheim, CA 92807 21. 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 to accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 22. RECORDING Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 23. 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, if any granted under the terms of this Lease shall be deemed terminated and be no further effect during said month to month tenancy. Upon notification by Lessee or Lessor that the first option will not be activated, Lessee will have an additional 90 days, from the expiration of the first six (6) month term of the Lease, to vacate the premises. 24. 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. 25. COVENANTS AND CONDITIONS Each provision of this Lease performable by Lessee shall be deemed both a covenant and a condition. 24 26 26. BINDING EFFECT; CHOICE OF LAW Subject to any provision hereof restricting assignment or subletting by Lessee, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State where the premises is located and any litigation concerning this Lease between the parties hereto shall be initiated in the county in which the premises is located. 27. SUBORDINATION a) This Lease, and any Option granted hereby, 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 Premises 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 mortgage, trustee or ground lessor shall elect to have this Lease and any Options granted hereby prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Lessee, this Lease and such options shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease or such options are 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 atonement, a subordination or to make this Lease or any Option granted herein prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, Lessee's failure to execute such documents within thirty (30) days after written demand shall constitute a material default by Lessee. c) Landlord will use its good faith efforts in attempting to obtain non-disturbance agreements from any current mortgage holder. 28. ATTORNEY'S FEES If either party named herein bring 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. 25 27 29. LESSOR'S ACCESS Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times during Lessee's normal business hours for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or lessees, and making such al terations, repairs, improvements or additions to the Premises as may be necessary. Lessor will provide to Lessee written notice at least five (5) days prior to entry indicating the date in which Lessor will be entering the premises. Lessor may at any time place on or about the Premises or the Building any ordinary "For Sale" signs and Lessor may at any time place on or about the Premises any ordinary "For Lease" signs. All activities of Lessor pursuant to this paragraph shall be without abatement of rent, nor shall Lessor have any liability to Lessee for the same. 30. AUCTIONS Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises or the Common Areas 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. 31. SIGNS Lessee may place suitable signs on the leased premises for the purpose of indicating the nature of the business carried on by Lessee in said Premises; provided, however, that such signs shall be in keeping with other signs in the district where the leased Premises are located; and provided further, that the location and size of such signs shall be approved by Lessor prior to erection, and shall not damage the leased Premises in any manner. Sign permits will be obtained from appropriate governmental agency. Con sideration must be given to City Sign Code requirements for addi tional signage for other tenant. 32. 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. 33. CONSENTS Except for paragraph 32 hereof, wherever in this Lease the consent of one party is required to an act of the other party such consent shall not be reasonably withheld or delayed. 26 28 34. GUARANTOR In the event that there is a guarantor of this Lease, said guarantor shall have the same obligations as Lessee under this Lease. 35. QUIET POSSESSION Upon Lessee paying the rent for the Premises and observing and performing all of the covenants, conditions and provisions on Lessee's part to be observed and performed hereunder along with Exhibit "C" (Covenant, Conditions and Restrictions) and "D" (Rules and Regulations), 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 on ownership interest in the Property. 36. OPTIONS 36.1. DEFINITIONS As used in this paragraph the word "Option" HAS the following meaning: 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. 36.2. OPTIONS The Options, if any, herein granted to Lessee are not assignable separate and apart from assignment or sublease of this Lease, nor may any Option be separated from this Lease in any manner. 36.3. 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. 36.4. 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, 27 29 i) during the time commencing from the date Lessor gives Lessee a notice of default pursuant to Section 10 and continuing until the noncompliance alleged in said notice of default is cured, or ii) during the period of time commencing on the date after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) and continuing until the obligation is paid, or iii) at any time after an event of default described in paragraphs 10.1(a), 10.1(d), or 10.1(e) (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 10.1(b), or paragraph 10.1(c) , whether or not defaults are cured, during the 12 month period of time immediately prior to the time that Lessee attempts 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 36.5. c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, i) Lessee fails to pay to Lessor a monetary obligation of lessee for a period of thirty (30) days after such obligation becomes due (Lessor to give notice thereof to Lessee), or ii) Lessee fails to commence to cure a default specified in paragraph 10.1(c) within thirty (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 10.1(a), 10.1(d) or 10.1(e) (Lessor to give notice of such default to Lessee), or iv) Lessor gives to Lessee three (3) or more notices of default under paragraph 12.1(b), or paragraph 12.1(c), whether or not the defaults are cured. 36.5. OPTIONS TO EXTEND a) Lessee shall have an option to extend the term of this Lease following the termination of the initial term for the periods shown in Section 3.2. 28 30 b) Lessee shall give to Lessor, and Lessor shall receive written notice of the exercise ("Notice of Exercise") of the option to extend the lease no later than ninety (90) days prior to the expiration of the Lease Term for the first option and 180 days for all other options. If the Notice of Exercise is not so given and received, the option shall automatically expire. c) Lessee shall not be in default on the date Lessor receives the Notice of Exercise and on the first day of the Extension Term. 36.6. BASE RENT INCREASES DURING LEASE AND OPTION PERIODS The minimum monthly rent shall be adjusted upward, but never downward. Adjustments will be made on dates shown in Section 4 according to the following computation: 29 31 a) The base for computing the initial adjustment is the index figure for the month of June 1990 (the index date), shown in the Consumer Price Index For All Urban Consumers, Los Angeles-Long Beach, Anaheim, Metropolitan Area, all Items, based on the period 1982-1984 = 100 as published by the Bureau of Labor Statistics of the U. S. Department of Labor, regardless of whether said index figure for said month has yet been published as of the date of this Lease; when published said index figure for the index date shall be and is called the "base figure" hereafter. The Total Rent (the "Comparison Total Rent") in effect immediately before each Rental Adjustment Date shall be increased by the percentage that the Index has increased from the date (the "Comparison Date") on which payment of the Comparison Total Rent began or the date of the last adjustment, through the month which is three (3) months prior to the applicable Rental Adjustment Date. The Total Rent shall not be reduced by reason of such computation. Landlord shall notify Tenant of each increase by a written statement which shall include the Index for the applicable Comparison Date, the Index for the applicable Rental Adjustment Date, the percentage increase between those two Indices, and the new Total Rent. Any increase in the Total Rent provided for in this Section 36.6 shall be subject to any minimum or maximum increase, as provided for in Paragraph 4.1.3 a). b) Tenant shall pay the new Total Rent from the applicable Rental Adjustment Date until the next Rental Adjustment Date. Landlord's notice may be given after the applicable Rental Adjustment Date of the increase, and Tenant shall pay Landlord the accrued rental adjustment for the months elapsed between the effective date of the increase and Landlords notice of such increase within ten (10) days after Landlord's notice. If the format or components of the Index are materially changed after the Commencement Date, Landlord shall substitute an index which is published by the Bureau of Labor Statistics or similar agency and which is most nearly equivalent to the Index in effect on the Commencement Date. The substitute index shall be used to calculated the increase in the Total Rent unless Tenant objects to such index in writing within fifteen (15) days after receipt of Landlord's notice. If Tenant objects, Landlord and Tenant shall submit the selection of the substitute index for binding arbitration in accordance with the rules and regulations of the American Arbitration Association at its office closest to the Property. The costs of arbitration shall be borne equally by Landlord and Tenant. c) Minimum and maximum cost of living increases are shown in Section 4. 30 32 36.7. SECURITY MEASURES Lessee hereby acknowledges that Lessor shall have no obligation whatsoever to provide guard service. Lessee assumes all responsibility for the protection of Lessee, its agents, and invitees and the property of Lessee and of Lessee's agents and invitees from acts of third parties. 36.8. 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 default of this Lease by Lessee without the need for further notice to Lessee. Easements may include ingress and egress for neighboring property for fire protection and ingress and egress for rail services. Parking may be reduced to accomplish this. 36.9. 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 provision hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to 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. 36.10. 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. 31 33 36.11. OFFER Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease. This Lease shall become binding upon Lessor and Lessee only when fully executed by Lessor and Lessee. Lessor and Lessee have carefully read and reviewed this Lease all Exhibits to include Exhibits "C" (Covenants, Conditions and Restrictions) and Exhibit "D" (Rules and Regulations) and each term and provision contained herein and, by execution of this Lease, show their informed and voluntary consent thereof and as sure Lessor Lessee's compliance to Covenant, Conditions and Restrictions and Rule and Regulations shown in Exhibits "C" and "D". 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. 32 34 37. CORPORATE RESOLUTION Corporate Resolution providing approval for those signing this Lease for Lessee is shown on Exhibit "E". LESSOR By: /s/ GEORGE SABBAGH ------------------------------------- -------------------- George Sabbagh Date President, Mitchel George Corporation A General Partner of P&S Development ------------------------------------- CORPORATE SEAL By: /s/ VIC PELOQUIN ------------------------------------- -------------------- Vic Peloquin Date A General Partner of P&S Development ------------------------------------- CORPORATE SEAL LESSEE By: /s/ CARMINE T. OLIVA ------------------------------------- -------------------- Carmine T. Oliva, Date President and CEO Xcel Corporation ------------------------------------- CORPORATE SEAL By: /s/ BILL WONG ------------------------------------- -------------------- Bill Wong, Assistant Secretary Date Xcel Corporation 33 35 EXHIBIT "A" OF LEASE AGREEMENT BETWEEN P&S DEVELOPMENT AND XCEL CORPORATION LEASE DATED SEPTEMBER 1, 1990 SITE PLAN AND DESIGNATED PARKING AREA 62,111 Square Feet XCEL DESIGNATED PARKING STALLS XCEL LEASE SPACE SPACE AVAILABLE FOR USE BY THE LANDLORD FOR OTHER TENANTS. ACTUAL LAYOUT OF THIS SPACE WILL BE DETERMINED BY LANDLORD AT A FUTURE DATE. NO MORE THAN 6,000 SQ. FEET NOR MORE THAN 3 ROLL-UP DOORS MAY BE TAKEN BY LANDLORD. [Drawing] 36 EXHIBIT "B" PAGE 1 of 2 OF LEASE AGREEMENT DATED SEPTEMBER 1, 1990 BETWEEN P&S DEVELOPMENT AND XCEL CORPORATION SECURITY SYSTEM: 1. One DMP 1812 Master Control Unit/Microprocessor w/Rechargeable Battery Backup, Low Voltage Transformer, and Digital Communicator. 2. Six Digital Keypad Arming Stations w/Armed Loop and Status Lights, (#) Programmable Codes, Bypass, "Quick Alarm", Alarm Memory, and Other Features. 3. Four Heavy Duty Sirens For Audible Deterrent. 4. Ten Passive Infrared Motion Detectors. 5. Magnetically Contact Twenty-Seven Perimeter Openings. 6. Magnetically Contact Five Interior Openings. 7. Magnetically Contact One Roof Hatch. 8. Seven Glass Break Detectors. 9. Two Heavy Duty Power Suppliers. 10. Three P.I.V. Tamper Switches. 11. Two Water Flow Switches. 12. Twelve Manual Pull Stations. 13. One Annunciator System with Chime. PAGING SYSTEM: Telecommunications System. 1. One (1) 60 Watt paging Amplifier. 2. Three (3) 15 Watt Paging Horns. 3. One (1) AM/FM Tuner. 4. Three (3) Ceiling Speakers. 5. One (1) Accessory Labor Hours. 6. Forty-Seven (47) Paging Watts Used. 7. Six (60) Paging Units Equipped. PHONE SYSTEM: Telecommunications System USX 1240 1. Eight (8) Single Line Elec. Phones # 1000 SLT. 2. Forty-one (41) 10-Button Phones #1010 BTS. 3. Seven (7) 10-Button Speaker Phones #1010 SPK. 4. Two (2) 10-Button Speaker Phones #1015 SPK. 5. Two (2) 20-Button Speaker Phones #1020 LCD. 6. One (1) UST 1240 Console. 7. Eight (8) Port Electronic Station Cards. 8. Eight (8) Analog Station Cards. 9. Four (4) CO Trunk Cards. 10. One (1) UST 1240 Cabinet. 11. One (1) Loud Ringing Horn. 12. One (1) 2 Hour Full Battery Backup. 13. Sixty-one (61) Wired Standard Stations. 14. One (1) Remote Maintenance Modem. 15. Sixty (60) Electric Stations. 16. Sixteen (16) C.O. Trunks Equipped. 17. Seventy-Two Elec. Stations Capacity. 18. Eight (8) OPX (standard tele.) Lines Equipped. 19. One (1) UST 1250 Training Video. 37 EXHIBIT "B" Page 2 of 2 WEIGHT EQUIPMENT: 1. One (1) 7400 5 Station Pro Master GYM. 2. One (1) 980 Bodyguard Club Cycle. 3. One (1) M 9.4 Precor Special Programmable "SP" Treadmill. 4. One (1) 423 Chrome Dumbbell Rack. 5. One (1) DP10-30-40 lb. Chrome Dumbbells. 38 EXHIBIT "C" OF LEASE AGREEMENT DATED SEPTEMBER 15, 1990 BETWEEN P&S DEVELOPMENT AND XCEL CORPORATION COVENANT, CONDITIONS AND RESTRICTIONS (CC&R'S) Lessee has received a full copy of the CC&R'S. Lessee agrees to abide by same. 39 EXHIBIT "D" OF LEASE AGREEMENT DATED SEPTEMBER 15, 1990 BETWEEN P&S DEVELOPMENT AND XCEL CORPORATION RULES AND REGULATIONS This set of Rules and Regulations applies to that industrial complex ("Project") located in the City of Ontario, County of San Bernardino, State of California. In order to provide for the protection of the value and overall attractiveness of the Project and its individual Units, the use of the Project shall be restricted to, and in accordance with, the following provisions: OBSTRUCTIONS 1. The sidewalks, entrances, passages and courts of the Project shall not be obstructed or used for any other purpose than ingress to and egress from the Units in the Project. STATE OF MAINTENANCE 2. Each owner shall keep his or her Unit, any Exclusive Use Common Area appurtenant to such Unit and the Project's Common Areas in a reasonably maintained condition. WINDOW COVERINGS 3. No shades, venetian blinds, awnings, or window guards shall be used in or about any Unit unless they have been approved in writing by the Lessor. SIGNS AND EXTERIOR ATTACHMENTS 4. No awning or radio or television aerial shall be attached to or hung from the exterior of any Unit without the prior written consent of the Lessor. Further, no sign, notice, advertisement, or illumination shall be displayed to the public view on or from any window, terrace, or other part of the Project without the prior written consent of the Lessor. A sign of reasonable dimensions and design advertising the property for sale, lease, or exchange may be displayed for Lessor benefit without Lessee approval. 40 ELECTRIC EQUIPMENT 5. All machinery or other electrical equipment of any kind or nature installed or used in each Unit shall fully comply with all the rules, regulations, requirements, and recommendations of the local fire authorities and the insurance underwriters. No equipment shall be installed in the exterior of the Unit without approval from the Lessor. The Lessor shall not be liable for any damage or injury caused by any machinery or electrical equipment in the Lessor Unit. ANIMALS 6. No bird, reptile, or animal shall be permitted, kept, or harbored in the Project unless it is expressly permitted in writing by the Landlord. That consent, if given, shall be revocable by the Landlord in its sole discretion and at any time. GARBAGE 7. Refuse, garbage and trash shall be kept at all times in covered, sanitary containers designed for such purpose and located within enclosed areas or areas screened from view. WATER OUTLETS 8. The Lessor's water closets and other water apparatus in their Units or the Common Areas shall not be used for any purpose other than those for which they were designed. Sweepings, rubbish, rags, toxic waste and other articles shall not be thrown into them. Any damage resulting from misuse of any water closets or other apparatus in a Unit or the Common Areas shall be repaired and paid for by the Lessee which causes such damage. ACCESS 9. No vehicle belonging to a Lessee or Lessee's guest, tenant, or employee shall be parked in a manner that would impede or prevent ready access to any entrance to or exit from the Project by another vehicle. COMPLAINTS 10. Complaints regarding the service of the Project shall be made in writing to the Lessor. AMENDMENTS 11. These Rules and Regulations may be added to, amended or replaced at any time by the Lessor. 41 DECORATING EXCLUSIVE USE COMMON AREAS 12. No Exclusive Use Common Area shall be enclosed, decorated, landscaped, or covered by any awning or other device without written consent of the Lessor. FLAMMABLES 13. No Lessee or any of its guests, servants, employees, agents, visitors or licensees shall any time bring into or keep in the Owner's Unit any flammable, combustible, or explosive fluid, material, chemical, or substance, unless it is intended for normal use and also meets County, State and Federal environmental protection rules and regulations. ENTRUSTING KEYS 14. If any key or keys are entrusted by a Lessee or by his agent, servant, employee, licensee, or visitor to an employee of the Association, whether for the Lessor's Unit or an automobile, trunk or other item or personal property, the entrusting of the key shall be at the sole risk of the Lessee and the Lessor shall not be liable for injury, loss, or damage of any nature whatsoever, directly, or indirectly resulting from or connected with that act. Lessor's non-liability includes loss or damage or property of non-faulting tenant to include items within the gated track area. EXTERIOR LIGHTING 15. The Lessor shall be empowered to establish reasonable hours in connection with the regulation of exterior lighting in the Project. Such regulated hours shall take into account the health, safety and business needs of the Lessees. DESIGNATED PARKING PLACES 16. The Lessor shall have the right to monitor, control and enforce the Parking Plan as set forth and described on Exhibit "A" attached hereto. In the event that a Lessee or its guests, servants, employees, agents or visitors park in a space that is in contravention of the Parking Plan, the Lessor shall take any reasonable action, including but not limited to, clearly identifying a particular Lessee's parking spaces, to assure that the Parking Plan is properly implemented. The Lessor shall be empowered with the right to impose reasonable fines on any Lessee in violation of this rule. In the event that the violating party is the guest, servant, employee, agent or visitor of a particular Lessee, that Lessee shall be the party responsible for paying any fines or penalties to the Lessor. Lessor may enforce the towing of vehicles if designated parking areas are marked. 42 RECREATIONAL VEHICLES AND MOTOR HOMES 17. No Lessee, or their guests, servants, employees, agents, visitors or licensees shall park recreational vehicles or motorhomes within the Project or any public or private access road contiguous to the Project from the hours of 6:00 p.m. to 8:00 a.m. COMMON AREA UTILITIES 18. The Lessor is obligated to maintain and repair the Common Area utilities of the Project. In the event that such Common Area utilities need repairs which lead to the disruption of any such utilities, the Lessor shall use its best efforts to notify all Lessees of the Project of such disruption including applicable time periods. HAZARDOUS WASTE 19. No hazardous waste shall be stores or discharged on the Project by any Lessee, guest, servants, employees, agents, visitors, or licensees, unless the Lessee has (i) obtained the prior written consent of the Lessor; and (ii) stores such waste in a reasonably safe manner. In the event that such hazardous waste storage by a Lessee causes the Lessor's insurance obligations to increase (including premiums and any deductible requirements), then such Lessee shall directly bear that cost. The Lessee shall be obligated to reimburse the Lessor for such expenditures. This assessment shall be in addition to the Lessee's pro rata share of regular assessments which are also the Lessee's responsibility. QUIET ENJOYMENT 20. All Lessee's of the Project and their successors and assigns hereby covenant that they shall use and enjoy their Unit in a manner that is in cooperation with and consideration of the use and enjoyment of the other Lessees in the Project and their respective Units. No external horns, whistles, bells or other sound devices, except security devices used exclusively to protect the security of any portion or all of an Lessee Unit, or its contents, and except loudspeakers or intercom systems used to page employees or patrons of a commercial establishment shall be placed or used on any Unit. Objects which create or emit loud noises, vibrations or obnoxious odors shall not be located, used or placed on any portion of the Project. The Lessor shall be entitled to take any action to abate a nuisance, including without limitation, the right to enter into a Unit to exercise self-help. 43 LOADING OBSTRUCTION 21. All loading and unloading of goods shall be done only at the times, in the areas and through the entrances designated for such purposes by Landlord. SHIPPING 22. The delivery or shipping of merchandise, supplies and fixtures to and from the Leased Premises shall be subject to such rules and regulations as in the judgment of Lessor are necessary for the proper operation of the Leased Premises or of the Project generally. SIDEWALKS 23. The outside sidewalks and loading areas immediately adjoining the Leased Premises shall be kept clean and free from dirt and rubbish by Lessee to the satisfaction of the Lessor, and Lessee shall not place or permit any obstructions or merchandise in such areas, except to the extent specifically permitted by the provisions of Lessee's Lease. LODGING 24. Lessee shall not use, and shall not allow anyone else to use, the Leased Premises as a habitation. Such prohibition shall include, without limitation, sleeping, eating or bathing in the Leased Premises. ROOF ACCESS 25. Lessee shall make no use of the roof without obtaining the consent of Lessor. 44 EXHIBIT "E" CORPORATE RESOLUTION Lessee will provide Lessor with a copy of a corporate resolution indicating the acceptance of this Lease and the authority for the individuals signing of this Lease. Corporate resolution to be provided on or before October 20, 1990. 45 EXHIBIT "F" WARRANTS Attached is a copy of the proposed warrant to be issued in this Lease. The final warrant will replace this copy on or before October 1, 1990. Final warrant will have the same terns and conditions of said copy. 46 NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, PLEDGED, HYPOTHECATED ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR, UPON DELIVERY BY THE HOLDER OF AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Void after 5:00 p.m. New York Time, on September 14, 1993. Warrant to Purchase up to 30,000 Shares of Common Stock. WARRANT TO PURCHASE COMMON STOCK OF XCEL CORPORATION This is to certify that, FOR VALUE RECEIVED, P&S DEVELOPMENT, a California general partnership having an address at c/o Azlon Corporation 4420 Miraloma Avenue, Suite M, Anaheim, CA 92807, or permitted assigns ("Holder"), is entitled to purchase, subject to the provisions of this Warrant, from XCEL CORPORATION, a New Jersey corporation (the "Company"), at a price of Five Dollars ($5.00) per share (the "Exercise Price"), up to Thirty Thousand (30,000) shares of common stock, no par value, of the Company ("Common Stock") at any time and from time to time during the period commencing the date of issuance hereof, through and including 5:00 p.m. New York City Time, on September 14, 1993 (the "Expiration Date"). The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares," and the Exercise Price in effect at any time and as adjusted from time to time is hereinafter referred to as the "Exercise Price." (a) EXERCISE OF WARRANT. This Warrant, which may not be transferred except in compliance with the provisions of the Securities Act of 1933, as amended (the "Act"), may be exercised in whole, or in part, from time to time on or after the date of issuance hereof and until 5:00 p.m. Eastern time on the Expiration Date (unless earlier terminated as provided herein) or if such day is a day on which banking institutions in the State of New Jersey are authorized by law to close, then on the next succeeding day which shall not be such a day, by the presentation, surrender and cancellation hereof to the 47 Company at its principal officer, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office, or upon receipt by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. (b) RESERVATION OF SHARES. The Company hereby agrees that at all times during the period that this Warrant may be exercised there shall be reserved for issuance and/or delivery upon exercise hereof such number of shares of its Common Stock as may be required for issuance and delivery upon such exercise. (c) FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share, determined by the Board of Directors of the Company. (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon due presentation and surrender hereof to the Company at its office or at the office of its stock transfer agent, if any, into other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. This Warrant is not transferable unless such transfer is made in compliance with the provisions of the Act, as provided in Section (j) of this Warrant, and any applicable state securities or Blue Sky laws. Upon surrender of this Warrant to the Company at its office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other Warrants which carry the same rights upon due presentation -2- 48 hereof to the Company at its office or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether of not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time be enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder of the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows: (1) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any of the foregoing events shall occur. (2) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsection (1) -3- 49 above, the number of shares of Common stock purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (3) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least fifty cents ($0.50) in such price; provided, however, that any adjustments which by reason of this Subsection 3 are not required to be made shall be carried forward and calculations under this Section (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section (f), as in its discretion shall determine to be advisable in order that any dividend or distribution in shares of Common Stock, subdivision, or reclassification or combination of Common Stock (excluding cash dividends) referred to hereinabove in this Section (f) hereafter made by the Company to the holders of its Common Stock shall not result in any tax to the holders of its Common Stock or securities convertible into Common Stock (including the Warrants). (4) The Company may retain a firm of independent, certified public accountants of recognized standing selected by the Board of Directors (who may be the regular accountants employed by the Company) to make any computation required by this Section (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (5) In the event that at any time, as a result of an adjustment made pursuant to Subsection 1 of this Section (f), the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections 1 to 2, inclusive, of this Section (f). (6) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of Warrants, Warrants theretofore to thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially -4- 50 issuable pursuant to this Agreement. (g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f) of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section (a) and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder or any such holder at such holder's address set forth in the Company's Warrant Register. (h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (1) if the Company shall pay any dividend or make any distribution upon Common Stock (other than a regular cash dividend payable out of retained earnings) or (2) if there shall be effected any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company, then in any such case, the Company shall cause to be mailed by certified mail to the holder, at least fifteen days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification or capital reorganization or other change of Common Stock of the Company, or in case of any -5- 51 consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of common stock of the class issuable upon exercise of this Warrant) or in the case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made to that the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive consolidations, mergers, sales or conveyances and to successive reclassifications, capital reorganizations and changes of shares of Common Stock. In the event that in connection with any transaction of the kind described above, additional shares of Common Stock shall be issued in exchange, conversion or substitution or payment in whole or in part for a security in the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof. (j) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows: (1) To a person who, in the opinion of counsel for the holder reasonably acceptable to the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (j) with respect to any subsequent resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; provided that the foregoing shall not apply to any such Warrant, Warrant Shares or other security as to which such Bolder shall have received an opinion letter from counsel to the Company as to the exemption thereof from the -6- 52 registration under the Act pursuant to Rule 144(k) under the Act; or (2) To any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. Each certificate for shares issued upon exercise of this Warrant shall bear a legend relating to the non-registered status of such shares under the Act, unless at the time of exercise of this Warrant such shares are subject to a currently effective registration statement under the Act. (k) LAW TO GOVERN. This Warrant shall be governed by and construed in accordance with the substantive laws of the State of New Jersey, without giving effect to conflict of laws principles. (l) ENTIRE AGREEMENT. This Warrant constitutes and expresses the entire understanding between the parties hereto with respect to the subject matter hereof, and supercedes all prior and contemporaneous agreements and understandings, inducements or conditions whether express or implied, oral or written. Neither this Warrant nor any portion or provision hereof may be changed, waived or amended orally or in any manner other than by an agreement in writing signed by the Holder and the Company. (m) NOTICES. Except as otherwise provided in this Warrant, all notices, requests, demands and other communications required or permitted under this Warrant or by law shall be in writing and shall be deemed to have been duly given, made and received only when delivered against receipt or when deposited in the United States mails, certified or registered mail, return receipt requested, postage prepaid, if to the Holder at the address set forth on the first page hereof, if to the Company, at XCEL CORPORATION, 3100 New York Drive, Pasadena, California 91107, with a copy to Thomas P. Gallagher, Esq., St. John, Oberdorf, Williams, Edington & Curtin, One Gateway Center, Newark, New Jersey 07102. (n) SEVERABILITY. If any provision of this Warrant is prohibited by or is unlawful or unenforceable under any applicable law of any jurisdiction, such provision shall, as to such jurisdiction be in effect to the extent of such prohibition without invalidating the remaining provisions hereof; provided, however, that any such prohibition in any jurisdiction shall not invalidate such provision in any other jurisdiction; and provided, further that where the provisions -7- 53 of any such applicable law may be waived, that they hereby are waived by the Company and the Holder to the full extent permitted by law and to the end that this Warrant shall be deemed to be a valid and binding agreement in accordance with its terms. IN WITNESS WHEREOF, the Company has duly executed this Warrant as of the date below. Dated: September 19, 1990 XCEL CORPORATION ATTEST: By: /s/ CARMINE T. OLIVA ------------------------- ------------------------------- Carmine T. Oliva, President and Chief Executive Officer [SEAL] -8- 54 PURCHASE FORM Dated __________, 19_____ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing __________ shares of Common Stock and hereby makes payment of __________ in payment of the actual exercise price thereof. ______________________________________ INSTRUCTIONS FOR REGISTRATION OF STOCK Name____________________________________________________________________________ (Please typewrite or print in block letters) Signature______________________________ ______________________________ FOR VALUE RECEIVED,______________________________ hereby sells, assigns and transfer unto Name____________________________________________________________________________ (Please typewrite or print in block letters) Address_________________________________________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of __________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint __________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Dated:__________, 19_____ Signature ______________________________ Signature Guaranteed _________________________ -9- 55 ASSIGNMENT TO Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED,______________________________________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________________ ________________________________________ ________________________________________ ________________________________________ (please print or type name and address) ________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints____________________ ________________________________________________________________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:_____________________________ X ______________________________________ Signature Guaranteed THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. -10- 56 NEITHER THIS WARRANT NOT THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, PLEDGED, HYPOTHECATED, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR, UPON DELIVERY BY THE HOLDER OF AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Void after 5:00 p.m. New York Time, on September 14, 1993. Warrant to Purchase up to 30,000 Shares of Common Stock. WARRANT TO PURCHASE COMMON STOCK OF XCEL CORPORATION This is to certify that, FOR VALUE RECEIVED, P&S DEVELOPMENT, a California general partnership having an address at c/o Azlon Corporation, 4420 Miraloma Avenue, Suite M, Anaheim, CA 92807, or permitted assigns ("Holder"), is entitled to purchase, subject to the provisions of this warrant, from XCEL CORPORATION, a New Jersey corporation (the "Company"), at a price of Five Dollars ($5.00) per share (the "Exercise Price"), up to Thirty Thousand (30,000) shares of common stock, no par value, of the Company ("Common Stock") at any time and from time to time during the period commencing the date of issuance hereof, through and including 5:00 p.m. New York City Time, on September 14, 1993 (the "Expiration Date"). The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares," and the Exercise Price in effect at any time and as adjusted from time to time is hereinafter referred to as the "Exercise Price." (a) EXERCISE OF WARRANT. This Warrant, which may not be transferred except in compliance with the provisions of the Securities Act of 1933, as amended (the "Act"), may be exercised in whole, or in part, from time to time on or after the date of issuance hereof and until 5:00 p.m. Eastern time on the Expiration Date (unless earlier terminated as provided herein) or if such day is a day on which banking institutions in the State of New Jersey are authorized by law to close, then on the next succeeding day which shall not be such a day, by the presentation, surrender and cancellation hereof to the 57 Company at its office or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof . The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of, like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time be enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder of the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein. (f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows: (1) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date, of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any of the foregoing events shall occur. (2) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsection (1) -3- 58 above, the number of shares of Common Stock purchasable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect on the date hereof and dividing the product so obtained by the Exercise Price, as adjusted. (3) No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least fifty cents ($0.50) in such price; provided, however, that any adjustments which by reason of this Subsection 3 are not required to be made shall be carried forward and calculations under this Section (f) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section (f) to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the Exercise Price, in addition to those required by this Section (f), as it in its discretion shall determine to be advisable in order that any dividend or distribution in shares of Common Stock, subdivision, or reclassification or combination of Common Stock (excluding cash dividends) referred to hereinabove in this Section (f) hereafter made by the Company to the holders of its Common Stock shall not result in any tax to the holders of its Common Stock or securities convertible into Common Stock (including the Warrants). (4) The Company may retain a firm of independent, certified public accountants of recognized standing selected by the Board of Directors (who my be the regular accountants employed by the Company) to make any computation required by this Section (f), and a certificate signed by such firm shall be conclusive evidence of the correctness of such adjustment. (5) In the event that at any time, as a result of an adjustment made pursuant to Subsection 1 of this Section (f), the Holder of any Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of any warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections 1 to 2, inclusive, of this Section (f). (6) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of Warrants, Warrants theretofore to thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially -4- 59 issuable pursuant to this Agreement. (g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as required by the provisions of Section (f) of this Warrant, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officer's certificate showing the adjusted Exercise Price and the adjusted number of shares of Common Stock issuable upon exercise of each Warrant, determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment, including a statement of the number of additional shares of Common Stock, if any, and such other facts as shall be necessary to show the reason for and the manner of computing such adjustment. Each such officer's certificate shall be made available at all reasonable times for inspection by the Holder or any holder of a Warrant executed and delivered pursuant to Section (a) and the Company shall, forthwith after each such adjustment, mail a copy by certified mail of such certificate to the Holder or any such holder at such holder's address set forth in the Company's Warrant Register. (h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (1) if the Company shall pay any dividend or make any distribution upon Common Stock (other then a regular cash dividend payable out of retained earnings) or (2) if there shall be effected any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company, then in any such case, the Company shall cause to be mailed by certified mail to the holder, at least fifteen days prior to the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification or capital reorganization or other change of Common Stock of the Company, or in case of any -5- 60 consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of common stock of the class issuable upon exercise of this Warrant) or in the case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which might have been purchased upon exercise of this Warrant immediately prior to such reclassification, charge, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (i) shall similarly apply to successive consolidations, mergers, sales or conveyances and to successive reclassifications, capital reorganizations and changes of shares of Common Stock. In the event that in connection with any transaction of the kind described above, additional shares of Common Stock shall be issued in exchange, conversion or substitution or payment in whole or in part for a security in the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof. (j) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. This Warrant or the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows: (1) To a person who, in the opinion of counsel for the holder reasonably acceptable to the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section (j) with respect to any subsequent resale or other disposition of such securities which agreement shall be satisfactory in form and substance to the Company and its counsel; provided that the foregoing shall not apply to any such Warrant, Warrant Shares or other security as to which such holder shall have received an opinion letter from counsel to the Company as to the exemption thereof from the -6- 61 registration under the Act pursuant to Rule 144(k) under the Act; or (2) To any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. Each certificate for shares issued upon exercise of this Warrant shall bear a legend relating to the non-registered status of such shares under the Act, unless at the time of exercise of this Warrant such shares are subject to a currently effective registration statement under the Act. (k) LAW TO GOVERN. This Warrant shall be governed by and construed in accordance with the substantive laws of the State of New Jersey, without giving effect to conflict of laws principles. (l) ENTIRE AGREEMENT. This Warrant constitutes and expresses the entire understanding between the parties hereto with respect to the subject matter hereof, and supercedes all prior and contemporaneous agreements and understandings, inducements or conditions whether express or implied, oral or written. Neither this Warrant nor any portion or provision hereof may be changed, waived or amended orally or in any manner other than by an agreement in writing signed by the Holder and the Company. (m) NOTICES. Except as otherwise provided in this Warrant, all notices, requests, demands and other communications required or permitted under this Warrant or by law shall be in writing and shall be deemed to have been duly given, made and received only when delivered against receipt or when deposited in the United States mails, certified or registered mail, return receipt requested, postage prepaid, if to the Holder at the address set forth on the first page hereof, if to the Company, at XCEL CORPORATION, New Jersey 07094, with a copy to Thomas P. Gallagher, Esq., St. John, Oberdorf, Williams, Edington & Curtin, One Gateway Center, Newark, New Jersey 07102. (n) SEVERABILITY. If any provision of this Warrant is prohibited by or is unlawful or unenforceable under any applicable law of any jurisdiction, such provision shall, as to such jurisdiction be in effect to the extent of such prohibition without invalidating the remaining provisions hereof; provided, however, that any such prohibition in any jurisdiction shall not invalidate such provision in any other Jurisdiction; and provided, further that where the provisions -7- 62 of any such applicable law may be waived, that they hereby are waived by the Company and the Holder to the full extent permitted by law and to the end that this Warrant shall be deemed to be a valid and binding agreement in accordance with its terms. IN WITNESS WHEREOF, the Company has duly executed this Warrant as of the date below. Dated: September , 1990 XCEL CORPORATION ATTEST: By: ---------------------------- ----------------------------------- Carmine T. Oliva, President and Chief Executive Officer [SEAL] 1361X -8- 63 PURCHASE FORM Dated __________, 19_____ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing __________ shares of Common Stock and hereby makes payment of __________ in payment of the actual exercise price thereof. ______________________________________ INSTRUCTIONS FOR REGISTRATION OF STOCK Name ___________________________________________________________________________ (Please typewrite or print in block letters) Signature ____________________________________ FOR VALUE RECEIVED, ___________________________________________________ hereby sells, assigns and transfer unto Name ___________________________________________________________________________ (Please typewrite or print in block letters) Address ________________________________________________________________________ the right to purchase Common Stock represented by this Warrant to the extent of _______________ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint _______________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Dated:__________, 19_____ Signature__________________________ Signature Guaranteed ___________________________________ -9- 64 ASSIGNMENT TO Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, _____________________________________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ________________________________________ ________________________________________ ________________________________________ (please print or type name and address) ________________________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints ___________________________________________________________________ ________________________________________________________________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:_____________________________ X_______________________________________ Signature Guaranteed THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACT OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. -10- 65 EXHIBIT "G" BROKERAGE COMMISSION AGREEMENT This Brokerage Commission Agreement dated as of this 24th day of September, 1990 by and among Azlon Corporation, a California corporation with principal offices located at 4420 East Miraloma Avenue, Suite M, Anaheim, California 92807 (hereinafter "Azlon"), P&S Development, a California General Partnership with principal offices located at 4420 East Miraloma Avenue, Suite M, Anaheim, California 92807 (hereinafter "P&S"), Coldwell Banker Commercial Real Estate Services, a division of Coldwell Banker Commercial Group, Inc., a Delaware Corporation (hereinafter "Coldwell"), William C. Johnston Associates, with principal offices located at 80 South Lake Avenue, Suite 508, Pasadena, California 91101 (hereinafter "Johnston"), and Xcel Corporation, a New Jersey Corporation with principal offices currently located at 3100 New York Drive, Pasadena, California 91107 (hereinafter "Xcel"). RECITALS 1. On May 30, 1990, Coldwell and Azlon executed an Exclusive Leasing Listing Agreement attached hereto as Exhibit "A", which included a schedule of lease commissions (hereinafter the "Listing Agreement"). 2. On or about August 24, 1990 Xcel and Azlon signed a proposal letter (the "Proposal") with respect to the leasing by Xcel of a 62,111 sq. ft. office, manufacturing and warehouse facility located at 4290 Brickell Avenue, Ontario, California (hereinafter the "Leased Premises"). Pursuant to the Proposal, Xcel agreed that it would assume any and all of Azlon's obligations pursuant to the Listing Agreement provided the terms and conditions of the Listing Agreement were modified in a manner satisfactory to Xcel. 3. Xcel and P&S desire to execute a lease agreement for the Leased Premises (the "Lease Agreement") provided the parties hereto can reach an understanding with respect to the payment of brokerage commissions and other obligations originally created pursuant to the Listing Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein contained, the parties hereto agree as follows: 1.0 Continuation of Listing Agreement. The parties hereto agree and acknowledge that the Listing Agreement shall be amended in accordance with the terms and conditions set forth herein solely as the Listing Agreement pertains to that 62,111 sq. ft. portion of the facility located at 4290 Brickell Avenue, Ontario, California that shall be leased to Xcel. Accordingly, the -11- 66 brokerage commissions and the rights and obligations of Azlon and Coldwell pertaining to that portion of the facility that is not being leased by Xcel shall continue to be governed, in all respects, by the terms of the Listing Agreement, to include the right of Coldwell and Johnston to receive a commission from P&S for the sale of the building to Xcel as per the Listing Agreement and Commission Schedule, less any unamortized commissions received pursuant to this Agreement. 2.0 Statement as to Identity of Brokers. The parties hereto agree and acknowledge that the only persons or entities entitled to the payment of commissions in connection with the leasing of the Leased Premises is Coldwell and Johnston. No third party has any oral or written agreement or understanding whatsoever with any of the parties hereto with respect to the payment of a commission in connection with leasing of the Leased Premises. 3.0 Amendments to Listing Agreement. A. Commissions. The Schedule of Lease Commissions in the Listing Agreement is hereby amended and shall now be as follows: (i) Initial 6 Month Term. (9/15/90 to 3/14/91) 6% of the Total Rent as defined in Section 4.1.1 of the Lease Agreement (hereinafter "Total Rent") shall be paid in full within 14 days of the signing of the Lease Agreement between Xcel and P&S. (ii) First Option Term. (3/15/91 to 9/14/95) 6% of the Total Rent during the First Option Term shall be paid in 10 quarterly installments commencing on March 15, 1991 and ending on June 15, 1993. (iii) Second Option Term. (9/15/95 to 9/14/00) 3-1/2% of the Total Rent during the Second Option Term shall be paid on September 15, 1995. (iv) Third Option Term. (9/15/00 to 9/14/05) 2-1/2% of the Total Rent during the Third Option Term shall be paid on September 15, 2000. (v) Fourth Option Term. (9/14/05 to 9/14/10) 2-1/2% of the Total Rent during the Fourth Option Term shall be paid on September 15, 2005. The parties hereto agree and acknowledge that no commissions with respect to any of the options referenced above will be due and payable unless and until an option is exercised. 67 B. Payment to Johnston. Coldwell hereby agrees and acknowledges that Johnston and Coldwell shall each be entitled to one-half of the commissions being paid pursuant to this Agreement. Coldwell and Johnston will be paid by P&S within three (3) working days from the date of receipt of payment by Xcel. C. Responsibility for Commissions for the Initial 6 Month Term and the First Option Term. (i) Notwithstanding the terms and conditions of the Listing Agreement, the parties hereto agree and acknowledge that the payment of commissions for the leasing of the Leased Premises, for the Initial 6 Month Term and the First Option Term, shall be the sole responsibility and obligation of Xcel but that P&S shall administer, without liability and with full indemnification from other parties hereto, on behalf of the parties hereto, the payment of commissions, for the Initial 6 Month Term and the First Option Term, to Coldwell and Johnston. Accordingly, Xcel hereby agrees to pay the required commission payments, for the Initial 6 Month Term and the First Option Term, directly to P&S in accordance with the schedule set forth above and P&S will thereupon promptly, but in no event later than 3 business days after receipt from Xcel, mail such payment to Coldwell and Johnston. (ii) The obligation of Xcel to make commission payments, for the Initial 6 Month Term and the First Option Term, shall be incorporated into the Lease Agreement and shall be deemed an additional obligation by Xcel as Lessee of the Leased Premises. In the event that Xcel does not make a commission payment required to be paid pursuant to the terms of this Agreement, for the Initial 6 Month Term and the First Option Term, within 20 days of its required due date hereunder, such non-payment shall be deemed an Event of Default under the Lease Agreement and P&S shall use commercially reasonable judgment in pursuing its rights and remedies, and based on such judgment may institute an action or actions pursuant to such rights. In the event that Xcel does not make a commission payment for the Initial 6 Month Term and the First Option Term, and said commissions are not able to be recovered through the remedies of the Lease, neither Azlon nor P&S nor any of their shareholders, partners, officers, directors, employees or agents shall have any obligation whatsoever to make such payment. (iii) Priority of payments received from Xcel for the Initial 6 Month Term and the First Option Term: The parties hereto expressly agree and acknowledge that all monies paid to P&S by Xcel shall be first used and credited to P&S for any payments, fees, expenses (to include any and all attor- 68 ney fees or other expenses used for the collection of commissions or other actions related to the enforcement of the lease) or other amounts due and owing P&S pursuant to the terms of the Lease Agreement. The remainder of those monies collected from Xcel will be applied to the payment of brokerage commissions due and owing hereunder. D. Responsibility for Commissions for the Second, Third and Fourth Option Terms. (i) The parties hereto agree and acknowledge that the payment of commissions for the leasing of the Leased Premises for the Second, Third and Fourth Option Terms shall continue to be governed by the terms and provisions of the Listing Agreement and accordingly shall remain the sole responsibility and obligation of P&S. Accordingly, P&S hereby agrees to pay the required commission payments for the Second, Third and Fourth Option Terms in accordance with the schedule set forth above. (ii) Notwithstanding the terms and conditions of the Lease Agreement, P&S and Xcel hereby agree that Xcel shall be obligated to pay an amount equal to the commission payments that shall be due and owing with respect to the Second, Third and Fourth Option Terms at least five (5) business days prior to their due date in accordance with the schedule set forth above. In the event that Xcel does not make such payments as required pursuant to this subparagraph, such non-payment shall be deemed an Event of Default under the Lease Agreement and P&S shall be entitled to pursue all of its rights and remedies as set forth in the Lease Agreement. The obligation of P&S to make the commission payments with respect to the Second, Third and Fourth Option Terms shall remain notwithstanding the failure of Xcel to make its payments required pursuant to this subparagraph; provided, however, and notwithstanding the provisions of the Lease Agreement, Xcel shall not be entitled to exercise the Second, Third and Fourth Options, unless and until it has paid the payments required to be made pursuant to this subparagraph. 4.0 Continuation of Listing Agreement. The parties hereto agree and acknowledge that the obligation to pay commission payments pursuant to this Agreement shall not be terminated by any of the parties hereto notwithstanding (i) the sale of the entire facility by P&S to a party other than Xcel, (ii) the sale of substantially all of the assets of Xcel, (iii) the merger or reor- ganization of Xcel, (iv) the sale of a majority of the outstanding capital stock of Xcel, (v) the dissolution of P&S or (vi) the sale of the partnership interests in P&S. 5.0 Amendments to Lease Agreement. In the event that the Lease Agreement is amended such that the amount of the leased space decreases or increases, the commissions due and owing hereunder shall be increased or decreased proportionately. 69 6.0 Entire Agreement. The parties hereto expressly agree and acknowledge that with respect to the payment of commissions for the Leased Premises, this Agreement constitutes the entire agreement of the parties hereto and supersedes all prior agreements, discussions and understanding among the parties. 7.0 Governing Law. The parties hereto agree and acknowledge that the interpretation of this Agreement shall be construed under the laws of the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first above written: COLDWELL BANKER COMMERCIAL REAL ESTATE SERVICES By: /s/ Larry Melin Dated: 10/5/90 ----------------------------------------- ------------------- Larry Melin, Resident General Manager P&S DEVELOPMENT, a California General Partnership By: /s/ Vic Peloquin Dated: 10-16-90 ----------------------------------------- ------------------- Vic Peloquin, General Partner By: /s/ George Sabbagh Dated: ----------------------------------------- ------------------- George Sabbagh, President Mitchel George Corporation, a General Partner of P&S Development WILLIAM C. JOHNSTON ASSOCIATES By: /s/ William C. Johnston Dated: 10/4/90 ----------------------------------------- ------------------- William C. Johnston D B A XCEL CORPORATION By: /s/ Carmine T. Oliva Dated: 10/9/90 ----------------------------------------- ------------------- Carmine T. Oliva, President and Chief Executive Officer EX-10.28 12 LEASE AGREEMENT BETWEEN XIT AND DON MOSCO 1 EXHIBIT 10.28 STANDARD INDUSTRIAL LEASE - NET AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. PARTIES. This Lease dated for reference purposes only September 11 , 1990 is made by and between Don Mosco, an individual (herein called "Lessor") and Xcel Corporation, a New Jersey corporation (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 Los Angeles State of California commonly known as 720 E. Huntington Drive, Monrovia, California and described as one free-standing industrial building situated thereon, as shown cross-hatched on Exhibit "A" attached hereto and incorporated herein by this reference. 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 thirty-seven (37) months commencing on October 1, 1990 and ending on October 31, 1993 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 on or before November 1, 1990 (the "Outside Date"). 3.3 EARLY POSSESSION. (SEE RIDER PROVISION 48) 4. RENT. Lessee shall pay to Lessor as rent to the Premises monthly payments of $5,325 in advance on the 1st of each month of the term hereof Lessee shall pay Lessor upon the execution hereof $ 5,325 as rent for the second full calendar month of the term hereof. 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 persons or at such other places as Lessor may designate in writing. (SEE RIDER PROVISION 49) 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $5,325 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 or 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 design, manufacturing and distribution 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 or to any work which Lessee may thereafter perform in the Premises does not violate any covenants or restrictions of record or any applicable building code, regulation or obligation of the Lessor after written notice from Lessee to promptly, at Lessor's sole cost and expense, rectify any such violation. (b) Except as provided in paragraph 6.2(a) Lessee shall at Lessee's expense, comply promptly with all applicable statutes, ordinances, 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. (SEE RIDER PROVISION 50) 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 structural portions of the Premises are, to Lessor's actual knowledge, sound and the plumbing, lighting, air conditioning, heating and loading 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 cost, rectify such violation. Lessee's failure to give such notice to Lessor within sixty (60) days after the Lease commencement date shall cause the conclusive presumption that Lessor has complied with all of Lessor's obligations hereunder. (SEE RIDER PROVISION 51) (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. (SEE RIDER PROVISION 52) 7. MAINTENANCE, REPAIRS AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and repair the Premises and every part thereof (provided however, that Lessor shall be responsible for any structural repairs except by any act or omission of Lessee) (whether or not such portion of the Premises requiring repair, or the means of repairing the same are reasonably or readily accessible to Lessee or 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 plumbing, heating, air conditioning. (Lessee shall procure and maintain at Lessee's expense, an air conditioning system maintenance contract) ventilating, electrical, lighting facilities and equipment within the Premises, fixtures, walls (interior), doors, plate glass and skylights located within the Premises, and all landscaping, driveways, parking lots, fences and signs located on the Premises and sidewalks and parkways adjacent to the Premises. (SEE RIDER PROVISION 46A) 7.2 SURRENDER. 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 when received, ordinary wear and tear excepted, clean and free of debris. Lessee shall repair any damage to the Premises occasioned 2 by the installation or removal of Lessee's 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 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations under this Paragraph 7, or under any other paragraph of this Lease, Lessor may, at its option (but shall not be required to) enter upon the Premises after ten (10) days' prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required) perform such obligations on Lessee's behalf and put the same in good order, condition and repair and the cost thereof together with interest thereon at the Interest Rate (as such term is defined in Rider Provision 59) shall become due and payable as additional rental to Lessor together with Lessee's next rental installment. 7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty) Paragraph 9 (relating to destruction of the Premises), Paragraph 14 (relating to condemnation of the Premises) add Paragraph 7.1 (relating to structural repairs) it is intended by the parties hereto that Lessor have no obligation in any manner whatsoever to repair and maintain the Premises nor the building located thereon nor the equipment therein whether structural or non structural all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. 7.5 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 or alterations which will not have an effect on the Building Systems (as defined in Rider Provision 58), which in either case do not exceed $25,000 in cumulative costs during the term of this Lease. In any event, whether or not in excess of $25,000 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 7.5 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) 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) Unless Lessor requires their removal, as set forth in Paragraph 7.5(a) all alterations, improvements, additions and Utility Installations (whether or not such Utility Installations constitute trade fixture 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 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. 8. INSURANCE INDEMNITY. 8.1 INSURING PARTY. As used in this Paragraph 8, the term"insuring party" shall mean the party who has the obligation to obtain the Property Insurance required hereunder. The insuring party shall be designated in paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall also maintain the liability insurance described in paragraph 8.2 hereof, in addition to, and not in lieu of, the insurance required to be maintained by Lessee under said paragraph 8.2 but Lessor shall not be required to name Lessee as an additional insured on such policy. Whether the insuring party is the Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the cost of all insurance required hereunder, except for that portion of the cost attributable to Lessor's liability insurance coverage in excess of $1,000,000 per occurrence. If Lessor is the insuring party Lessee shall, within ten (10) days following demand by Lessor, reimburse Lessor for the cost of the insurance so obtained. 8.2 LIABILITY INSURANCE. 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 Lessor and Lessee against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be a combined single limit policy 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. 8.3 PROPERTY INSURANCE. (a) The insuring party 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. In the amount of the full replacement value thereof, as the same may exist from time to time 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) and special extended perils ("all risk" as such term is used in the insurance industry). Said insurance shall provide for payment of loss thereunder to Lessor or to the holders of mortgages or deeds of trust in the insurance industry). Said insurance shall provide for payment of loss thereunder to Lessor or to the holders of mortgages or deeds of trust on the Premises. The insuring party shall, in addition, obtain and keep in force during the term of this Lease a policy of 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. A stipulated value or agreed amount endorsement deleting the coinsurance provision of the policy shall be procured with said insurance as well as an automatic increase in insurance endorsement causing the increase in annual property insurance coverage by 2% per quarter. If the insuring party shall fail to procure and maintain said insurance the other party may, but shall not be required to, procure and maintain the same, but at the expense of Lessee. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount. (b) If the Premises are part of a larger building or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, then Lessee shall pay for any increase in the property insurance of such other building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (c) If the Lessor is the insuring party the Lessor will not insure Lessee's fixtures, equipment or tenant improvements unless the tenant improvements have become a part of the Premises under paragraph 7, hereof. But if Lessee is the insuring party the Lessee shall insure the fixtures, equipment and tenant improvements. 8.4 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 issues of "Best's Insurance Guide". The insuring party shall deliver to the other party copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses as required by this paragraph 8. No such policy shall be cancellable or subject to reduction of coverage or other modification except after thirty (30) days' prior written notice to Lessor. If Lessee is the insuring party 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. If Lessee does or permits to be done anything which shall increase the cost of the insurance policies referred to in Paragraph 8.3 then Lessee shall forthwith upon Lessor's demand reimburse Lessor for any additional premiums attributable to any act or omission of operation of Lessee causing such increase in the cost of insurance. If Lessor is the insuring party, and if the insurance policies maintained hereunder cover other improvements in addition to the Premises, Lessor shall deliver to Lessee a written statement setting forth the amount of any such insurance cost increase and showing in reasonable detail the manner in which it has been computed. 8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3 which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any negligence of the Lessee or of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon and in case any action or proceeding be brought against Lessor by reason of any such claim. Lessee upon notice from Lessor shall defend the same Lessee's expense by counsel satisfactory to Lessor. Except to the extent the loss, damage or injury, as the case may be, is (i) caused by Lessor's failure to make structural repairs as required hereunder or (ii) is caused by Lessor's willful acts or negligence, Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.7 EXEMPTIONS OF LESSOR FROM LIABILITY. Except to the extent the loss, damage or injury, as the case may be, is (i) caused by Lessor's failure to make structural repairs as required hereunder or (ii) is caused by Lessor's willful acts or negligence, Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee. Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee, Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. - 2 - 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 then replacement cost of the Premises. "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 then replacement cost of such building as a whole. (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 then replacement cost of the Premises. "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 then replacement cost of such building as a whole. (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. - 3 - 4 9.2 PARTIAL DAMAGE - INSURED LOSS. Subject to the provision 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 expense, repair such damage, but not Lessee's fixtures, equipment or tenant improvements unless the same have become a part of the Premises pursuant to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the above only in that Lessee is the insuring party and if the insurance proceeds received by Lessor are not sufficient to effect such repair, Lessor shall give notice to Lessee of the amount required in addition to the insurance proceeds to effect such repair, Lessee shall contribute the required amount to Lessor within twenty (20) days after Lessee has received notice from Lessor of the shortage in the insurance. When Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as soon as reasonably possible and this Lease shall continue in full force and effect. Lessee shall in no event have any right to reimbursement for any such amounts so contributed. 9.3 PARTIAL DAMAGE - UNINSURED 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 not 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. Lessee shall have the right within twenty (20) 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 twenty (20) day period this Lease shall automatically terminate as of the date of such total destruction. 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. NET - 4 - Initials: ____ ____ 5 (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, either party may cancel and terminate this Lease as of the date of occurrence of such damage by giving written notice to the other within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.5(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 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 even 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 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 except to the extent any such damage resulted from Lessor's failure to make structural repairs to the Premises as required hereunder. (b) If Lessor shall be obligated to repair or restore the Premises under the provision 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 PAYMENT. 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 provision 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. (SEE RIDER PROVISION 61) 10. REAL PROPERTY TAXES. 10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as defined in paragraph 10.2, applicable to the Premises during the term of this Lease. All such payments shall be made at least ten (10) days prior to the NET - 5 - Initials: ____ ____ 6 delinquency date of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes or assessments paid by Lessee shall cover any period of time prior to or after the expiration of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time prior to or after the expiration of the term hereof. Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect and Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to pay any such taxes, Lessor, upon reasonable prior notice to Lessee, shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee's next rent installment together with interest at the Interest Rate. (SEE RIDER PROVISION 46B) 10.2 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) impose don 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 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 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. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the real property taxes for all of the land and improvements included within 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. 10.4 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. NET - 6 - Initials: ____ ____ 7 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 of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of 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 the Lessee, the consent of whom shall be necessary. 12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent to 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 of subletting of this Lease or amendments or modifications to this Lease with assignment 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 of 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. (SEE RIDER PROVISION 53) 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. NET - 7 - Initials: ____ ____ 8 (b) 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 ten (10) days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with the notice required by this paragraph, than such notice shall also constitute the Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes. (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 days period and thereafter diligently prosecutes such cure to completion. (d) (i) the making of Lessee of any general arrangement or assignment for the benefit of creditors (ii) Lessee becomes a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, 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 assets located at the Premises 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. 13.2 Remedies. In the event of 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: (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignment 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. (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 o the Premises, reasonable attorneys fees and any real estate commission actually paid, the worth at the time of aware 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 of judicial decisions of the state wherein the Premises are NET - 8 - Initials: ____ ____ 9 located. Unpaid installments of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date the Interest Rate. (SEE RIDER PROVISION 54) 13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time. 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. 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 later charge equal to two and one-half percent (2 1/2%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. 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 o 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 al 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 the 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. If the Premises or any portion thereof are taken under NET - 9 - Initials: ____ ____ 10 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 of the condemning authority takes tile 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 (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat or 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 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 fixtures and removable personal property. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the 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 (SEE RIDER PROVISION 55) 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 represented 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 desire 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 NET - 10 - Initials: ____ ____ 11 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. 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 and Rider Provision 60, in the event of any transfer of such title or interest. Lessor herein named (and in case 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 successor 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 form 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 NET - 11 - Initials: ____ ____ 12 as expressly herein provided, any amount due to Lessor not paid when due shall bear interest at the maximum rate then allowable by law form 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 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. [DELETED] 26. 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 affect 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. (SEE RIDER PROVISION 56) 30. SUBORDINATION. (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 mortgagee, 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 give 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 of 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. Lessor and Lessor's agents shall, upon reasonable prior notice (except in cases of emergency, in which event no such notice shall be required), 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 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 any ordinary "For Sale" signs and Lessor may at any time during the last 120 days of the terms 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. Lessee shall not place 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. (SEE RIDER PROVISION 57) 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. (SEE RIDER PROVISION 58) 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, conditions 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 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. - 12 - 13 39.2 OPTIONS PERSONAL. Each Option 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 date 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 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 during the 12 month period prior to the time the lesser intend, 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, it 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 therof to Lessee). or (ii) Lessee fails to commence to cure a lawsuit specilized in paragraph 131(c) within 30 days after the date that Lessor gives notice to Lessee of such default and/or Lessee fails thereafter is deligently prosecute said cure to completion, or (iii) Lessee commits a default described in paragraph 13.1(a) 13.1(b) or 13.1(c) (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 latge 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 then 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 obligations 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 assessments, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of parcel Maps and restrictions, so long as such assessments, 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 protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If 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. INSURING PARTY. The insuring party under this Lease shall be the Lessor . (SEE RIDER ATTACHED HERETO AND INCORPORATED HEREIN BY THIS REFERENCE) 46A. The terms "structural portions" or "structural repairs" or the terms "structural" shall refer to exterior walls, foundations, ceilings, roofs (interior and exterior), the structural components of all floors (including the concrete aspects thereof) and all window structures exclusive of plate glass contained within or affixed to the Premises. 46B. Notwithstanding any provisions to the contrary contained herein, Lessee shall not be responsible for any assessments for improvements to real property, the useful life of which extends beyond the expiration of the lease term; instead Lessee shall be responsible for its pro rata share based upon the unexpired term of the lease as of the date of completion of an improvement divided by the useful life of the improvements. 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 THEREOF. 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 ASSOCIATE 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 at the place on the dates specified immediately adjacent to their respective signatures. Executed at /s/ Don Mosco ----------------------------------- ------------------------------------------ Don Mosco on By -------------------------------------------- ---------------------------------------- Address By --------------------------------------- ---------------------------------------- - ---------------------------------------------- "LESSOR" (Corporate seal) Executed at Xcel Corporation, a New Jersey corporation ----------------------------------- ------------------------------------------ on By /s/ Carmine T. Oliva -------------------------------------------- ---------------------------------------- Address By President & CEO --------------------------------------- ---------------------------------------- - ---------------------------------------------- "LESSEE" (Corporate seal)
NOTE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777. 14 RIDER TO LEASE This Rider is attached to and forms a part of that certain Standard Industrial Lease-Net, dated for reference purposes as of September 11, 1990, between Don Mosco, an individual, as Lessor, and Xcel Corporation, a New Jersey corporation, as Lessee. This Rider is made and entered into by and between Lessor and Lessee and is dated as of the reference date set forth above. The promises, covenants, agreements and declarations made and set forth herein are intended to and shall have the same force and effect as if set forth in the Lease. To the extent that the provisions of the Rider are inconsistent with the terms and conditions of the Lease, the provisions hereof shall control. 47. In Paragraph 3.2, the phrase beginning with the words "Lessee may" in line 5 and continuing until the end of the sentence is deemed deleted and the following is deemed inserted in place thereof: "then the sole remedy of Lessee shall be the right to deliver a notice to Lessor (the "Termination Notice") electing to terminate this Lease effective upon receipt of the Termination Notice by Landlord (the "Effective Date"). The Termination Notice must be delivered by Lessee to Lessor, if at all, not earlier than the Outside Date and not later than ten (10) days after the Outside Date. If Lessee delivers the Termination Notice to Lessor, then Lessor shall have the right to suspend the Effective Date for a period ending November 30, 1990. In order to suspend the Effective Date, Lessor must notify Lessee, within five (5) days after receipt of the Termination Notice, that it is Lessor's best good faith judgment that the commencement date will occur on or before December 1, 1990. If the commencement date occurs on or before December 1, 1990, then the Termination Notice shall be of no further force and effect. If the Lease is so terminated pursuant to the provisions of this Paragraph 3.2, Lessor shall refund the Security Deposit, as described in Paragraph 5 of the Lease, to 15 Lessee within ten (10) days after the date this Lease is so terminated." 48. Paragraph 3.3 (Early Possession) is deemed deleted and replaced with the following: "Upon the execution and delivery of this Lease by Lessor and Lessee, Lessee may enter into the Premises, upon receipt of Lessor's consent, which consent shall not be unreasonably withheld provided that such early entry does not interfere with the performance of Lessor's Work (as such term is described in Rider Provision 52), for the purpose of inspecting the Premises and installing any furniture, fixtures or equipment therein. Such early entry shall be subject to all of the provisions of the Lease except rent, and will not advance the commencement date provided Lessee does not commence business operations from any part of the Premises. In the event of any such early entry, Lessor shall not be responsible for, and Lessee is required to obtain insurance covering, any loss, including theft, damage or destruction to any work or material installed or stored by Lessee or Lessor or any contractor or individual involved in the completion of Lessor's Work or work to be performed by Lessee, or for any injury to Lessor or Lessee or Lessor's employees or Lessee's employees or to any other persons." 49. Supplementing the provisions of Paragraph 4 of the Lease and notwithstanding anything to the contrary set forth therein, provided that Lessee is not in default hereunder, Lessee shall not be required to pay the monthly rent of $5,325 applicable to the first full calendar month of the term hereof. 50. The following is deemed added as Paragraph 6.2(c): "(c) Hazardous Materials. (i) Lessee agrees that it and its employees, agents, or contractors will not place, hold, or dispose of any Hazardous Materials (defined hereinafter) on, under or at the Premises, and that they will not use the Premises as a treatment, storage, or disposal (whether permanent or temporary) site for any Hazardous Material and will not erect, emplace or maintain any tank, vessel, or container designed or suitable for holding Hazardous Materials on or about the Premises without first obtaining the written consent of Lessor which consent may be subject to conditions imposed by Lessor. In connection with any request for consent, - 2 - 16 Lessee shall submit to Lessor all plans, specifications, technical data, applications to governmental agencies, and other information concerning Hazardous Materials as Lessor deems necessary to inform Lessor of all factors connected with Lessee's proposed activity concerning Hazardous Materials. Lessor shall act reasonably in granting such consent, provided the Hazardous Materials requested to be stored on the Premises are normally used in connection with sound industry practices for Lessee's use of the Premises set forth in Paragraph 6.1 hereof, Lessee obtains all required permits and other governmental approvals, Lessee handles such Hazardous Materials in compliance with sound industry standards and practices, and Lessee agrees to remove and properly dispose of such Hazardous Materials. Lessor shall not be liable to Lessee or any third party due to any consent granted to Lessee or any third party due to any consent granted to Lessee with regard to Hazardous Materials. If Lessee permits or suffers any activity concerning Hazardous Materials on or about the Premises, or erects, emplaces or maintains tanks, vessels or containers suitable for holding Hazardous Materials on or about the Premises, then, whether or not Lessor's required consent has been obtained, Lessee shall at all times comply with all governmental laws, statutes, ordinances, codes, rules, regulations, permits, orders and decrees regulating or relating to Hazardous Materials. Lessee shall obtain and maintain at its sole cost and expense any required permit, license or governmental approval pertaining to Hazardous Materials including without limitation approvals pertaining to discharge of Hazardous Materials or substances through sanitary sewers. Upon removal of Hazardous Materials from the Premises or upon expiration or earlier termination of this Lease, Lessee shall cause any Hazardous Materials at any time located on the Premises by Lessee or its agents, employees or contractors to be removed, transported, stored off-site, neutralized or disposed of at Lessee's cost and expense in strict conformity with prudent and sound industry practices and all present and future governmental laws, statutes, ordinances, codes, rules, regulations, permits, orders and decrees. Lessee shall promptly deliver to Lessor copies of hazardous waste manifests reflecting the legal and proper disposal of all Hazardous Materials removed from the Premises. Lessee shall not take any remedial action related to Hazardous Materials located in or about the Premises, and shall not enter into any settlement, consent decree or compromise in response to any claim related to Hazardous Materials which shall be in any way connected with the Premises, without first notifying Lessor of Lessee's proposed action and affording - 3 - 17 Lessor a reasonable opportunity to appear, intervene, or otherwise participate in any discussion or proceeding for the purpose of protecting Lessor's interest in the Premises. Lessee further agrees that it will not cause or allow any material with asbestos, Polychlorinated Biphenyls (PCBS), or formaldehyde or other Hazardous Materials to be incorporated into any improvements of alterations which it makes or causes to be made to the Premises. Lessee shall comply with the requirements of Section 25359.7(b) of the California Health and Safety Code to provide Lessor with notice that any Hazardous Material has come to be located on or beneath the Premises or adjacent land proximate to the Premises if Lessee discovers or suspects the presence of such materials. Lessee shall immediately notify Lessor in writing of (i) any enforcement, cleanup, removal or other governmental or regulatory action instituted, completed or threatened with regard to Hazardous Materials involving the Premises; (ii) any claim made or threatened by any person against Lessee or the Premises related to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from Hazardous Materials; and (iii) any reports made to any environmental agency arising out of or in connection with any Hazardous Materials on or removed from the Premises, including any complaints, notices, warnings or assertions of any violation in connection therewith, Lessee shall deliver to Lessor, within five (5) days after receipt, a copy of all claims, reports, complaints, notices, warnings or asserted violations pertaining to Hazardous Materials related in any way to the Premises, or Lessee's use thereof. "(ii) Without limiting the generality of Paragraph 8.6 hereof, Lessee hereby agrees to defend, indemnify and hold Lessor harmless from and against any and all losses, liabilities, general, special, consequential and/or incidental damages, injuries, costs, expenses and claims of any and every kind whatsoever (including without limitation, court costs, attorney's fees, damages to any person, the Premises or other property or loss of Rent) which at any time or from time to time may be paid, incurred or suffered by, or asserted against Lessor for, with respect to, or as a direct or indirect result of (i) a breach by Lessee of the covenants set forth in this Paragraph 6.2(c), or (ii) to the extent caused or allowed by Lessee or by any agent, employee, contractor, invitee, or licensee of Lessee, the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, or release from, onto, or into the Premises, the real - 4 - 18 property, the atmosphere, or any watercourse, body of water, or groundwater of any Hazardous Material (including, without limitation, any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, any so-called "Superfund" or "Superlien" law, the Resource Conservation and Recovery Act, as amended, the Clean Water Act as amended, or any other federal, state, local or other statute, law, ordinance, code, rule, regulation, permit, order or decree regulating, relating to or imposing liability or standards of conduct concerning any Hazardous Material). The provisions of and undertakings and indemnification set forth in this Paragraph 6.2(c) shall survive the termination of this Lease, and shall continue to be the liability and obligation of Lessee, binding upon Lessee, forever; provided, however, that Lessee's officers, directors or shareholders shall not be personally liable for Lessee's obligations under the Lease, including, but not limited to, this Paragraph 6.2(c). The provisions of the preceding sentence shall govern and control over any inconsistent provision of this Lease. "(iii) For purposes of this Lease, "Hazardous Material" means any hazardous, harmful, odorous, radioactive, toxic, dangerous, or waste, substance or material including, without limitation, any hazardous substance or any pollutant or contaminant defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation and Liability Act, as amended, any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, or any other federal, state or local statute, law, ordinance, code, rule, regulation, permit, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as is now or at any time hereafter may be, in effect. Lessee's liability under this Paragraph shall extend to any and all of such Hazardous Materials whether or not such substance was defined, recognized, known or suspected of being toxic, dangerous or wasteful at the time of any act or omission giving rise to Lessee's liability. "(iv) In the event Lessee or its agents, employees or contractors cause Hazardous Materials to be located on or about the Premises, then Lessor may, in connection with giving any consent, require Lessee to obtain - 5 - 19 insurance or other means of financial capability satisfactory to Lessor to assure compliance with the obligations of Lessee related to Hazardous Materials as set forth in this Lease or otherwise now or in the future required by law. Such assurance shall be on forms, in amounts and with persons as from time to time are commercially available and reasonably requested by Lessor." 51. The following is deemed added before the word "Except" in line one of Paragraph 6.3(b): "Except for structural defects, and" 52. The following is deemed added as Paragraphs 6.3(c) and 6.3(d) of the Lease: "(c) Lessor's Representations. Except as otherwise expressly set forth below with respect to the ongoing investigation of groundwater contamination in the San Gabriel Valley, Lessor has no actual knowledge that there exists at the Premises on the date of this Lease any Environmental Contamination or Health and Safety Condition. As used in this Paragraph, "Environmental Contamination" shall mean friable asbestos or the presence on, in, under, or emanating from the Premises, of any hazardous substance, pollutant, or contaminant, as those terms are defined under either California or federal law. "Environmental Contamination", as used in this Paragraph, also means the release or presence of any other chemical, biological or radiological substance on, in, under or from the Premises which is not in compliance with all existing laws or which is at levels or in quantities which will require cleanup or remediation under either California or federal law. As used in this Paragraph, "Health and Safety Condition" shall mean a condition that poses a hazard that may cause death or serious physical harm or a condition that results, either directly or indirectly, in noncompliance with a federal Occupational Safety and Health Administration (OSHA) standard or a California OSHA standard. Lessor further represents and warrants to lessee that Lessor has no actual knowledge that the Premises as of the date hereof are not in compliance in all material respects with the provisions of all local, state and federal environmental, health, and safety laws, codes and ordinances and all rules and regulations promulgated thereunder. To Lessor's actual knowledge, there is no civil, criminal, or administrative action, suit, demand, claim, hearing, notice or demand letter, notice of violation, investigation, or proceeding pending or threatened - 6 - 20 against Lessor or any prior Lessee or owner concerning the Premises relating in any way to actual, suspected, or alleged Environmental Contamination or Health and Safety Condition, except for knowledge of an ongoing investigation of groundwater contamination in the San Gabriel Valley including the Premises subject to this Agreement by the U.S. Environmental Protection Agency, Region IX, and the California Regional Water Quality Board, Los Angeles Region. Lessor hereby indemnifies and holds Lessee harmless from and against any actions brought by governmental agencies as a result of the ongoing San Gabriel Valley investigation. Furthermore, Lessee shall have liability with respect to any Environmental Contamination or Health and Safety Conditions which existed at the Premises prior to the commencement date of this Lease." "(d) Lessor's Work. Notwithstanding anything above to the contrary set forth herein, Lessor, upon the execution and delivery of this Lease by Lessor and Lessee, shall, at Lessor's sole cost and expense, perform the work described in Exhibit "B" attached hereto and made a part hereof ("Lessor's Work"). All such Lessor's Work shall be performed by Lessor or by a general contractor selected by Lessor, and in any events, shall be performed in Lessor's standard manner, using Lessor's standard materials and consistent with industry custom and practice. Except for Lessor's Work, Lessor shall have no obligation to perform any initial tenant improvement work in the Premises and Lessee shall be responsible, at Lessee's sole cost and expense, for the full cost of constructing any additional tenant improvements of any kind in the Premises subject to all the terms and conditions of this Lease, including without limitation Paragraph 7.5" 53. The following is deemed added as Paragraph 12.5: "12.5 If for any proposed assignment or sublease, Lessee receives rent or other consideration, either initially or over the term of the assignment or sublease, in excess of the rent required by this Lease, or, in the case of a sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account, Lessee shall pay to Lessor as additional rent, all of the excess of each such payment of rent or other consideration received by Lessee within ten (10) days of its receipt after deducting from any such excess the following reasonable, actual and documented costs, if any, incurred by Lessee in - 7 - 21 connection with such assignment or sublease: (i) brokers' commission, (ii) attorneys' fees, (iii) advertising/marketing costs of the space for sublease or assignment, and (iv) tenant improvement allowance paid to the assignee or sublessee." 54. The following is deemed added as Paragraph 13.2(d): "(d) In addition to its other rights under this Lease, Lessor has the remedy described in California Civil Code Section 1951.4 (Lessor may continue the Lease in effect after Lessee's breach and abandonment and recover Rent as it becomes due, if Lessee has the right to sublet or assign, subject only to reasonable limitations)." 55. Paragraphs 15(a), 15(b) and 15(c) are deemed deleted in their entirety and replaced with the following: "Other than Cushman and Wakefield of California, Inc. ('Broker'), Lessee hereby warrants and represents that it has not employed or dealt with any other broker or finder in connection with the Lease. Lessee agrees to defend, indemnify and hold Lessor harmless from any and all liability Lessor may incur because of a claim by any broker, other than Broker, that claims to be entitled to a commission or fee because they have represented Lessee in connection with this Lease. Lessor shall pay the Broker pursuant to the terms of a separate agreement between Lessor and Broker. Lessor hereby agrees to indemnify and hold Lessee harmless for any claims for any commission payable to Broker in connection with this Lease." 56. The following is deemed added as paragraph 30(c): "Lessor, if requested by Lessee, agrees that it shall use reasonable efforts to provide Lessee with commercially reasonable non-disturbance agreements in favor of Lessee from any ground or master lessors or mortgage holders under any ground or underlying leases or mortgages affecting the Premises and in existence as of the date of the execution and delivery of this Lease by Lessor and Lessee; provided, however, that Lessor shall have absolutely no liability whatsoever to Lessee in the event that it is not successful in providing same for Lessee after - 8 - 22 using its reasonable efforts to provide same." 57. The following is deemed added as the last sentence of Paragraph 34: "Notwithstanding anything above to the contrary, Lessee, at Lessee's sole cost and expense (including the cost of installation, maintenance, repair, restoration and removal) is hereby granted the right to install appropriate signage at a location or locations mutually agreed upon by Lessor and Lessee. All such signage shall be subject to Lessor's reasonable approval, which approval shall not be unreasonably withheld, and to all applicable governmental rules and regulations. 58. In Paragraph 36, the following is deemed added after the word "hereof" in line one: "and except for matters which would possibly have an adverse effect on the structure of the Premises, the plumbing, heating, ventilating, air-conditioning, mechanical or electrical systems of the Premises (collectively,'Building Systems'), or which could affect the exterior appearance of the Premises, in which case Lessor may withhold its consent in its sole and absolute discretion." 59. The term "Interest Rate," as used in the Lease, shall mean the lesser of (i) the rate announced from time to time, by Bank of America, (or if Bank of America is no longer in existence or is no longer quoting a prime rate or reference rate, then the largest (as measured by deposits) chartered bank operating in California), as its prime rate or its reference rate, plus four percent (4%), or (ii) the maximum rate permitted by law. 60. Notwithstanding anything to the contrary set forth in Paragraph 17 of the Lease, in the event of any transfer of fee title in the Premises, where Lessor has expressly retained liability for any of the obligations set forth herein, then with respect to such retained obligations only, Lessee, after first exhausting all of its rights and remedies (both at law and in equity, whether statutory or otherwise) against the transferee for such retained obligations, may, at its option, pursue such claims against Lessor for such retained obligations. 61. Notwithstanding anything to the contrary set forth in the Lease, Lessee shall not be liable to Lessor for - 9 - 23 (i) any increase in Real Property Taxes to the extent caused solely by Lessor's sale of the Premises, (ii) tax increases which are attributable to improvements other than the Premises which are located on the same tax parcel as the Premises and (iii) additional rent, interest or principal payments arising from any mortgage or other indebtedness of Lessor. Furthermore, Lessor hereby warrants that, to its actual knowledge, there are no pending municipal property tax assessments with respect to the Premises as of the date of the execution and delivery of the Lease by Lessor and Lessee. IN WITNESS WHEREOF, Lessor and Lessee have executed this Rider as of the date of the execution of the Lease. LESSOR: /s/ DON MOSCO ----------------------------------------- Don Mosco LESSEE: Xcel Corporation, a New Jersey corporation By: /s/ Carmine T. Oliva -------------------------------------- Its: President and CEO ------------------------------------- - 10 - 24 Exhibit "A" PREMISES [DIAGRAM OF FLOOR LAYOUT] 25 720 E. Huntington Exhibit "B" LESSOR's WORK A. Lessor's Work 1. Paint interior of Building, including columns, a white semi-gloss color to be selected by Lessee. 2. Paint and carpet office area per colors to be selected by Lessee. 3. Put an 8' x 6'8" opening between the offices located at the east end of the Building. - All landscaping must be cleaned and repaired, including the replacement of dead ground covers, plants, etc. - All restrooms must be thoroughly cleaned and repaired. - All sprinkler systems must be checked and functional. - All skylights must be uncovered and functional. - All HVAC systems in both office and warehouse areas must be repaired and functional. - Repair all electrical service and replace all damaged electrical panels. - Clean and seal warehouse floors (normal seal). - Clean all light fixtures. - Make sure all electrical outlets in the ceiling are in working order. - Replace missing light fixture covers. - Slurry coat and restripe front parking lot. - Slurry coat and restripe rear loading area. - Paint outside of Building all grey. - Remove any loose wiring. 26 - Replace any defective strip lighting. - All exterior lighting must be checked and operational. - Install vertical blinds (in color selected by Lessee) on all windows in office areas of Building. - Remove numbers 720 from the exterior of the Building (it will be Lessee's obligation to obtain and install replacement numbers satisfactory to Lessor). - Repair roof leaks. Notes: - all references to paint herein mean semi-gloss paint - all selections to be made by Lessee hereunder are to be made promptly after execution of Lease B. General 1. Punch-List. Lessor shall use its commercially reasonable best efforts to have Lessor's Work substantially completed on or before October 1, 1990 or as soon as possible thereafter. Once Lessor tenders possession of the Premises to Lessee with Lessor's Work substantially completed therein, Lessee shall have a period of fifteen (15) days thereafter, within which to submit to Landlord a punch-list of unfinished items. Landlord shall use all reasonable efforts to complete such punch-list no later than sixty (60) days after the date Lessee submits the punch list to Lessor; provided, however, the said sixty (60) days period shall be extended one day for each day of delay encountered by Lessor in the completion of such punch-list items as a result of delays caused by Lessee or by either causes beyond the reasonable control of Lessor. 2. Partial Occupancy. In the event that not all of Lessor's Work is substantially completed by November 1, 1990, Lessee, upon notice to Lessor, may occupy that portion of the Premises which, in Lessor's and Lessee's reasonable opinion, is substantially completed and shall pay to Lessor a pro rata portion of the rent due for the Premises based on the square footage which Lessee is occupying. All of the terms, conditions and provisions of the Lease shall be in full force and effect notwithstanding that Lessee does not occupy the entire Premises. EX-10.29 13 GENERAL PARTNERSHIP AGREEMENT 1 EXHIBIT 10.29 GENERAL PARTNERSHIP AGREEMENT OF CAPITAL SOURCE PARTNERS, A REAL ESTATE PARTNERSHIP, A California General Partnership 2 TABLE OF CONTENTS
Page SECTION 1 DEFINITIONS ......................................................................... 1 1.1 Affiliate/Entity........................................................ 1 1.2 Bankruptcy .............................................................. 1 1.3 Capital Account ......................................................... 1 1.4 Cash Available For Distribution ......................................... 2 1.5 Code .................................................................... 2 1.6 Distributions ........................................................... 2 1.7 Managing Partner ........................................................ 2 1.8 Net Income and Net Loss ................................................. 2 1.9 Nonrecourse Deductions .................................................. 2 1.10 Partner ................................................................. 2 1.11 Partner Nonrecourse Debt ................................................ 2 1.12 Partnership ............................................................. 2 1.13 Partnership Business .................................................... 2 1.14 Partnership Minimum Gain ................................................ 3 1.15 Partnership Project ..................................................... 3 1.16 Percentage Interest ..................................................... 3 1.17 Treasury Regulations .................................................... 3 SECTION 2 FORMATION ........................................................................... 3 2.2 Purpose ................................................................. 3 2.3 Name .................................................................... 3 2.4 Place of Business ....................................................... 3 2.5 Fictitious Business Name Statement ...................................... 3 SECTION 3 TERM ................................................................................ 4 3.1 Commencement ............................................................ 4 3.2 Dissolution ............................................................. 4 SECTION 4 MANAGEMENT .......................................................................... 5 4.1 Managing Partner and Decision Making .................................... 5 4.2 Remaining Decision Making Power Vested in All Partners .................. 5 4.3 Limitation on Partner's Authority ....................................... 7 4.4 Execution of Documents/Reliance on Acts of Managing Partner ............. 7 4.5 Devotion of Time ........................................................ 7 4.6 Representations and Indemnifications .................................... 8 4.7 Investment Opportunities ................................................ 10
i 3 SECTION 5 CAPITAL CONTRIBUTIONS AND ASSUMPTION OF LIABILITY ................................... 10 5.1 Capital Contributions and Loans ......................................... 10 5.2 Deficit Capital Accounts................................................ 12 SECTION 6 DISTRIBUTIONS AND ALLOCATIONS ....................................................... 13 6.1 Distributions of Cash Available For Distribution ........................ 13 6.2 Allocation of Net Income................................................ 13 6.3 Allocation of Net Loss .................................................. 13 6.4 Special Allocations ..................................................... 14 6.5 Distributions on Dissolution ............................................ 14 SECTION 7 PARTNERSHIP EXPENSES ................................................................ 15 7.1 Reimbursable Expenses and Partnership Expenses .......................... 15 SECTION 8 BOOKS, RECORDS AND ACCOUNTS ......................................................... 15 8.1 Books and Records ....................................................... 15 8.2 Bank Accounts ........................................................... 16 8.3 Tax Returns ............................................................. 16 8.4 Audited Financial Statements ............................................ 16 8.5 Method of Accounting .................................................... 16 8.6 754 Election ............................................................ 16 SECTION 9 ASSIGNMENTS ......................................................................... 17 9.1 Sale of Partnership Interest ............................................ 17 9.2 Rights of First Refusal to Purchase Interest ............................ 17 9.3 Specific Performance .................................................... 18 9.4 Buy Out ................................................................. 18 SECTION 10 MISCELLANEOUS ....................................................................... 19 10.1 Headings ................................................................ 19 10.2 Time of Essence ......................................................... 19 10.3 Entire Agreement ........................................................ 19 10.4 Governing Law ........................................................... 19 10.5 Attorneys' Fees ......................................................... 19 10.6 Arbitration ............................................................. 19 10.7 Severability............................................................ 20
ii 4 10.8 Notices ................................................................. 20 10.9 Gender and Number ....................................................... 20 10.10 Counterpart/Facsimile Signatures ........................................ 20 10.11 Cross-References ........................................................ 21 10.12 Covenant to Sign Documents .............................................. 21 10.13 Bank Accounts ........................................................... 21 10.14 No Representation ....................................................... 21 10.15 Successors in Interest .................................................. 21 10.16 Partition ............................................................... 21 10.17 Waiver .................................................................. 21 10.18 Approvals ............................................................... 21
EXHIBITS EXHIBIT A Partner Percentage Interests EXHIBIT A-1 Partner Capitalization EXHIBIT B Legal Description of Property EXHIBIT B-1 Site Plan EXHIBIT C Promissory Note SCHEDULE 4.6(a) SCHEDULE 4.6(b) iii 5 GENERAL PARTNERSHIP AGREEMENT OF CAPITAL SOURCE PARTNERS, A REAL ESTATE PARTNERSHIP, A California General Partnership This GENERAL PARTNERSHIP AGREEMENT ("Agreement") is made and entered as of 12/17/96, by and between P & S DEVELOPMENT, a California general partnership ("P&S"), and XIT CORPORATION, a New Jersey corporation formerly known as XCEL Corporation ("XIT"). P&S and XIT are sometimes collectively referred to herein as the "Partners." By this Agreement, the Partners join together to form a general partnership under the California Uniform Partnership Act and agree to all the terms of this Agreement. P&S shall act as the managing partner of the general partnership formed by this Agreement (the "Partnership"), and, in its capacity as managing partner, P&S shall be referred to herein as the "Managing Partner." SECTION 1 DEFINITIONS The following terms, when used in this Agreement, shall have the meaning set forth in this section. 1.1 Affiliate/Entity. "Affiliate" means (i) any immediate family member, (ii) any entity in which a Partner (and/or his or her immediate family members if a Partner is a natural person) controls at least 50.1% of the voting interest of such entity, and (iii) any person or entity that is a shareholder, partner or member of a Partner as of the date of this Agreement. "Entity" includes a partnership, corporation, limited liability company, limited liability partnership, association, or other legal entity. 1.2 Bankruptcy. "Bankruptcy" shall mean the institution of any proceedings under federal or state laws for relief of debtors, including filing of a voluntary or involuntary petition in bankruptcy or the adjudication as insolvent or bankrupt, or the assignment of the person's business for the benefit of creditors, or the appointment of a receiver or trustee in bankruptcy of any substantial portion of the person's assets or the seizure by a sheriff, receiver or trustee of any substantial portion of the person's assets, and the failure, in the case of any of these events, to obtain the dismissal of the proceeding or removal of the receiver or trustee within ninety (90) days of the event. 1.3 Capital Account. The "Capital Account" of a Partner means the capital account of that Partner determined from the inception of the Partnership strictly in accordance with the rules set forth in Section 1.704-1(b)(2)(iv) of the Treasury Regulations. 6 1.4 Cash Available For Distribution. "Cash Available For Distribution" shall mean the total cash revenues generated by the business of the Partnership and miscellaneous sources, less cash expenditures (including fees for services to the Managing Partner or any Affiliate of the Managing Partner), debt service and operating expenses, and less amounts set aside for reserves and working capital, as determined by the Managing Partner, in its reasonable discretion. 1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequent revenue laws. 1.6 Distributions. "Distributions" means any cash or property distributed to Partners arising from their interests in the Partnership, other than payments to Partners for services or as repayment of loans, including, but not limited to, "Shortfall Loans" (as defined in Section 5.1(b)(ii) and the "Security Loan" (as defined in Section 5.1(c)). 1.7 Managing Partner. "Managing Partner" shall refer to P&S or to any other person(s) or entity(ies) who succeed it in that capacity. J. Victor Peloquin ("Peloquin"), a general partner of P&S, is hereby authorized to act on behalf of P&S and in P&S' name. 1.8 Net Income and Net Loss. "Net Income" and "Net Loss" shall mean the net income and net loss, respectively, of the Partnership; however, the following items shall be excluded from the computation of Net Income and Net Loss: (a) Any gain or income specially allocated under Section 6.4. (b) Any Nonrecourse Deductions. (c) Any Partner Nonrecourse Deductions. For purposes of computing Net Income and Net Loss, the "book" value of an asset shall be substituted for its adjusted tax basis if the two differ, but otherwise Net Income and Net Loss shall be determined in accordance with federal income tax principles. 1.9 Nonrecourse Deductions. "Nonrecourse Deductions" in any fiscal year means the amount of Partnership deductions that are characterized as "nonrecourse deductions" under Section 1.704-2(b)(1) of the Treasury Regulations. 1.10 Partner. Any person who is a partner in this Partnership. 1.11 Partner Nonrecourse Debt. "Partner Nonrecourse Debt" shall mean the liabilities of the Partnership treated as "partner nonrecourse debt" under Section 1.704-2(b)(4) of the Treasury Regulations. 1.12 Partnership. "Partnership" means the general partnership formed by this Agreement. 1.13 Partnership Business. "Partnership Business" means acquiring, improving, maintaining, managing, and holding for investment that certain real property and its related assets designated herein as the Partnership Project. 2 7 1.14 Partnership Minimum Gain. "Partnership Minimum Gain" with respect to any taxable year of the Partnership shall mean the partnership minimum gain of the Partnership computed strictly in accordance with the principles of Section 1.704-2(b)(2) of the Treasury Regulations. 1.15 Partnership Project. The "Partnership Project" consists of that certain real property commonly known as 4290 East Brickell, Ontario, California, and legally described on EXHIBIT B attached hereto and incorporated herein by this reference, along with (i) all buildings and other improvements thereon, all fixtures thereon, all easements and other rights appurtenant thereto, and all personal property located thereon that is used exclusively for the operation and maintenance of the land and improvements, and (ii) all security deposits, prepaid rents, and reserves relating to the foregoing. A site plan for the Partnership Project is attached hereto as EXHIBIT B-1. 1.16 Percentage Interest. "Percentage Interest" means the percentage interest of a Partner as set forth on EXHIBIT A attached hereto and incorporated herein by this reference, as adjusted pursuant to this Agreement. 1.17 Treasury Regulations. "Treasury Regulations" shall mean the regulations, including temporary regulations, of the United States Treasury Department pertaining to the Code, as amended, and any successor provision(s). SECTION 2 FORMATION 2.1 Statement of Partnership. A Statement of Partnership shall be prepared and signed by the Partners, and recorded in such official records as may be deemed necessary by the Partners. 2.2 Purpose. The purpose of the Partnership will be to engage in the Partnership Business which may include, but not be limited to, entering into leases, option agreements, construction agreements, loan agreements, purchase and sale agreements, and partnership agreements and joint venture agreements with other persons, all as the Partners may jointly deem appropriate. 2.3 Name. The name of the Partnership shall be "CAPITAL SOURCE PARTNERS, A REAL ESTATE PARTNERSHIP". 2.4 Place of Business. The Partnership's principal place of business shall be 4740 E. Bryson, Anaheim, California 92807, or such other location as may be determined from time to time by the Managing Partner. 2.5 Fictitious Business Name Statement. Upon execution of this Agreement, and promptly after any change in the Partnership's membership, the Managing Partner shall cause to be filed and published in the county in which the Partnership has its principal place of business 3 8 appropriate business name statements in accordance with Section 17900-17930 of the California Business and Professions Code. 2.6 Publication Upon Withdrawal of a Partner. If by reason of withdrawal, expulsion, Bankruptcy, removal, or any other reason whatsoever, a Partner shall cease to be a Partner of this Partnership, the remaining or succeeding Partners shall immediately prepare and publish, file, or record, as required by law, all documents, instruments or other items necessary to reflect such withdrawal, expulsion, Bankruptcy, or removal. SECTION 3 TERM 3.1 Commencement. The Partnership term begins on the date of this Agreement. 3.2 Dissolution. The Partnership shall dissolve upon: (a) The election by and of all of the Partners to dissolve; (b) December 31, 2017; (c) The sale of all or substantially all of the assets of the Partnership, and distribution of the proceeds to the Partners; (d) The acquisition by one Partner of the Partnership interests of all of the other Partners; (e) The conviction of any partner of P&S or any executive officer of XIT of a crime punishable as a felony; or (f) The dissolution or liquidation of either P&S or XIT, or P&S or XIT makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver or trustee, commences any proceeding relating to P&S or XIT under any bankruptcy, reorganization, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or there is commenced against P&S or XIT any such proceeding which remains undismissed for a period of sixty days, or P&S or XIT by any act indicates its consent to, approval of or acquiescence in any way such proceeding or the appointment of any receiver of or trustee for P&S or XIT or any substantial part of its property, or suffers any such receivership or trusteeship to continue undischarged for a period of thirty days. Following any such event, the Partnership shall engage in no further business other than that which is necessary to wind up its business affairs and distribute its assets. The Partnership shall continue to allocate Net Income and Net Loss and shall make Distributions as such allocations, Distributions and contributions were made prior to dissolution as set forth herein. 4 9 SECTION 4 MANAGEMENT 4.1 Managing Partner and Decision Making. (a) Limited Control in Managing Partner. The Managing Partner shall have control over and be responsible for the day-to-day operations of the Partnership Business, including, but not limited to, (i) negotiating, entering into, paying for, and overseeing maintenance and insurance contracts for the Partnership Project, (ii) paying mortgage payments, insurance, property taxes, utilities and other costs associated with the day-to-day ownership and operation of the Property, (iii) enforcing the terms of any and all leases, including, but not limited to, collecting rent and evicting defaulting tenants, (iv) preparing and filing tax returns, (v) preparing income and expense statements and other financial reports, (vi) preparing budgets, which shall require the approval of a majority of the Partners before implementing said budgets, and (vii) the establishment of policy and operating procedures respecting the Partnership Project and the Partnership Business. In exercising the foregoing rights and obligations, the Managing Partner may (i) reimburse the Managing Partner or its Affiliates for direct, out-of-pocket expenses incurred in connection with the Partnership Business in accordance with Section 7 of this Agreement, and (ii) employ at the Partnership's expense such agents, employees, independent contractors, attorneys, and accountants as reasonably necessary to carry out the Partnership Business and the foregoing, including, but not limited to, employing J. Victor Construction, Inc., a California corporation, dba Azlon ("Azlon"), to carry out the rights and obligations of the Managing Partner pursuant to this Agreement. Expenditures of commitments in excess of $10,000 require XIT's prior consent, such consent not to be unreasonably withheld. In consideration of performing the foregoing obligations, the Managing Partner shall be entitled to receive all operating expenses, including property management expenses, advanced by tenants of the Partnership Project as of the date of this Agreement pursuant to lease agreements in effect as of the date of this Agreement. (b) Decision Making if More than One Managing Partner. Except as otherwise expressly stated in this Agreement, should there ever be more than one Managing Partner, all decisions to be made or acts to be taken by such Managing Partners shall require the approval of a majority of the Managing Partners. Upon execution of this Agreement, there is only one Managing Partner. Appointment of a replacement or additional Managing Partner shall require the vote of a majority of the Partners. 4.2 Remaining Decision Making Power Vested in All Partners. (a) Except for the rights of the Managing Partner set forth in Section 4.1 above, and except as otherwise expressly provided in this Agreement, the Partners shall collectively make all other decisions relating to the Partnership, the Partnership Project and the Partnership Business. Such decisions shall be made by a majority vote of the Partners based on their Percentage Interests. (b) Without limiting the generality of Section 4.2(a), the following actions shall be taken only after the vote of approval by a majority of the Partners pursuant to 5 10 Section 4.2(a), and the Managing Partner shall not have the right to take the following actions unless directed to do so by a majority of the Partners after a vote pursuant to Section 4.3(a): (i) Election to dissolve the Partnership; (ii) Sale of all or substantially all of the assets of the Partnership in a single transaction or in a series of related transactions; (iii) Admission of a new Partner; (iv) The Acquisition of, or the execution of any contract for the acquisition of, any real property; (v) Consummation of any transaction with an Affiliate of the Managing Partner, unless otherwise specifically provided for in this Agreement or unless the terms and conditions of such transaction are substantially the same as those between unrelated parties for similar transactions; (vi) Entering into a partnership or joint venture agreement with any third party, including approval of the terms and conditions of such partnership or joint venture agreement; (vii) Investing Cash Available For Distribution in any asset other than the Partnership Project, except temporarily to establish working capital reserves as reasonably determined by the Managing Partner (such temporary working capital reserves may be invested in obligations that are backed by the United States government or insured by FDIC or FSLIC); (viii)Improve, develop, lease, sell, convey and dispose of any portion of the Partnership Project or any interest therein; (ix) Borrow money required from time to time for the Partnership Business or to secure any such loan(s) by pledging or otherwise encumbering all or any part of the Partnership assets; (x) Cause the Partnership to make or revoke any of the elections which may be made under the Code; (xi) Adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against the Partnership; (xii) Determine the maximum and minimum working capital requirements of the Partnership or the amount of any reserve to be obtained; (xiii) Determine whether or not Distributions shall be made to the Partners; (xiv) Implement, change or modify any site plan(s) for the Partnership Project; 6 11 (xv) Select new tenants and users for the Partnership Project; (xvi) Vary depreciation or accounting methods, changing the fiscal year of the Partnership, making any other decisions with respect to the treatment of various transactions for bookkeeping or tax purposes; (xvii)Contract for and complete the purchase and sale of any real or personal property, including, but not limited to, the Partnership Project, in the name of the Partnership; and (xviii) Enter into any contract, commitment or transaction requiring payments or other consideration from the Partnership with a value in excess of $10,000 during any 12 month period. 4.3 Limitation on Partner's Authority. No Partner shall have the authority to: (a) Do any act in contravention of this Agreement; or (b) Do any act that would make it impossible to carry on the Partnership Business. 4.4 Execution of Documents/Reliance on Acts of Managing Partner. All of the Partners, on behalf of the Partnership, shall be required to sign any deed, deed of trust, bill of sale, contract of sale or purchase, option, or other instrument purporting to convey or encumber all or any portion of the fee interest in any real or personal property, at any time owned by the Partnership, for such instrument to be binding and enforceable against the Partnership. Only the Managing Partner (by Peloquin only, as general partner of the Managing Partner), on behalf of the Partnership, shall be required to sign any insurance or maintenance contract relating to the Partnership Project; provided, however that without the consent of XIT, the amounts paid pursuant to any maintenance contract shall not exceed the amounts set forth in a budget prepared annually and approved in writing by XIT prior to the year that is the subject of the budget. Partners representing at least 60% in Partnership Interests, on behalf of the Partnership, shall be required to sign all other agreements, documents, and instruments, including, but not limited to, any lease, license, easement, or other instrument purporting to create a leasehold or other right to use any portion of the fee interest in any real or personal property, at any time owned by the Partnership, for such instrument to be binding and enforceable against the Partnership. Except for the number of Partner's signatures required by this Section or as otherwise provided by Section 4.2, no other signatures shall be required for any agreement, document, or instrument to be binding and enforceable against the Partnership. No purchaser, mortgagee, lessee, assignee, optionee, or other party dealing with the Partnership shall be required to ascertain whether the provisions of this Agreement have been met or complied with, or to inquire as to the authority or power of any Partner or be obliged to inquire into the validity of any agreement, document, or instrument executed by a Partner, and any such party shall be exonerated from any and all liability if such party deals with the Partnership on the basis of agreements, documents, and instruments executed on behalf of the Partnership by a Partner as described in this Section . 4.5 Devotion of Time. The Partners are not obligated to devote their full time to the affairs of the Partnership. Any Partner may become involved in other businesses and occupations 7 12 and other partnerships, some of which may be directly competitive with the Partnership Business. The Managing Partner shall devote such time as is necessary to manage the Partnership Business and perform the Managing Partner's duties hereunder. 4.6 Representations and Indemnifications. (a) Representations by P&S. The following representations and warranties are made by P&S and Peloquin, on a joint and several basis to XIT and shall continue in full force and effect after the date hereof for a period of 24 months. (i) Power and Authority. P&S has all requisite power and authority to own, lease and operate the Partnership Project and to conduct the business presently conducted at the Partnership Project. (ii) Authority for Agreement. P&S has authorized the execution, delivery and performance of this Agreement and has all power, authority and legal right to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement is a legal, valid and binding obligation of P&S, enforceable against it in accordance with its terms, except as its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws effecting the enforcement of creditors' rights in general. (iii) No Violation. Except as set forth in Schedule 4.6(a), the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby are not in violation or breach of, do not conflict with or constitute a default under, and will not accelerate or permit the acceleration of the performance required by, any of the terms of any contract, note, bond, debt instrument, security agreement or mortgage or any other contract or agreement, written or oral to which P&S is a party or by which any of the Partnership Project is bound. (iv) No Existing Defaults. Except as set forth in Schedule 4.6, P&S is not in default under any of the material terms of any contract, note, debt instrument, security agreement, mortgage or under any other commitment, contract, agreement, lease or other instrument, whether written or oral, to which it is a party or by which any of its assets are bound, nor is it in default in the payment of any material monetary obligation or debt. (v) Title to Partnership Project. Except as otherwise set forth on Schedule 4.6 hereto, P&S has no actual knowledge of any liens, encumbrances, security agreements, options, claims, charges or defects in title to any property comprising the Partnership Project. Except as otherwise disclosed on Schedule 4.6, there are no outstanding written or oral leases or tenancies of any kind covering or in any way affecting the Partnership Project or any part or parts thereof. (vi) Contracts Relating to Partnership Project. Schedule 4.6(a) hereto contains a true and complete list of each contract or agreement requiring aggregate payments by P&S or receipt by P&S in amounts in excess of $10,000 and to which P&S is a party or by which it or any portion of the Partnership Project is bound. 8 13 (vii) Compliance with Laws. To the best of P&S's and Peloquin's knowledge, P&S has complied with all laws, regulations, rules, orders, judgments, decrees and other requirements imposed by any governmental authority applicable to the Partnership Project, the properties comprising same or the business operation of P&S. (viii)Insurance. P&S has in full force and effect (with no overdue premiums) the policies of insurance or renewals thereof, in the amounts and for the periods set forth in Schedule 4.6. (ix) P&S Ownership. Except as set forth on Schedule 4.6(a), the sole partners of P&S are Peloquin and IDB, Inc., a California corporation, of which Peloquin is the sole shareholder, and there are no outstanding options, warrants or other similar rights. (b) Representations by XIT. The following representations and warranties are made by XIT to P&S and shall continue in full force and effect after the date hereof for a period of 24 months. (i) Authority for Agreement. XIT has authorized the execution, delivery and performance of this Agreement and has all power, authority and legal right to enter into this Agreement and to consummate the transactions contemplated hereby. This Agreement is a legal, valid and binding obligation of XIT, enforceable against it in accordance with its terms, except as its enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws effecting the enforcement of creditors' rights in general. (ii) No Violation. Except as set forth in Schedule 4.6(b), the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby are not in violation or breach of, do not conflict with or constitute a default under, and will not accelerate or permit the acceleration of the performance required by, any of the terms of any contract, note, bond, debt instrument, security agreement or mortgage or any other contract or agreement, written or oral to which XIT is a party. (c) Indemnification of Managing Partner. The Partnership, its receiver or its trustee, shall indemnify, hold harmless, defend, and pay all judgments and claims against the Managing Partner, and its shareholders, partners, members, directors, officers, employees, agents, independent contractors, subsidiaries, successors, and assigns, from any liability, loss, or damage incurred by any of them by reason of any act performed or omitted to be performed by any of them in connection with the Partnership Business, including costs and attorneys' fees and any amounts expended in the settlement of any claims of liability, loss, or damage, except to the extent such loss, liability, or damage was caused by the negligence or intentional misconduct of the indemnified party. (d) Indemnification by Partners. Each Partner (in the case of P&S, the term Partner or P&S shall include Peloquin) shall indemnify, hold harmless, defend, and pay all judgments and claims against the other Partners, and their respective shareholders, partners, members, directors, officers, employees, agents, independent contractors, subsidiaries, successors, and assigns, from any liability, loss, or damage incurred by any of them by reason of (i) any breach by the indemnifying Partner of this Agreement or any representation or warranty contained herein or any claims of any nature by a former partner or affiliate of a Partner, or 9 14 (ii) the negligence or intentional misconduct of the indemnifying Partner or its employees, agents, or contractors, including costs and attorneys' fees and any amounts expended in the settlement of any claims of liability, loss, or damage, except to the extent such loss, liability, or damage was caused by the negligence or intentional misconduct of the indemnified party. In addition to the foregoing, P&S agrees to indemnify, hold harmless, defend and pay all judgments and claims against XIT and its shareholders, directors, officers, employees, agents, independent contractors, subsidiaries, successors, and assigns, from any liability, loss or damage incurred by any of them by reason of any environmental problems at the Partnership Project where the facts or circumstances causing such problems exist as of the date hereof, except to the extent such environmental problems have been caused by XIT or its contractors, employees or agents. 4.7 Investment Opportunities. Neither the Partners nor any of their Affiliates shall be obligated to present any particular market opportunity or other investment opportunity to the Partnership or to any other Partner, even if the opportunity is of a character which, if presented to the Partnership, could be taken by the Partnership, and the Partners and any of their Affiliates shall have the right to take for their own account or to recommend to others any market opportunity or other investment opportunity. SECTION 5 CAPITAL CONTRIBUTIONS AND ASSUMPTION OF LIABILITY 5.1 Capital Contributions and Loans. (a) Initial Contribution. Upon execution of this Agreement, P&S shall contribute the Partnership Project to the Partnership, which shall have a net agreed upon value for Capital Account purposes of One Million Two Hundred Sixty-Seven Thousand Three Hundred Forty-Five and No/100 Dollars ($1,267,345), as illustrated on EXHIBIT A attached hereto. XIT shall contribute the amount specially allocated to XIT pursuant to Section 6.4. Upon contribution, the Partners' Capital Accounts shall be adjusted by use of the bonus method to achieve the equal Capital Account balances, as of the date of formation, that are reflected on EXHIBIT A attached hereto, which balances shall be adjusted as required by Financial Accounting Standard No. 121, with such adjustments being charged equally to each Partner. (b) Additional Capital Requirements. (i) Partner Contributions. If any Partner determines, from time to time, that additional capital is required for the Partnership ("Shortfall Amount") and funds are not available from commercial lenders on terms reasonably acceptable to a majority of the Partners (based on the Percentage Interests of the Partners), the determining Partner shall send a notice of such Shortfall Amount to the other Partners ("Shortfall Notice"). All of the Partners shall, on or before the date (the "Contribution Date") that is thirty (30) days after such Partner's receipt of the Shortfall Notice, contribute ("Shortfall Contribution(s)"), pro rata based on their respective Percentage Interest, the Shortfall Amount to the Partnership, up to a maximum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) in the aggregate for all Partners over the life of the Partnership. Each Partner shall contribute in cash an amount (the "Partner's Share") equal to 10 15 such Partner's Percentage Interest multiplied by the total Shortfall Amount identified in the Shortfall Notice. (ii) Partner Loans. If any Partner shall fail to contribute as required by Section 5.1(b)(i) above, then (i) such non-contributing Partner(s) shall be referred to herein as a "Non-Contributing Partner," and (ii) the remaining Partners who have voluntarily agreed to contribute their respective Partner's Share (a "Contributing Partner") may, within fifteen (15) days of the Contribution Date, (A) refuse to contribute its Partner's Share (and thereby become a Non-Contributing Partner), or (B) loan its Partner's Share plus the amount the Non-Contributing Partners failed to contribute (allocated among all Contributing Partners who desire to make such loan in accordance with their respective Percentage Interests), in which case such loans shall be referred to as "Shortfall Loans", or (C) sell the "Partnership Property" (as defined in Section 5(b)(iv)) for the "Sale Price" (as defined in Section 5(b)(iv)) and dissolve the Partnership, or (D) purchase the Non-Contributing Partner's interest in the Partnership, in cash, for a price equal to the amount the Non-Contributing Partner would have received upon dissolution had option (C) of this sentence been elected. If all Partners are Non-Contributing Partners, or if the projected Shortfall Amount exceeds, with all prior Shortfall Amounts, Two Hundred Fifty Thousand and No/100 Dollars ($250,000) in the aggregate for all Partners over the life of the Partnership, then either Partner may sell the Partnership Property for the Sale Price and dissolve the Partnership. Shortfall Loan(s) shall (i) bear interest at a rate equal to the lesser of (A) 1.5% over Wells Fargo Bank's then quoted prime rate, as adjusted from time to time, or (B) the maximum rate then permitted by law, (ii) shall be repaid by the Partnership to the lending Partners pro rata prior to the Distributions made to all of the Partners pursuant to Sections 6.1 and 6.2, and (iii) be on such other terms and conditions as determined by the Partners. If more than one of the Partners elect to make such Shortfall Loan(s), the amount of each Shortfall Loan shall be made pro rata in accordance with their respective Percentage Interests. (iii) Priority of Loans and Additional Contributions. Notwithstanding any provision to the contrary in Section 6 or any other Section of this Agreement, in the event any Shortfall Loans or Shortfall Contributions have been made pursuant to this Section , all subsequent Distributions shall be made (i) first to repay the Shortfall Loans made pursuant to this Section pro rata in accordance with the amount loaned by each Partner, and (ii) then to the Partners pro rata in proportion to their unrecovered Shortfall Contributions made pursuant to this Section until they have fully recovered such Shortfall Contributions. (iv) Sale Price. The "Sale Price" shall be the fair market value of the Partnership Project and all other Partnership property (collectively, "Partnership Property") as collectively determined, in good faith, by all of the Partners within fifteen (15) days after receipt of demand by any Partner. If the Partners cannot agree on such fair market value, then such fair market value shall be determined in accordance with the following provisions: (A) The Partners shall appoint a single appraiser to value the Partnership's real property. If the parties are unable to agree upon a single appraiser within fifteen (15) days after the expiration of such fifteen-day (15-day) period, then within fifteen (15) days thereafter, each Partner shall appoint a single appraiser who is qualified and experienced (at least 5 years) in appraising industrial property in Southern California. If the appraisers so 11 16 appointed are unable to agree upon the valuation for the Partnership's real property, but the highest and lowest valuations differ by ten percent (10%) or less, then the appraised value shall be the average of the appraisals. If the highest and lowest valuations differ by more than ten percent (10%), then, in such event, the appraisers shall collectively designate another appraiser whose sole function shall be to adopt one (1) of the appraisals as the closest to the then fair market valuation of the Partnership's real property. Each Partner shall pay its pro rata share of the cost of such appraisals based on its Percentage Interest. In arriving at a valuation, the appraisers shall observe the standards and employ the fair market value formula set forth below in Section 5.1(b)(iv)(B), with all valuations being made as of the date the Shortfall Notice was made. The appraisers shall include the value attributable to any then existing below market financing in determining fair market value. (B) The appraisal shall value one hundred percent (100%) of the Partnership's real property, including, but not limited to, the Partnership's buildings, land, and other interests in real property. Because the valuation is one hundred percent (100%) of the Partnership's real property, there shall be no discount applied for lack of marketability, lack of control, entity restrictions, or other relevant discounts which would otherwise apply in the absence of the provisions of this subparagraph. The fair market value of the Partnership Property shall be the value of the Partnership's real property, as determined by the appraiser(s), plus the book value of all other assets owned by the Partnership, including, but not limited to, machinery, equipment and other personal property, as determined by the Partnership's accountants, less the Partnership's debts and obligations, as determined by the Partnership's accountants. (c) Security Loan. Upon execution of this Agreement, XIT shall loan to the Partnership an amount not to exceed Seven Hundred Fifty Thousand Dollars ($750,000) (the "Security Loan"). The Security Loan shall be on terms and conditions identical to those terms and conditions upon which XIT borrows the amounts comprising said Security Loan from Imperial Bank. The Security Loan shall be used by the Partnership as collateral for the Imperial Bank credit facility to be entered into by the Partnership contemporaneously herewith. The Security Loan shall be a loan, not a contribution of capital, and shall not be a part of XIT's Capital Account. The Security Loan may not be converted or exchanged into a partnership interest. 5.2 Deficit Capital Accounts. If any Partner has a deficit balance in its Capital Account at the time of the liquidation of the Partnership or the liquidation of its interest in the Partnership (after crediting allocations of income and debiting allocations of loss to its Capital Account), such Partner must pay to the Partnership the amount of the deficit balance in its individual Capital Account. This amount, upon the liquidation of the Partnership, shall be paid to the creditors of the Partnership or distributed to the other Partners in accordance with their positive Capital Account balances in accordance with Section 1.704-1(b)(2)(ii)(b)(3) of the Treasury Regulations. This payment must be made in readily available funds, and must be made no later than the end of the taxable year of the liquidation of their interest in the Partnership (or, if later, within 90 days after the date of the liquidation). (a) The term "liquidation" is used in the sense of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations. 12 17 (b) The liquidated Partner's Capital Account shall be determined after taking into account all Capital Account adjustments for the Partnership's taxable year during which the liquidation occurs. The Partners intend that the provision set forth in this Section 5.2 will constitute an unconditional obligation to restore deficit capital accounts as described in Section 1.704-1(b)(2)(ii)(b)(3) of the Treasury Regulations. The Treasury Regulations shall control in the case of any conflict between those regulations and this Section 5.2. SECTION 6 DISTRIBUTIONS AND ALLOCATIONS 6.1 Distributions of Cash Available For Distribution. Subject to Section 6.5 (that is, other than cash being distributed upon the dissolution of the Partnership), Cash Available For Distribution shall be distributed as follows: (a) With respect to the first $1,200,000 of Cash Available For Distribution, 75% of such Cash Available For Distribution shall be distributed to P&S and 25% of such Cash Available For Distribution shall be distributed to XIT; and (b) Thereafter, all further Cash Available For Distribution shall be distributed to the Partners in accordance with the Partners' respective Percentage Interests. 6.2 Allocation of Net Income. Subject to Section 6.4 below, the Net Income of the Partnership shall be allocated to the Partners in accordance with the following order of priority: (a) First, 75% to P&S and 25% to XIT until the Partners have received cumulative allocations pursuant to this Section 6.2(d) equal to $900,000 for P&S and $300,000 for XIT; and (b) Thereafter, to the Partners pro rata in accordance with their Percentage Interests. 6.3 Allocation of Net Loss and Nonrecourse Deductions. Net Loss and Nonrecourse Deductions shall be allocated to the Partners in the following order of priority: (a) First, to the Partners until the Partners have received cumulative allocations of Net Loss and Nonrecourse Deductions pursuant to this Section 6.3(a) equal to the difference between (A) the cumulative allocations of Net Income pursuant to Section 6.2(b) over (B) the cumulative Distributions to the Partners pursuant to Section 6.1(b), among them in proportion to their relative proportion of such amounts; and (b) Second, to the Partners until the Partners have received cumulative allocations of Net Loss and Nonrecourse Deductions pursuant to this Section 6.3(b) equal to the difference between (A) the cumulative allocations of Net Income pursuant to Section 6.2(a) over 13 18 (B) the cumulative Distributions to the Partners pursuant to Section 6.1(a), among them in proportion to their relative proportion of such amounts; and (c) Thereafter, to the Partners pro rata in accordance with their Percentage Interests. 6.4 Special Allocations. (a) Allocation to XIT. All income and gain, up to and including Six Hundred Fifty Thousand and No/100 ($650,000), arising in any manner, directly or indirectly, by virtue of any payment by Bank in connection with the release of the existing letter of credit relating to the Partnership Project shall be specially allocated to XIT. All amounts of such income and gain over Six Hundred Fifty Thousand and No/100 ($650,000) shall be allocated to the Partners pursuant to Section 6.2. (b) Section 704. All items of income, gain, loss, and deduction for Federal and state income tax purposes shall be allocated in accordance with the corresponding "book" items in accordance with the principles of Section 704(c) of the Code and Section 1.704-1(b)(4)(i) of the Treasury Regulations. (c) Recapture Income. In the event that the Partnership has taxable income that is characterized as ordinary income under the recapture provisions of the Code, each Partners' distributive share of taxable gain or loss from the sale of Partnership assets (to the extent possible) shall include a proportionate share of this recapture income equal to that Partners' prior share of prior cumulative depreciation deductions with respect to the assets which gave rise to the recapture income. (d) Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(f) of the Treasury Regulations, in the event that there is a net decrease in the Partnership Minimum Gain during a Partnership taxable year, each Partner shall be allocated items of income and gain in accordance with Section 1.704-2(g) of the Treasury Regulations and its requirements for a "minimum gain chargeback." (e) Partner Minimum Gain Chargeback. Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury Regulations, in the event that there is a net decrease in the minimum gain attributable to a Partner Nonrecourse Debt of the Partnership during a Partnership taxable year, each Partner with a share of the minimum gain attributable to the Partner Nonrecourse Debt at the beginning of the Partnership taxable year shall be allocated income and gain for the year (and, if necessary, subsequent years) in accordance with Section 1.704-2(i) of the Treasury Regulations. 6.5 Distributions on Dissolution. Upon dissolution, the business of the Partnership shall be wound up by the Managing Partner, the assets shall be liquidated, and the proceeds applied to (i) payment of the Partnership debts, including expenses of the liquidation, (ii) repayment of Shortfall Loans, then the Security Loan, and then all other loans from Partners, and (iii) deposit in a trust account of a reasonable reserve for payment of contingent liabilities and expenses. The remaining proceeds shall be distributed (i) to the Partners who have made Shortfall Contributions until they have fully recovered such Shortfall Contributions, and then 14 19 (ii) to the Partners with positive Capital Accounts in accordance with the ratio of their Capital Accounts. The proceeds of the Partnership upon liquidation shall include any contribution by the Managing Partner at the time of liquidation pursuant to their obligation to pay any deficit amount in their Capital Account to the Partnership under Section 5.2 of this Agreement. SECTION 7 PARTNERSHIP EXPENSES 7.1 Reimbursable Expenses and Partnership Expenses. (a) Each Partner shall pay its own costs and expenses incurred to form the Partnership, including, but not limited to such Partner's legal and accounting fees incurred by such Partner in drafting and reviewing this Agreement. (b) The Partnership shall pay all reasonable out-of-pocket expenses of the Partnership, which may include, but are not limited to: (i) all salaries, compensation, and fringe benefits of personnel employed by the Partnership and involved in the Partnership Business, other than the Managing Partner; (ii) all costs of borrowed money (including such costs relating to loans from Imperial Bank and the Security Loan), taxes and assessments on the Partnership Business, and other taxes applicable to the Partnership; (iii) legal, audit, accounting, consulting, and brokerage fees; and (iv) expenses and taxes incurred in the distribution, transfer, and recording of documents evidencing ownership of an interest in a Partnership Project or in the Partnership Business. (c) Each Partner and its Affiliates shall be entitled to reimbursement for costs and other out-of-pocket expenses reasonably incurred by such Partner and its Affiliates on behalf of the Partnership in connection with the Partnership Business. (d) Notwithstanding the provisions of this Section 7.1, the Partnership shall not reimburse any Partner for any item of its general overhead or administrative expense, including but not limited to executive or other employee salaries of a Partner, rent for a Partner's offices, utilities, depreciation, political or charitable contributions, or gifts. In addition, the Partnership shall only reimburse a Partner for traveling, accounting, and consultant costs directly relating to the Partnership Business. (e) Expenses or commitments which exceed $10,000 require consent of a majority in interest of the Partnership, unless already approved as part of a budget submitted to and approved by the Partners. SECTION 8 BOOKS, RECORDS AND ACCOUNTS 8.1 Books and Records. The Managing Partner shall keep the Partnership's books and records at the principal office of the Partnership. All Partners shall have the right, upon 15 20 reasonable request, to inspect and copy, during normal business hours, any of the Partnership books and records. 8.2 Bank Accounts. The Partnership shall have two (2) bank accounts. One bank account shall be referred to herein as the "General Account" and the other shall be referred to herein as the "Management Account." All monies received by the Partnership for any reason (including, but not limited to, capital contributions, loans, and income from the Partnership Project) shall be deposited into the General Account. Two signatures shall be required to remove or otherwise transfer funds from the General Account by check, wire transfer, or any other method. One signature shall be that of XIT and one shall be that of P&S (signed only by Peloquin, as general partner of P&S). Each quarter sufficient funds necessary for the operation of the Partnership for the next three (3) months (as reasonably determined by P&S and approved by XIT, such approval not to be unreasonably withheld or delayed) shall be transferred from the General Account to the Management Account. The Managing Partner shall pay all expenses of the Partnership and the Partnership Project from the Management Account and only the Managing Partner's signature (signed only by Peloquin, as general partner of the Managing Partner), shall be required to remove or otherwise transfer funds from the Management Account by check, wire transfer, or any other method. A record of all such removals or other transfers made by the Managing Partner from the Management Account shall be supplied to XIT within ten (10) days following the end of each calendar month for removals and other transfers made during the prior month. 8.3 Tax Returns. The Partnership's tax and fiscal year end shall be September 30. The Partners agree to cooperate to cause an election under Internal Revenue Code Section 444 to be made to elect a September 30 year end for tax purposes. To the extent the Partnership is unable to elect a September 30 year end for tax purposes, the Partnership's tax and fiscal year shall be the fiscal year of the majority of the Partners based on Percentage Interests. For purposes of determining the fiscal year of any Partner that is itself a partnership ("Partnership Partner"), the fiscal year of each of the partners comprising the Partnership Partner ("Sub-Partner") and the Percentage Interests of such Sub-Partners (assuming the Partnership Partner had been dissolved and the Partnership interest of the Partnership Partner distributed to the Sub-Partner) should be used. The Partnership's accountants shall be instructed to prepare and file all required income tax returns for the Partnership. 8.4 Audited Financial Statements. Audited financial statements shall be prepared at least annually by a certified public accountant acceptable to a majority of the Partners. 8.5 Method of Accounting. The books of account of this Partnership shall be kept on the basis jointly determined by the Partners. 8.6 754 Election. The Managing Partner may, upon consent of Partners with a majority in Partnership Interests, make an election on behalf of the Partnership pursuant to Section 754 of the Code. 16 21 SECTION 9 ASSIGNMENTS 9.1 Sale of Partnership Interest. (a) Generally. Except as provided in this Agreement, no Partner shall directly or indirectly, sell, assign, mortgage, pledge, hypothecate or otherwise encumber, transfer or permit to be transferred or encumbered in any manner or by any means whatever, whether voluntarily or by operation of law, all or any part of its Partnership interest without the prior written consent of all of the other Partners, which consent may be granted or withheld in a Partner's sole, absolute and arbitrary discretion. Any act in violation of this Section 9.1(a) shall be void and without effect. (b) Transfer to Affiliate. Notwithstanding Section 9.1(a), and without being subject to Section 9.2, a Partner shall have the right, and with the consent of the other Partners, to assign all or a portion of its interest in the Partnership to an Affiliate; provided, however, that the transferring Partner shall remain liable for its obligations hereunder unless released in writing by all other Partners and the Partnership. Upon such transfer, such transferee shall become a substitute Partner, with all rights and obligations of a Partner under this Agreement, at law or in equity. Consent of a Partner shall not be unreasonably withheld to a proposed transfer. (c) Transfer by One Partner to Another Partner. Notwithstanding Section 9.1(a), but subject to Section 9.2, a Partner shall have the unrestricted right, in its sole and absolute discretion and without the consent of any other Partner, to assign all or a portion of its respective interest in the Partnership to any other Partner; provided, however, that the transferring Partner shall remain liable for its obligations hereunder unless released in writing by all other Partners and the Partnership. Upon such transfer, such transferee shall become a substitute Partner, with all rights and obligations of a Partner under this Agreement, at law or in equity. (d) Nothing contained herein shall in any manner prohibit the sale of any interest in XIT. P&S shall obtain the prior consent of XIT to any sale of an interest in P&S, said consent not to be unreasonably withheld. 9.2 Rights of First Refusal to Purchase Interests. (a) If a Partner ("Offeror") receives a "Bona Fide Offer," as defined below, for the purchase of all or any portion of its interest ("Partnership Interest Offer"), which the Offeror desires to accept, the Offeror shall give notice thereof (which notice shall include a true copy of the Partnership Interest Offer) to the other Partners ("Offerees"). Subject to Section 9.1(a), the Offerees shall have the absolute right to purchase the Partnership interest of the Offeror upon the terms and conditions as set forth in the Partnership Interest Offer, except that the Offerees shall not be responsible for the payment of any broker's commission payable by the Offeror. If more than one Partner desires to purchase the interest of the Offeror, each such Partner shall have the right to purchase a portion of the interest equal to their relative Percentage Interests. The Offeree(s) shall, within thirty (30) days of receipt of the Partnership Interest Offer, give notice in writing to the Offeror stating whether or not it desires to accept the offer of sale. Failure by the 17 22 Offeree to give such notification within such thirty (30) day period shall constitute an election by the Offeree to reject the Partnership Interest Offer. If no Partner elects to purchase the Offeror's Partnership interest as above described, the Offeror may (subject to Section 9.1(a)) within sixty (60) days after the Offeree's election or deemed election to reject the Partnership Interest Offer (the "Rejection Date") enter into an agreement to sell all, but not any part, of its Partnership interest to the party making the Partnership Interest Offer, but only upon the same terms and conditions, so long as such sale is consummated within one hundred fifty (150) days from the date of such sale agreement; otherwise, any such sale shall be considered null and void. If the Offeree(s) accepts the Partnership Interest Offer, the Offeree(s) shall purchase the Offeror's entire Partnership interest upon the same terms and conditions set forth in the Partnership Interest Offer. (b) For all purposes of Section 9.2(a), no offer shall be deemed to be a Bona Fide Offer unless: (i) the proposed purchase price is payable solely in lawful money of the United States and, if not payable in its entirety in cash, at least twenty percent (20%) of the purchase price shall be payable in cash; (ii) the offer contains provisions whereby the proposed purchaser is obligated to comply with all provisions of this Agreement (including but not limited to this Section 9.2) and assume all obligations of the Offeror hereunder; (iii) it is an offer containing reasonably specific terms and conditions and made in writing by a principal, identified in the Partnership Interest Offer, and not an agent acting on behalf of an undisclosed principal; and (iv) the Offeror shall not have committed any uncured defaults hereunder and the prospective purchaser shall be financially responsible and able to discharge its obligations under this Agreement. 9.3 Specific Performance. The failure or refusal to comply with any or all of the provisions of this Section 9 shall entitle a Partner to specific performance of the terms, covenants and conditions of this Agreement, or any part hereof, in addition to any and all other remedies available at law or in equity. 9.4 Buy Out. In the event that XIT's independent certified public accountants determine either (i) that consolidation of the financial statements of the Partnership with XIT is required for financial reporting purposes, or (ii) that XIT must capitalize its lease for financial reporting purposes, then, at XIT's option, P&S shall make a good faith effort to buy XIT's interest in the Partnership at the initial book value of XIT's Capital Account net of any Financial Accounting Standards No. 121 adjustments made at the date of formation. P&S shall be deemed to have made a good faith effort if P&S has submitted a completed loan application to three (3) commercial lenders who regularly make commercial loans on industrial buildings. 18 23 SECTION 10 MISCELLANEOUS 10.1 Headings. The titles and headings of the various paragraphs of this Agreement are intended solely for convenience of reference and are not intended to explain, modify or place any interpretation upon any of the provisions of this Agreement. 10.2 Time of Essence. All times and dates in this Agreement shall be of the essence. 10.3 Entire Agreement. This Agreement, which includes the Exhibits, contains all representations and the entire understanding and agreement between the parties. Correspondence, memoranda or agreements, whether written or oral, originating before the date of this Agreement with respect to the Partnership Business, are replaced in total by this Agreement unless otherwise especially stated. 10.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 10.5 Attorneys' Fees. In any dispute between the Partners, whether or not resulting in litigation, the prevailing party shall be entitled to recover from the other party all reasonable costs, including, but not limited to, reasonable attorneys' fees, court costs and costs of arbitration. 10.6 Arbitration. (a) Arbitration Required. In the event of any dispute among the Partners, the matter will be submitted to binding arbitration. The parties hereto waive their right to a jury trial. Arbitrable disputes include any controversy or claim between the parties, including any claim based on contract, tort, or statute, arising out of or relating to the rights or duties of the parties under this agreement. Any controversy regarding whether a dispute is an arbitrable dispute shall be determined by the arbitrator. (b) Arbitrator. The arbitration shall be conducted by the Judicial Arbitration and Mediation Services, Inc. at Orange County, California, or its successor ("JAMS"). If JAMS is unavailable, arbitration will be conducted by and in accordance with the rules of the American Arbitration Association ("AAA") as herein modified. In either case, there shall be only one arbitrator who shall be a judge who has retired from the Superior Court of the State of California, a higher California court or any federal court. The arbitrator shall be selected by mutual agreement of the parties, failing which, each party shall select an arbitrator. Both arbitrators shall jointly select a third arbitrator. The sole function of the third arbitrator shall be to select the entire position(s) advocated by either party's arbitrator; the third arbitrator shall have no power to adopt a compromise position(s) or to propose some other resolution of the dispute. (c) Rules of Arbitration. The rules to be followed in the arbitration are as follows: (1) claims comprising the petition for arbitration shall be submitted in the form of a complaint, prepared in conformance with California Code of Civil Procedure, Section 420 et seq., filed with the service or association which will be conducting the arbitration, with copies 19 24 personally served on all responding parties. The respondent will have thirty (30) days to file a response which will take the form of an answer, prepared in conformance with California Code of Civil Procedure Section 431.30. The matters at issue will be set for hearing by the arbitrator within twenty (20) days of the filing of the response to the claim. The arbitrator will schedule, upon mutual agreement of the parties, a prehearing conference, discovery and hearing dates. If the parties are unable to agree, the arbitrator will set the appropriate dates. The parties shall be allowed to conduct discovery in conformance with the provisions of the California Code of Civil Procedure Sections 1282.6, 1283 and 1283.05, except that depositions for discovery, as authorized by Section 1283.05(e), shall only be allowed upon a finding of good cause by the arbitrator. Any disputes concerning discovery shall be submitted to the arbitrator. At the arbitration hearing, the order of proof shall be governed by the California Code of Civil Procedure unless the parties mutually agree or the arbitrator directs otherwise. Admissibility will be governed by the California Evidence Code. (d) Decision of Arbitrator. The arbitrator shall comply with, and the decision of the arbitrator shall be rendered in accordance with, the law of the State of California. The arbitrator shall issue a statement of decision specifying in detail the reason for the arbitrator's decision, including pointing to the specific evidence that led to the arbitrator's decision. The arbitrator shall have the power only to award compensatory damages provided by California law, but shall not have the power to award punitive damages. The parties agree to be bound by the decision of the arbitrator, which shall be final, shall not be appealable and which shall allow for no trial de novo on the same issues. The arbitrator's decision shall be rendered within thirty (30) days following submission of the matter at issue, but the failure to comply with this provision shall in no way invalidate any decision or award as may be rendered more than thirty (30) days after submission. The judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. 10.7 Severability. If any part of this Agreement is determined to be illegal or unenforceable, all other parts shall be given effect separately and shall not be affected. 10.8 Notices. Notices given under this Agreement shall be in writing and shall either be served personally or delivered by first class registered or certified, return receipt requested U.S. mail, postage prepaid. Notices shall be deemed received at the earlier of actual receipt or three days following deposit in U.S. mail, postage prepaid. Notices shall be directed to the addresses shown on EXHIBIT A, provided that a Partner may change its address for notice by giving written notice to all other Partners in accordance with this notice section. 10.9 Gender and Number. As used in this Agreement, the masculine, feminine, or neuter gender, and the singular or plural number, shall each include the others whenever the context so indicates. 10.10 Counterpart/Facsimile Signatures. This Agreement may be executed in counterparts, each of which is hereby declared to be an original; all, however, shall constitute but one and the same Agreement. A facsimile signature shall be deemed an original signature. After executing this Agreement on a copy sent via facsimile, each party hereto shall execute two originals of this Agreement, which originals shall be sent to each party by mail concurrently with the facsimile copy, provided that a party shall be bound by its obligations and agreements set 20 25 forth in this Agreement upon the earlier of (i) its execution of the copy sent via facsimile, and (ii) its execution of the original sent via mail. 10.11 Cross-References. All cross-references in this Agreement, unless specifically directed to another agreement or document, refer to provisions in this Agreement, and shall not be deemed to be references to the overall transaction or to any other agreements or documents. 10.12 Covenant to Sign Documents. Each Partner shall execute, with acknowledgment or affidavit, if required, all documents and writings reasonably necessary or expedient in the creation of this Partnership and the achievement of its purpose. 10.13 Bank Accounts. All Partnership funds shall be deposited in bank accounts with Imperial Bank unless the Partners jointly determine from time to time to deposit funds in other accounts. 10.14 No Representation. The Partners hereby acknowledge that no representation, either expressed or implied, has been made or shall be deemed to have been made concerning the potential profitability of a Partnership Project. 10.15 Successors in Interest. The terms, covenants and conditions contained in Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their successors, and, subject to the applicable provisions of this Agreement, to their assigns. 10.16 Partition. No Partner hereto shall have the right to partition the Partnership Project during the term of this Agreement, nor shall any Partner make application to any court or authority having jurisdiction in the matter, nor commence nor prosecute any action or proceeding for partition or the sale thereof, and upon any breach of the provisions of this Section by any Partner, the other Partners, in addition to all rights and remedies at law or in equity they may have, shall be entitled to a decree or order restraining and enjoining such application, action or proceeding. 10.17 Waiver. The failure of any party to insist upon a strict performance of any of the terms or provisions of this Agreement, or to exercise any option, right or remedy herein contained, shall not be construed as a waiver or as a relinquishment for the future of such term, provision, option, right or remedy, but the same shall continue and remain in full force and effect. Except as expressly provided otherwise, no waiver by any party of any term or provision hereof shall be deemed to have been made unless expressed in writing and signed by each party. 10.18 Approvals. Wherever in this Agreement, one party's approval is required, such party agrees to not unreasonably withhold (unless otherwise expressly provided in this Agreement) or delay such approval. Each Partner agrees to respond to a request for vote or approval within ten (10) business days of receipt of such request and, if such Partner votes no or disapproves such request, such Partner agrees to specify in reasonable detail the reasons for such no vote or disapproval. Failure to respond within such time frame shall constitute a yes vote and approval of the requested item. 10.19 P&S, Peloquin and XIT agree to sign as co-guarantors on all loans, notes or credit facilities of the Partnership. 21 26 IN WITNESS WHEREOF, the Partners have signed this Agreement effective as of the date first set forth above. "P&S" "XIT" P & S Development, XIT Corporation, a California general partnership a New Jersey corporation, formerly known as XCEL corporation By: /s/ J. Victor Peloquin By: /s/ Carmine T. Oliva --------------------------------- ----------------------------------- J. Victor Peloquin, general partner Its: President --------------------------------- By: IDB Brickell, Inc., By: a California corporation, ----------------------------------- general partner Its: ---------------------------------- By: /s/ Victor Peloquin --------------------------------- J. Victor Peloquin, President 22 27 EXHIBIT A
PARTNER PERCENTAGE NAME AND ADDRESS INTEREST ---------------- -------- P&S Development 50% 4740 E. Bryson Anaheim, California 92807 XIT CORPORATION 50% 4290 East Brickell Ontario, California 91761
28 EXHIBIT A-1 PARTNER CAPITALIZATION [CHART TO BE INSERTED] 29 EXHIBIT B Legal Description PARCEL NO. 1: PARCEL 41 OF PARCEL MAP NO. S776, IN THE CITY OF ONTARIO, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 101 OF PARCEL MAPS, PAGE(S) 77 THROUGH 87, INCLUSIVE, RECORDS OF SAID COUNTY; AND AS AMENDED BY CERTIFICATE OF CORRECTION RECORDED APRIL 13, 1987, INSTRUMENT NO. 87-119915, OFFICIAL RECORDS. EXCEPTING THEREFROM ALL OIL, PETROLEUM, HYDROCARBONS, GAS, BREA, ASPHALTUM AND ALL KINDRED SUBSTANCES, AND OTHER MINERALS LYING BELOW A DEPTH OF 500 FEET FROM THE SURFACE, WITHOUT THE RIGHT OF SURFACE ENTRY, AS CONVEYED IN THE DEED FROM VINA VISTA VENTURE-NEW JOINT VENTURE, A PARTNERSHIP, TO ACTION TRADING COMPANY, A NEVADA CORPORATION, BY DEED RECORDED JULY 30, 1968, IN BOOK 7068, PAGE 672, OFFICIAL RECORDS. ALSO EXCEPTING THEREFROM ALL COAL, OIL, GAS, PETROLEUM AND OTHER HYDROCARBON SUBSTANCES IN AND UNDER THE PROPERTY, IT BEING EXPRESSLY UNDERSTOOD AND AGREED THAT GRANTOR, ITS SUCCESSORS AND ASSIGNS, SHALL RETAIN THE EXCLUSIVE TITLE AND RIGHT TO REMOVE SAID SUBSTANCES; TOGETHER WITH THE SOLE RIGHT TO NEGOTIATE AND CONCLUDE LEASES AND AGREEMENTS WITH RESPECT TO ALL SUCH SUBSTANCES UNDER THE PROPERTY, AND TO USE THOSE PORTIONS OF THE PROPERTY WHICH UNDERLIE A PLANE PARALLEL TO AND 500 FEET BELOW THE PRESENT SURFACE OF THE PROPERTY FOR THE PURPOSES OF PROSPECTING FOR, DEVELOPING AND OR EXTRACTING SUCH SUBSTANCES FROM THE PROPERTY BY MEANS OF WELLS DRILLED INTO OR THROUGH SUCH PORTIONS OF THE PROPERTY OR DRILL SITES LOCATED ON OTHER PROPERTY; IT BEING FURTHER EXPRESSLY UNDERSTOOD AND AGREED THAT THE GRANTOR, ITS SUCCESSORS AND ASSIGNS, SHALL HAVE NO RIGHT TO ENTER UPON THE SURFACE OF THE PROPERTY OR TO USE THE PROPERTY OR ANY PORTION THEREOF ABOVE THE LEVEL OF THE AFORESAID 500-FOOT SUBTERRANEAN PLANE, AS RESERVED BY ONTARIO INDUSTRIAL PARTNERS, A CALIFORNIA GENERAL PARTNERSHIP, BY DEED RECORDED JUNE 18, 1987, INSTRUMENT NO. 87-206601, OFFICIAL RECORDS. PARCEL NO. 2: A NON-EXCLUSIVE EASEMENT FOR DRAINAGE PURPOSES OVER THOSE PARCELS DEFINED AS "SERVIENT TENEMENT PARCELS" FOR THE PARCEL CONVEYED HEREBY AS SUCH EASEMENT IS MORE PARTICULARLY DESCRIBED IN THE DECLARATION ESTABLISHING AGREEMENT AND GRANT OF STORM DRAIN EASEMENT RECORDED SEPTEMBER 17, 1986, INSTRUMENT NO. 86-268235, OFFICIAL RECORDS OF SAID COUNTY; AND RE-RECORDED SEPTEMBER 30, 1986, INSTRUMENT NO. 86-283863, OFFICIAL RECORDS OF SAID COUNTY; AND ANY AMENDMENTS THERETO (THE "STORM DRAIN AGREEMENT"). PARCEL NO. 3: EASEMENTS, AS SET FORTH IN THE SECTIONS ENTITLED "RIGHTS AND DUTIES OF OWNERS" AND "PARTY WALLS AND FENCES" OF THE DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS RECORDED SEPTEMBER 23, 1983, INSTRUMENT NO. 83-223429, OFFICIAL RECORDS OF SAID COUNTY, AND ANY AMENDMENTS THERETO ("THE DECLARATION"). 30 [DRAWING TO BE INSERTED] 31 SCHEDULE 4.6 LIENS, ENCUMBRANCES, SECURITY, OPTIONS, CLAIMS, CHARGES EFFECTING TITLE TO PROPERTY 1. Property Tax fiscal year 1989-90 and subsequent years. (5 year payment plan). Paid as Agreed 2. Assessment for Improvements - City of Ontario District No. 103 Installments paid annually with real property taxes. Assessment will be levied through year 2008 tax bill. 3. Assessment for Improvements - City of Ontario District No. 100A Installments paid annually with real property taxes. Assessment will be levied through year 2006 tax bill. 4. Community Facilities District No. 4 Installments paid annually with real property taxes. Assessment levied through year 1999 tax bill. CURRENT LEASES, TENANCIES AFFECTING THE PARTNERSHIP PROPERTY 1. Lease Agreement dated September 15, 1990 by and between P & S Development ("Lessor") and Xcel Corporation ("Lessee"). 2. Standard Industrial/Commercial Multi-Tenant Lease dated December 15, 1995 by and between P & S Development ("Lessor") and Jose Macias, as Sole Proprietor, dba Avila's Freight Company ("Lessee"). INSURANCE Northbrook Insurance Policy Period: 7/7/96 - 7/7/97 Policy Premium $11,614.00 Balance $4,069.15 Policy is in full force and effect 32 SCHEDULE 4.6(a) Jose Macias dba Avila's Freight Company (Security Deposit) $ 10,938.00 Xcel Corporation (Security Deposit) $ 25,000.00 Xcel Corporation (Last Months Rent) $ 26,000.00 Tax Collector-Property Tax - Paid as agreed $ 123,615.34
MAINTENANCE CONTRACTS: None in excess of $10,000 33 SCHEDULE 4.6(b) NONE EX-10.30 14 LEASE AGREEMENT BETWEEN ARNOLD CIRCUITS & PETERS 1 EXHIBIT 10-30 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET (Do not use this form for Multi-Tenant Property) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, September 1, 1995, is made by and between Frances I. Peters Trust U/T/A, dated December 2, 1982 ("LESSOR") and XCEL Arnold Circuits, Inc., a New Jersey corporation ___________________________________________________________________("LESSEE") collectively the "PARTIES," or individually a "PARTY"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 300, 304, 306, 308, 310 East Fourth Avenue, La Habra located in the County of Orange , State of California and generally described as (describe briefly the nature of the property)____________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ________________________("Premises"). (See Paragraph 3 for further provisions.) 1.3 TERM: Five (5) years and 0 months ("ORIGINAL TERM") commencing September 1, 1995 ("Commencement Date") and ending August 31, 2000 ("Expiration Date").(See Paragraph 3 for further provisions.) 1.5 BASE RENT: $3,912.24 per month("Base Rent"), payable on the 1st day of each month commencing September 1, 1995_______________________________ ______________________________________________________________________________ ______________________________________________________________________________ __________________________________________________ (See Paragraph 4 for further provisions.) /XX/ If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.8 PERMITTED USE: the manufacture, sales promotion, and marketing of electronic printed circuit boards (See Paragraph 6 for further provisions.) 1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by__________________________________________________("Guarantor"). (See Paragraph 37 for further provisions.) 1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 51 and Exhibits N/A all of which constitute a part of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised to satisfy itself with respect to the condition of the Promises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the Initials______ PAGE 1 2 same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. RENT. 4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorney's fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from INITIALS______ PAGE 2 3 its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereto, and for no other purpose, Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessees assignees or subtenants and by prospective assignees and subtenants of the Lessee, its assignees and subtenants, for a modification of said permitted purpose for which the premises may be use or occupied, so long as the same will not impair the structural integrity of the improvements on the Premises, the mechanical or electrical systems therein, is not significantly more burdensome to the Premises and the improvements thereon and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) Reportable Uses Require Consent. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or wast 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 _______ 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, INITIALS_____ PAGE 3 4 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 given 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, 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 of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance 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 Paragraph 8.3(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 ________ 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 _________ 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. 7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation,) Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, structural 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 Initials_____ PAGE 4 5 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 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, roots, 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 releases 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. 7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor contained in Paragraphs 9 (relating to destruction of the Premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Utility Installations" are defined as Alterations and/or Utility Installations made by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. (b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph Initials____ PAGE 5 6 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits required together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by an 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, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surely bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION. (a) OWNERSHIP. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in Paragraph 7.4, all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee's performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good service practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. Initials_____ PAGE 6 7 8. INSURANCE; INDEMNITY. 8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice for any amount due. 8.2 LIABILITY INSURANCE. (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional named insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain the "Amendment of the Pollution Exclusion" for hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a), above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in paragraph 9.1(c). Initials____ PAGE 7 8 (b) RENTAL VALUE. The Insuring party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) ADJACENT PREMISES. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by lessee's acts, omissions, use or occupancy of the Premises. (d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property. Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at Least B+V, 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 not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. Initials____ PAGE 8 9 8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents. Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters. Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory o Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire spinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence in their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Initial____ PAGE 9 10 Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to ________ said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full settlement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be come insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in fully force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event his Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor, Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("Exercise Period"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense Initials____ PAGE 10 11 repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise 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 Paragraph 9.2 (Partial Damage Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the premises within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Appicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimate cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease, as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $10,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months. Initials____ PAGE 11 12 9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises during the term of this Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. (b) ADVANCE PAYMENT. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable taxes before delinquency. 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 as the same become due, Lessee shall pay to Lessor upon Lessor's demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. 10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed under 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, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Initials____ PAGE 12 13 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. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in paragraph 10.1(b). 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a nondurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a nondurable Breach, Lessor shall have the right to either: (i) terminate this lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to fair market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to Initials_____ PAGE 13 14 require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver of estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the current monthly Base Rent, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit a condition to Lessor's consent to such transaction. (h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment structure of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment structure for property similar to the Premises as then constituted. Initials_____ PAGE 14 15 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease, this Lease; provided, however, that until a Breach (as defined in paragraph 13.1) shall occur in the performance of Lessee's obligations under this lease, Lessee may, except as otherwise provided in this lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary; Lessee shall have no right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee in the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined). $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and when due, the failure by Lessee to Initials____ PAGE 15 16 provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the recision of an unauthorized assignment of subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rule adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b), or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies or governmental licenses, permits or approvals, The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee, to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: Initials____ PAGE 16 17 (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee; (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of ward exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default, within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws of judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. Initials____ PAGE 17 18 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or 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 five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a later charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a later charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary. Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 BREACH OF LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursue to completion. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, ________ Lessee shall be entitled to any compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, 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 be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 16. TENANCY STATEMENT 16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Tenancy Statement" for published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. Initials_____ PAGE 18 19 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall ________ to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. NOTICES. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone Initials_____ PAGE 19 20 confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other form, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an Estelle to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by ________ in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any party thereof beyond the expiration or earlier termination of this Lease. 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. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior Lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior Lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this lease shall e subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Initials____ PAGE 20 21 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided or herein. 31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "Prevailling Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fees awarded shall not be computed in accordance with any court fee and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit or be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the premises, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor by Breach by Lease, shall automatically terminate any sublease or lesser estate in the Premises; provide, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonably costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefore. Subject to Paragraph 12.2(e) (applicable to assignment Initials____ PAGE 21 22 or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Paragraph 39, the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right to first offer to purchase other property of Lessor. 39.2 Options Personal To Original Lessee. Each Option granted to Lessee in this Lease is personal to the original Lessee named in paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. Initials_____ PAGE 22 23 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary:(i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions f an Option shall terminate and be of no further force or effect, notwithstanding lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of Default under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe al reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the 24 use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by on Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the party of said party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do no materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such Multiple parties shall be the joint and several responsibility of all person or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN 25 CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at Perris CA Executed at La Habra, CA on Oct 3, 1995 on September 21, 1995 by LESSOR: by LESSEE: Frances I. Peters Trust U/T/A, XCEL Arnold Circuits, a New Jersey dated December 2, 1982 corporation By /s/ Frances I. Peters Trustee By /s/ Harry K. James -------------------------------- ------------------------------------ Name Printed: Frances Peters Name Printed: Harry K. James Title: Trustee Title: President By________________________________ By____________________________________ Name Printed: Name Printed: Title: Title: Address: 26734 Peach Street #95A Address: Perris, CA 92370 Tel. No. ( ) ___________________ Tel No. ( )________________________ Fax No. ( ) ___________________ Fax No. ( )________________________ NET NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, Ca 90071. (213) 687-8777. Fax No. (213) 687-8616. 26 ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE TENANT LEASE - NET This Addendum to Standard Industrial/Commercial Single Tenant Lease-Net ("Addendum") is entered into as of September 1, 1995 by and between Frances I. Peters Trust U/T/A, dated December 2, 1982 ("Lessor"), and XCEL Arnold Circuits, Inc., a New Jersey corporation ("Lessee"), and is attached to that certain Standard Industrial/Commercial Single Tenant Lease-Net of even date herewith between Lessor and Lessee, respecting that certain property located at 300, 304, 306, 308, and 310 Fourth Avenue, La Habra, California (collectively, the "Lease"). Lessor and Lessee hereby agree that the provisions set forth below shall be deemed to be a part of the Lease and shall supersede any contrary or inconsistent provisions in the Lease or attached Exhibits or Riders, if any. All references in the Lease and in this Amendment to the term "Lease" shall be construed to mean the Lease, as amended and supplemented by this Addendum. All capitalized terms used in this Addendum shall, unless specifically defined in this Addendum, have the same meaning as the terms used in the Lease. 49. Rent Adjustments. 49.1 Consumer Price Index Increase. The amount of monthly Base Rent payable by Lessee shall be increased as of September 1, 1996 and as of each October 1 thereafter (the "Adjustment Date"), to reflect any increase in the cost of living as provided in this Section 49. Each increase, if any, shall be calculated on the basis of the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index For All Urban Consumers in the Los Angeles-Anaheim-Riverside, California area, All Items (1982-1984 = 100) (the "CPI-U"). 49.2 Determination. The CPI-U for the month immediately preceding the Commencement Date shall be considered the "Base"; but if no CPI-U is published for said month, then the next earlier month for which the CPI-U is published shall be the "Base." At each Adjustment Date the monthly Base Rent shall be determined by multiplying the monthly Base Rent payable during the first year of the Lease Term by a fraction, the numerator of which shall be the CPI-U for the month immediately preceding the Adjustment Date, or if no CPI-U is published for said month, the next earlier month for which a CPI-U is published, and the denominator of which shall be the Base. The monthly Base Rent shall not be decreased from the last previous adjusted monthly Base Rent by reason of any decrease in the CPI-U. 27 49.3 Notice of Rent Increase. Lessor shall notify Lessee of each Adjustment by delivering to Lessee a written statement setting forth the computations in accordance with this Section 49. Lessee shall pay the adjusted Base Rent from the Adjustment Date until notice of the next Adjustment Date. Lessor's notice may be given after the Adjustment Date because the CPI-U for the appropriate month may be unavailable on the Adjustment Date. In such event, Lessee shall make any payment to Lessor necessary to adjust Lessee's previous rent paid for the then current lease year to the amount shown as due from Lessee in Lessor's notice within ten (10) days following receipt of such notice. If the format or components of the CPI-U are materially changed, Lessor shall substitute an index which is published by the Bureau of Labor Statistics or a similar agency which in the reasonable opinion of Lessor is the most nearly equivalent to the CPI-U in effect on the Commencement Date. Lessor shall notify Lessee of the substituted index, which shall be used to calculate the adjustment in the Base Rent. 50. AS IS Condition, Release, Indemnification. Lessee acknowledges and agrees as follows: 50.1 AS IS Condition. Lessee has been in possession of the Premises, is familiar with the condition of the Premises, and shall rent the Premises in its "AS IS" condition, assuming all risk (whether known or unknown) with respect to any condition, defects, deficiencies, liabilities or other matters relating to or in any way affecting Lessee's use of the Premises or the condition of the Premises and all related damages, costs, losses, expenses and claims (collectively, the "Liabilities"), which Liabilities shall include, without limitation, (i) latent defects; (ii) environmental, fire, safety or building code violations or deficiencies; (iii) the presence, existence or release of Hazardous Substances in, on, under or off the Premises and other environmental matters affecting the Premises. Lessee further acknowledges and agrees that Lessor shall have no obligation to correct or cure any Liabilities discovered by Lessee either before or after the Commencement Date and Lessor shall have no liability with respect to the same. 50.2 Clean Up. On or before the Expiration Date, Lessee shall deliver the Premises to Lessor free and clean of any and all Hazardous Substances located on or about the Premises due to the acts or omissions of Lessee, its employees, assignees, sublessees, contractors, or agents, and shall remove any underground storage tanks located on or about the Premises which were installed on the Premises by Lessee, its employees, assignees, sublessees, contractors, or agents. 50.3 Release/Waiver. Lessee hereby waives all rights of recovery against, and releases all claims and/or causes of action (whether direct or indirect, known or unknown, foreseen or unforeseen and including, without limitation, investigation, monitoring and clean-up requirements and 2 28 equitable,common law and statutory causes of action or claims) it has or may have against Lessor, which may arise on account of or in any way be connected to the Liabilities, including, without limitation, claims, penalties or rights of recovery arising under all Applicable Law. Lessee expressly waives the benefits of Section 1542 of the California Civil Code, which provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE DEBTOR." 50.4 Indemnification. Lessee shall indemnify, defend and hold Lessor harmless from and against any and all claims (including, without limitation, claims asserted by Lessee's successors in interest, governmental agencies and third parties), liabilities, losses, damages, obligations, costs and expenses, including, without limitation, attorneys' fees, investigatory expenses, and clean-up costs, of whatever kind or nature, arising from or in any way connected with the Liabilities to the extent such Liabilities are the result of the acts or omissions of Lessee, its employees, assignees, sublessees, contractors, or agents. 50.5 Survival. The provisions of this Section shall survive the termination or expiration of this Lease. 51. Option to Extend Term. Lessee is given the option to extend the term on all the provisions contained in this lease, except for minimum monthly rent, for a 5 year period ("Extended Term") following expiration of the initial term, by giving notice of exercise of the option ("option notice") to Lessor at least 6 months but not more than one year before the expiration of the term. Provided that, if Lessee is in default on the date of giving option notice, the option notice shall be totally ineffective, or if Lessee is in default on the date the extended term is to commence, the extended term shall not commence and this lease shall expire at the end of the initial term. The parties shall have 60 days after Lessor receives the option notice in which to agree on minimum monthly rent during the extended term. If the parties agree on the minimum monthly rent for the extended term during that period, they shall immediately execute an amendment to this lease stating the minimum monthly rent. If the parties are unable to agree on the minimum monthly rent for the extended term within that period, the option notice shall be of no effect and this lease shall expire at the end of the term. Neither party to this lease shall have the right to have a court or other third party set the minimum monthly rent. 3 29 Lessee shall have no other right to extend the term beyond the extended term. 4 30 IN WITNESS WHEREOF, this Addendum has been executed as of the date below written. Lessor: Lessee: FRANCES I. PETERS TRUST XCEL Arnold Circuits, Inc., a New U/T/A, Jersey corporation dated December 2, 1982 /s/ Frances L. Peters Trustee By: Harry K. James - ------------------------------------ ------------------------------ Frances Peters, Trustee Its: President 5 EX-10.31 15 LEASE AGREEMENT BETWEEN XCEL AND WILSON 1 EXHIBIT 10.31 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1. PARTIES. This Lease, dated, for reference purposes only, March 1, 1995, is made by and between Wilson Family Trust, Don E. Wilson & Zenna N. Wilson, Trustees (herein called "Lessor") and XCEL Arnold Circuits, 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 the conditions set forth herein, that certain real property situated in the County of Orange State of California, commonly known as 316, 318, 320 and 322 East Fourth St., La Habra, Ca. and described as an Industrial Building containing 5800 square feet. 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 five years commencing on March 1, 1995 and ending on March 1, 2000 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 terminate 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 $2,961.86, in advance, on the 1st day of each month of the term hereof. Lessee shall pay Lessor upon the execution hereof $2,961.86 as rent for the month of March, 1995. The rent payable shall be subject to adjustment and increase in accordance with paragraph No. 46, hereof. 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 persons or at such other places as Lessor may designate in writing. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $ None 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 or 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 of electrical circuit boards, 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 give 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 at 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 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 loading 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 sole 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 Paragraphs 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 2 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 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 expected, 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) 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 then 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) 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 Damages 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 hereof, 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 of 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: $ Not applicable . 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 mount 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 cancellable 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. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of incident to the perils insured against under paragraph 8.3, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default on the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage to the goods, wares, merchandise or other property of Lessee, Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee, Lessee's employees, agents or contractors, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the building in which the Premises are located. 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 paragraphs 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 PARTIAL DAMAGE-UNINSURED 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 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 occurrence of such damage. In the event Lessor fails to give 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 9.5(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 given 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 provision in this grant of option to the contrary. 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event of damage as described in paragraph 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) 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 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 19 19 . Such payments 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 terms 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 valuation 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 of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'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 assume, 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. -3- 4 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) 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 statutes 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. Section 101 or any successor statute 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 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 then 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. 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 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. 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. 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 (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereof. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution 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 No Broker 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 $ None, 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 sale 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 represented 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. -4- 5 (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 statement 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. 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 case 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 RENTS. 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 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 provisions. 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. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. 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, successor and assigns. This Lease shall be governed by the laws of the State wherein the Premises are located. 30. SUBORDINATION. (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 extension 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 prior to the lien of its mortgage, deed of trust or ground lease, and shall give 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 any attornment, a subordination or to make this Lease prior to the lien of 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. 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 any ordinary "For Sale" signs and Lessor may at any time during te 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. Lessee shall not place 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, conditions 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 ad 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 work "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. Each Option 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 -5- 6 Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee are not assignable separate and apart form 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 date after a monetary obligation to Lessor is due from Lessee and unpaid (without any necessity for notice thereof to Lessee) continuing until the obligations is paid, or (iii) at any time after an event of 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) in the even 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 Fbe 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 nay 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 then 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 protections 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, right and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and restrictions, so long as such easements, right, 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 protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If 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 No. 46 through No. 49 which constitutes a part of this lease. 46. Periodic Cost of Living Adjustment. Attached hereto and incorporated herein by referenced. 47. This lease is an extension of the original lease as of Feb. 1, 1979 and lessee shall restore the premises to the original condition as of that date, Feb. 1, 1979. 48. Option to Extend Term--Attached hereto and incorporated herein by reference. 49. A certificate of Insurance showing commercial General Liability designating the Certificate Holder, Landlord is named as additional insured as respects the bldg. At 315, 318, 320 and 322 E. Fourth Ave. La Habra, Ca. This is to be included by lessee in future insurance policies during the time of lease and mailed to: Schrimmer Ins. Agency Inc., 120 E. La Habra Blvd., La Habra, Cal 90631 and to Don E. Wilson, Trustee, 1220 Ashwood Way, Hemet, Ca. 92543. 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 THEREOF. 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 AT THE PLACE ON THE DATES SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES. Executed at Hemet, California Wilson Family Trust, Don E. Wilson ------------------------ ------------------------------------ & Zenna N. Wilson, Trustees on March 1, 1995 By /s/ Don E. Wilson -------------------------------- ----------------------------------- Address By /s/ Zenna N. Wilson ----------------------------- ----------------------------------- "LESSOR" (Corporate seal) - ------------------------------------ Executed at XCEL Arnold Circuits, Inc. on By /s/ Harry K. James, President --------------------------------- ---------------------------------- 7 No.46. Periodic Cost of Living Adjustment. The monthly rent provided for in paragraph 4 shall be subject to adjustment and increase (but shall not be subject to decrease) at the commencement of the second year of the term and each year thereafter ("the adjustment date") as follows: The base for computing the adjustment is the Consumer Price Index (Los Angeles-Long Beach Metropolitan Area, All Items Consumer Price Index), Published by the United States Department of Labor, Bureau of Labor Statistics ("Index") which is published for the date nearest the date of the commencement of the term (Beginning Index). If the Index published nearest the adjustment date ("Extension Index") has increased over the Beginning Index, the minimum monthly rent for the following year (until the next rent adjustment) shall be set by multiplying the minimum monthly rent set forth in paragraph 4 by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the minimum monthly rent be less then the minimum monthly rent set forth in paragraph 4. On adjustment of the minimum monthly rent as provided in this lease, the adjusted rent shall automatically constitute the minimum monthly rent set forth in paragraph 4, not to exceed ten percent per year. If the Index is changed so that the base year differs from that used as of the date immediately preceding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the term such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. Initials: DEW ----- HKJ 8 No. 48 Option to Extend Term. Lessee is given the option to extend the term on all the provisions contained in this lease, except for minimum monthly rent, for a 5 year period ("Extended Term") following expiration of the initial term, by giving notice of exercise of the option ("option notice") to Lessor at least 6 months but not more than one year before the expiration of the term. Provided that, if Lessee is in default on the date of giving option notice, the option notice shall be totally ineffective, or if Lessee is in default on the date the extended term is to commence, the extended term shall not commence and this lease shall expire at the end of the initial term. The parties shall have 60 days after Lessor receives the option notice in which to agree on minimum monthly rent during the extended term. If the parties agree on the minimum monthly rent for the extended term during that period, they shall immediately execute an amendment to this lease stating the minimum monthly rent. If the parties are unable to agree on the minimum monthly rent for the extended term within that period, the option notice shall be of no effect and this lease shall expire at the end of the term. Neither party to this lease shall have the right to have a court or other third party set the minimum monthly rent. Lessee shall have no other right to extend the term beyond the extended term. Initials: DEW ----- HKJ EX-10.32 16 LEASE AGREEMENT BETWEEN XCEL AND ELLIS WESSON 1 EXHIBIT 10.32 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS (Do not use this form for Multi-Tenant Property) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, September 1, 1995, is made by and between Ellis T. Wesson and Lois Irene Wesson as Trustees of the Ellis T. Wesson Family Trust ("LESSOR") and XCEL Arnold Circuits, Inc., a California Corporation (collectively the "PARTIES," or individually a "PARTY". 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 340 East Fourth Avenue located in the County of Orange, State of California and generally described as (describe briefly the nature of the property) See Exhibit A ("PREMISES"). (See Paragraph 2 for further provisions.) 1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing 3/1/95 ("COMMENCEMENT DATE") and ending 3/1/00 ("EXPIRATION DATE"). See Paragraph 3 for further provisions.) 1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.) (C.P.I. increase will be added when figures come out in 9/95). 1.5 BASE RENT: $3,259.05 + C.P.I. per month ("BASE RENT"), payable on the Fifteenth day of each month commencing 3/1/95 to 3/1/00 plus C.P.I. each year starting 9/15/95 (See Para. 49) See Para 50 for conditions of lease agreement Option to Extend Term (See Paragraph 4 for further provisions.) [X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 BASE RENT PAID UPON EXECUTION: $ N/A as Base Rent for the period 1.7 SECURITY DEPOSIT: $ N/A ("SECURITY DEPOSIT"). (See Paragraph 5 for further provisions.) 1.8 PERMITTED USE: Office and Production of Printed Circuit Boards. (See Paragraph 6 for further provisions.) 1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $ N/A is the "BASE PREMIUM" (See Paragraph 8 for further provisions.) 1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): N/A represents [ ] Lessor exclusively ("LESSOR'S BROKER"); [ ] both Lessor and Lessee, and N/A represents [ ] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See Paragraph 15 for further provisions.) 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.) 1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of Paragraphs 49 through 50 and Exhibits A all of which constitute a part of this Lease. 2. PREMISES 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a noon-compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representation or warranties with respect to the said matters other than as set forth in this Lease. 2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner of occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. PAGE 1 2 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by lessor within said ten (10) day period. Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. RENT. 4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall; upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee. Lessees assignees or subtenants, and by prospective assignees and subtenants of the Lessee, its assignees and subtenants, for a modification of said permitted purpose for which the premises may be used or occupied, so long as the same will not impair the structural integrity of the improvements on the Premises, the mechanical or electrical systems therein, is not significantly more burdensome to the Premises and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, lessor shall within five (5) business days give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for 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 Lessor 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 given 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, 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 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 of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance 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 Paragraph 8.3(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. 7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition, 2.3 (Lessor's warranty as to compliance with covenants, etc.) PAGE 2 3 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises in good order, condition and repair, Lessor shall not, however, be obligated to paint the exterior surface of the exterior walls or to maintain the windows, doors or plate glass or the interior surface of exterior walls. Lessor shall not, in any event, have any obligation to make any repairs until Lessor receives written notice of the need for such repairs. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statue now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of, any needed repairs. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000.. (b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee will give lessor not less than ten (10) days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4. OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION (a) OWNERSHIP. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that would have been prevented by god maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation , maintenance or removal of lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good service practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this lease. 8. INSURANCE; INDEMNITY 8.1 PAYMENT OF PREMIUM INCREASES. (a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE COST INCREASE") occurring during the term of this Lease. "INSURANCE COST INCREASE" is defined as any increase in the actual cost of the insurance required under paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter defined, calculated on an annual basis. "INSURANCE COST INCREASE" shall include, but not be limited to increases resulting from 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, and/or a premium rate increase. If the parties insert a dollar amount in paragraph 1.9, such amount shall be considered the "BASE PREMIUM". In lieu thereof, if the Premises have been previously occupied, the "BASE PREMIUM" shall be the annual premium applicable to the most recent occupancy. If the Premises have never been occupied, the "BASE PREMIUM" shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the commencement of the Original Term, assuming the most nominal use possible of the Premises. 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) (Liability Insurance Carried by lessor). (b) Lessee shall pay any such Insurance cost Increase to Lessor within thirty (30) days after receipt by Lessee of a copy of the premium statement or other reasonable evidence of the amount due. if the insurance policies maintained hereunder cover other property besides the Premises, Lessor shall also deliver to Lessee a statement of the amount of such Insurance Cost Increase attributable only to the premises showing in reasonable detail the manner in which such amount was computed. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement or Expiration or the Lease term. 8.2 LIABILITY INSURANCE (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional Insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" PAGE 3 4 Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a), above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. (c) ADJACENT PREMISES. If the premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by lessee's acts, omissions, use or occupancy of the Premises. (d) TENANT'S IMPROVEMENTS. since Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, 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 not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor certified copies of, or certificates evidencing the existence and amounts of, the insurance, and with the additional insured, required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor ("Waiving Party") each hereby relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the occupancy of the Premises by Lessee the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION 9.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and the Lessee Owned Alterations and Utility Installations. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonable possible and this Lease shall continue in full force and effect. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair PAGE 4 5 any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by lessor of knowledge of the occurrence of such damage of Lessor's intention to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor, Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("EXERCISE PERIOD"(, (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise 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 Paragraph 9.2 (Partial Damage-Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restored the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "COMMENCE" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to terminate this Lease as of the date thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as son as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months. 9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2, 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 tax during which the Commencement Date occurs ("TAX INCREASE"). Subject to Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount due and the computation thereof. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. (b) ADVANCE PAYMENT. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Tax Increase to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated Tax Increase to be paid. When the actual amount of the applicable Tax Increase is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable Tax Increase before delinquency. 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 Tax Increase as the same becomes due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligation. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall nor bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. (c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in Real Property Taxes assessed by reason of Alterations or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the 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, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this lease, including but not limited to a change in the ownership of the Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. PAGE 5 6 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be 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. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an a mount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a noncurable Breach, Lessor shall have the right to either: (1) terminate this Lease, or (ii) upon thirty days (30) written notice ("Lessor's Notice"), increase the monthly Base Rent to fair market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this lease, (ii) release lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval or such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the current monthly Base Rent, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit a condition to Lessor's consent to such transaction. (h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment structure of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment structure for property similar to the Premises as then constituted. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all of any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublease, be deemed liable to the sublessee for any failure of lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall relay upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have not right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, PAGE 6 7 And that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with applicable law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making by lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement giving to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental license, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provision remedy therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of lessees for unlawful detainer shall also constitute the applicable notice for grace period purpose required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or 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 five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursuant to completion. PAGE 7 8 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sole under the threat of the exercise of said power (all of which are herein called "CONDEMNATION"), this Lease shall terminate s to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, ore more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution 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 compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, 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 be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. BROKER'S FEE. 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers (or in the event there is no separate written agreement between Lessor and said Brokers, the sum of $ ) for brokerage services rendered by said Brokers to Lessor in this transaction. 15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further agrees that: (a) if Lessee exercises any Option (as defined in paragraph 39.1) or any Option subsequently granted which is substantially similar to an Option granted to Lessee in this Lease, or (b) 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 (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease. 15.4 Any buyer or 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. Each Broker shall be a third party beneficiary of the provisions of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker, or finder (other than the Brokers, if any named in Paragraph 1.10) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorney's fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicated in Paragraph 1.10. 16. TENANCY STATEMENT. 16.1 Each party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "TENANCY STATEMENT" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any party thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time such transfer or assignment. Except as provided in paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided in paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. NOTICES. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivery notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. PAGE 8 9 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. 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. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lessor holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Deposit and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alternations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee PAGE 9 10 is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that lessee has any Multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.49(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of Default under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings controlled by Lessor, 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 grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such Multiple Parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. 49. PERIODIC COST OF LIVING ADJUSTMENT. Attached here of and incorporated herein by reference. 50. OPTION TO EXTEND TERM. Attached here of and incorporated herein by reference. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at La Habra, CA Executed at La Habra, CA ----------------------------------- ----------------------------------- on September 21, 1995 on September 21, 1995 -------------------------------------------- -------------------------------------------- by LESSOR: by LESSEE: /s/ Ellis T. Wesson /s/ Harry K. Kames, President - ---------------------------------------------- ---------------------------------------------- Ellis T. Wesson XCEL Arnold Circuits, Inc. - ---------------------------------------------- ---------------------------------------------- Harry K. Kames, President By By XCEL Arnold Circuits, Inc. -------------------------------------------- ------------------------------------------ Name Printed: Name Printed: --------------------------------- -------------------------------- Title: Title: ---------------------------------------- ---------------------------------------- By By -------------------------------------------- -------------------------------------------- Name Printed: Name Printed: --------------------------------- --------------------------------- Title: Title: ---------------------------------------- ---------------------------------------- Address: Address: -------------------------------------- -------------------------------------- - ---------------------------------------------- ---------------------------------------------- Tel. No. ( ) Fax No. ( ) Tel. No. ( ) Fax No. ( ) --- --------- --- --------- --- --------- --- ---------
GROSS PAGE 10 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueros Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax. No. (213) 687-8616. 11 49. Periodic Cost of Living Adjustment. The monthly rent provided for in paragraph 1.5 shall be subject to adjustment and increase (but shall not be subject to decrease) as the commencement of 9/15/95 and each year thereafter ("the adjustment date") as follows: The base for computing the adjustment is the Consumer Price Index (Los Angeles-Long Beach Metropolitan Area, all Items Consumer Price Index), published by the United States Department of Labor, Bureau of Labor Statistics ("Index") which is published for the date nearest the date of the commencement of the term ("Beginning Index"). If the Index published nearest the adjustment date ("Extension Index") has increased over the Beginning Index, the minimum monthly rent for the following year (until the next rent adjustment) shall be set by multiplying the minimum monthly rent set forth in paragraph 1.5 by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the minimum monthly rent be less than the minimum monthly rent set forth in paragraph 1.5. On adjustment of the minimum monthly rent as provided in this lease, the adjusted rent shall automatically constitute the minimum monthly rent set forth in paragraph 1.5. If the Index is changed so that the base differs from that used as of the date immediately proceeding the month in which the term commences, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued ore revised during the term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. 12 Para.50 Option to Extend Term. Lessee is given the option to extend the term on all the provisions contained in this lease, except for minimum monthly rent, for a 5 year period ("Extended Term") following expiration of the initial term, by giving notice of exercise of the option ("option notice") to Lessor at least 6 months but not more than one year before the expiration of the term. Provided that, if Lessee is in default of the date of giving option notice, the option notice shall be totally ineffective, or if Lessee is in default on the date the extended term is to commence, the extended term shall not commence and this lease shall expire at the end of the initial term. The parties shall have 60 days after Lessor receives the option notice in which to agree on minimum monthly rent during the extended term. If the parties agree on the minimum monthly rent for the extended term during that period, they shall immediately execute an amendment to this lease stating the minimum monthly rent. If the parties are unable to agree on the minimum monthly rent for the extended term within that period, the option notice shall be of no effect and this lease shall expire at the end of the term. Neither party to this lease shall have the right to have a court or other third party set the minimum monthly rent. Lessee shall have no other right to extend the term beyond the extended term. Initials: 13 EXHIBIT A 340 East Fourth Avenue in the City of La Habra, County of Orange, State of California, described as: That portion of the North half of the Northeast quarter of the Southeast quarter of the Northeast quarter of Section 8, Township 3 South, Range 10 West, S.B.B.& M., described as follows: Beginning at a point in the Southerly line of said North half distant South 89(0) 58' 31" West 223.40 feet from the Southeast corner of said North half, said point being the Southeast corner of Parcel 1 of the land described in Deed to Don E. Wilson and wife, recorded January 29, 1965 in book 7396, page 406 of Official Records; thence continuing along said Southerly line, South 89(0) 58' 31" West 100.00 feet; thence North 0(0) 00' 48" East 86.98 feet to the Southerly line of the land described in Deed to the City of La Habra, Recorded March 8, 1966 in book 7862, page 140 of Official Records, thence along said last mentioned Southerly line South 87(0) 09' 44" East 100.12 feet to the Easterly line of said Parcel 1 of the land described in Deed to Wilson; thence along said Easterly line, South 0(0) 00' 48" West 81.98 feet to the point of beginning. EX-10.33 17 LEASE AGREEMENT BETWEEN XCEL AND HAY 1 EXHIBIT 10.33 (714) 879-5830 (310) 691-0747 FAX (310) 690-6792 ARNOLD CIRCUITS, INC. P.O. Box 667 310 East Fourth Ave, La Habra, California 90631 March 1, 1995 Roland Hay 10644 S. Newcomb Avenue Whittier, CA 90603 Dear Roland: The purpose of this letter is to extend our existing lease dated January 9, 1990 covering 501 So. Cypress, La Habra, CA with this letter as follows: 1. Term: Five years from 3/1/95 (i.e.) lease thereby expires 3/1/00). 2. Rental: For period March 1, 1995 thru March 1, 2000 the rate will be $6,892.77 plus a 3% increase each year in the month of January will be applied annually starting January 1, 1996. 3. Paragraph 6.1 of the lease agreement shall be modified to include applicable office space. All other terms of the lease as noted in the original document, dated January 9, 1990, and addendum's will continue to apply. Your signature on the space provided below will constitute acceptance of this lease extension. Regards, /s/ Robert J. Bertrand Robert J. Bertrand /s/ Roland Hay 3/1/95 - ------------------------------ Roland Hay Date 2 STANDARD INDUSTRIAL LEASE - GROSS AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION [AIR LOGO] 1. PARTIES. This Lease dated for reference purposes only January 8, 1990, is made by and between ROLAND E. HAY and DORIS L. HAY (herein called "Lessor") and (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 and described as West 203.40 feet of the East 223.40 feet of the Southerly 94 feet of the North half of the Northeast quarter of Section 8, Township 3 South, Range 10 West, San Bernardino Base and Meridian. That portion of the improvements located on the downstairs portion of said building as described in Exhibit attached hereto. 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 five (5) years commencing on February 1, 1990, or recording of Notice of Completion and ending on January 31, 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 extended 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 terminate 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 $ 3194.20 , in advance, on the 1st day of each month of the term hereof. Lessee shall pay Lessor upon the execution hereof $ 3194.20 as rent for the first months. Lessor also grants lessee the right of first refusal for an extention of the lease upon completion of the five year lease on January 31, 1995. Rent for any period during the term hereof which is fro 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 persons or at such other places as Lessor may designate in writing. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $XXXX 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 or any portion of said deposit, Lessee shall within ten (10) days after written demand therefor for 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 production of circuit boards and electrical components. or any other use which is reasonably comparable and for not 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 give 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 to the Lessee at 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 occupational 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, regulation 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 loading 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 sole 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 6.39a) 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. Lessee 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 Paragraphs 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 accessable to Lessee) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, (Lessee shall procure and 3 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. Lessee expressly waives the benefit of any statute now or hereinafter 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. (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 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 remover 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 proceeds detailed plan. 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) 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) 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 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 of 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 Paragraph 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 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: $ . 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, the 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 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 cancellable 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 of "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. 8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve the other, and waive their entire right of recovery against the other for loss or damage arising out of or incident to the perils insured against under paragraph 8.3, which perils occur in, on or about the Premises, whether due to the negligence of Lessor or Lessee or their agents, employees, contractors and/or invitees. Lessee and Lessor shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. 8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and against any and all claims arising from Lessee's use of the Premises, or from the conduct of Lessee's business or from any activity, work or things done, permitted or suffered by Lessee in or about the Premises or elsewhere and shall further indemnify and hold harmless Lessor from and against any and all claims arising from any breach or default in the performance of any obligation on Lessee's part to be performed under the terms of this Lease, or arising from any negligence of the Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorney's fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material part of the consideration to Lessor, hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises arising from any cause and Lessee hereby waives all claims in respect thereof against Lessor. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor shall not be liable for injury to Lessee's business or any loss of income therefrom or for damage ot the goods, wares, merchandise or other property of Lessee. Lessee's employees, invitees, customers, or any other person in or about the Premises, nor shall Lessor be liable for injury to the person of Lessee. Lessee' s employees, agents or contractor, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises area a part, or from other sources or places and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Lessee, Lessor shall not be liable for any damages arising form any act or neglect of any other tenant, if any, of the building in which the Premises are located. -2- 4 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 paragraphs 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 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 so within 30 days after the date of occurrence of such damage. (b) Notwithstanding paragraph 9.5(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 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) 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 additional 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 19 19 . 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 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 of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all of 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 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. -3- 5 13. DEFAULTS; REMEDIES. 13.1 DEFAULTS. The occurrence of any one or more of the following events shall constitute a materials default and breach of this Lease by Lessee: (a) The vacating or abandonment of the Premises by Lessee. (b) 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 statutes 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 hereof 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. Section101 or any successor situate 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 not force or effect. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, any assignee of Lessee, any subtenant or 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. 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 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. 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 shal pay to Lessor, upon Lessor's demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor 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. 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 (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten(10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion that the floor area of the building taken bears to the total floor area of the building situated on the Premises. No reduction of rent shall occur if the only area taken is that which does not have a building located thereon. Any award of the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution 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. 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 represented 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. -4- 6 (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 Lessees. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean 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 case 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, provide 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. NOTICE. 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 acknowledge of such preceding breach at the time of acceptance of such rent. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 26. 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. (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 place 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 provision of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall effect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give 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 of 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 at 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. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purposes 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 any 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, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the 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, conditions 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. Each Option 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 -5- 7 Lessee Affiliate as defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee are not assignable separate and apart from the 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 delay 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 describe 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) 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 13.19a), 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 13.19b), where a late charge becomes payable under paragraph 13.4 for each such default, or paragraph 13.19c), 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 then 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 protest" and such payment shall not be regarded as a voluntary payment, and there shall survive the right on the part of said party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If Lessee is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants the 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 47a through 50 which constitute 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 at the place on the dates specified immediately adjacent to their respective signatures. Executed at La Habra, CA on 1/12/90 By Roland Hay Address 340 E. 4th Avenue By Doris Hay La Habra, CA 90631 "LESSOR" (Corporate Seal) Executed at La Habra, CA /s/ on 1/12/90 By /s/ Address 340 E. 4th Ave. By /s/ La Habra, CA 90631 "LESSEE" (Corporate Seal) 8 ADDENDUM 47a. Lessee shall complete interior of leased premises with lighting fixtures, interior electrical requirements, floor covering, heating and air conditioning, and interior walls. 47b. Lessor shall be responsible for furnishing exterior lighting, completion of bathroom No. 3, lights, floor covering in stairwell, fire sprinklers and landscaping. 47c. Nine (9) parking places shall be designated to Lessee. 47d. Building to be completed in according with Plans and Specifications prepared by Terry Mechling, Architect, dated May 18, 1988. 48. Rent Escalations. (a) On February 1, 1991, the monthly rent payable under Paragraph 4 of the attached Lease shall be adjusted by the increase, if any, from February 1, 1990, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for Urban Wage Earners and Clerical Workers, Los Angeles-Long Beach-Anaheim, California (1967-100), "All Items", herein referred to as "C.P.I." (b) The monthly rent payable in accordance with Paragraph 48(a) of this Addendum shall be calculated as follows: the rent payable for the first month of the terms of this Lease, as set forth in Paragraph 4 of the attached Lease, shall be multiplied by a fraction, the numerator of which shall be the C.P.I. of the calendar month during which the adjustment is to take effect, and the denominator of which shall be the C.P.I. for the calendar month in which the original Lease term commences. The sum so calculated shall constitute the new monthly rent hereunder, but in no event shall such new monthly rent be less than the rent payable for the month immediately preceding the date for rent adjustment. (c) Pending receipt of the required C.P.I. and determination of the actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably determined by Lessor by reference to the then available C.P.I. information. Upon notification of the actual adjustment after publication of the required C.P.I., any overpayment shall be credited against the next installment of rent due, and any underpayment shall be immediately due and payable by Lessee. Lessor's failure to request payment of an estimated or actual rent adjustment shall not constitute a waiver of the right to any adjustment provided for in the Lease or this Addendum. (d) 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 Lessor and Lessee 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 arbitrator shall be binding upon the parties. The cost of said Arbitrators shall be paid equally by Lessor and Lessee. 9 49. Lessee shall indemnify Lessor from any and all damage due to the use of any toxic materials by Lessee on the leased premises, and shall bear all costs of removal that may be required by Lessor or any governmental agency, except for the soil, in that the toxicity of soil is unknown as of the date of signing. 50. Furthermore lessee shall have the right to install an air compressor and vacuum system for the production of circuit boards. Lessee agrees to enclose and soundproof these systems. 10 PARAGRAPH 51, ADDENDUM TO THE LEASE DATED JANUARY 8, 1990 BY AND BETWEEN ROLAND E. HAY AND DORIS L. HAY (LESSOR) AND ARNOLD CIRCUITS, INC. (LESSEE). The parties mentioned above hereby agree to include paragraph 51 as stated below, as an addendum to the above noted lease. Paragraph 51 shall read as follows: 51. Parking provided lessee as mentioned in this lease is located at 501 South Cypress only. Lessee shall not be liable for any expense of construction or maintenance or any liability arising from any off site parking provided by lessor for any other lessee of 501 South Cypress. Approved and agreed, lessee /s/ Robert J Bertrand ------------------------------------- Arnold Circuits, Inc. Approved and agreed, lessor /s/ Roland E. Hay ------------------------------------- Roland E. Hay /s/ Doris L. Hay ------------------------------------- Doris L. Hay 11 PARAGRAPH 52, ADDENDUM TO THE LEASE DATED JANUARY 8, 1990 BY AND BETWEEN ROLAND E. HAY AND DORIS L. HAY (LESSOR) AND ARNOLD CIRCUITS, INC. (LESSEE). The parties mentioned above hereby agree to include paragraph 52, as stated below, as an addendum to the above noted lease. Paragraph 52 shall read as follows: 52. Paragraph 2 of the lease agreement shall be modified to include the entire upstairs portion of the building in addition to the downstairs portion. Paragraph 3.1 of the lease agreement shall be modified. The ending date of the lease term shall be changed from January 31, 1995 to December 31, 1998. Paragraph 4 of the lease agreement shall be modified. The monthly payment of $3,194.20 shall be modified to be $6,692.01 ($3,692.01 - downstairs, $3,000.00 - upstairs). The lessor's granting to the lessee the right of first refusal shall be upon the completion of the amended lease term ending on December 31, 1998. Paragraph 47(c) of the lease agreement shall be modified to include all parking spaces located on the leased premises as described at paragraph 2 of the lease agreement. Paragraph 48 of the lease agreement shall be modified as follows. Subparagraphs (a), (b), (c) and (d) shall be deleted entirely. The amended paragraph 48 shall read as follows. Beginning January 1, 1995, and for each January 1 date thereafter, the monthly rent payable under Paragraph 4 of the lease agreement shall be increased by 3%. This addendum shall be effective January 1, 1994. Approved and agreed, lessee________________________________________ Arnold Circuits, Inc. Approved and agreed, lessor________________________________________ Roland E. Hay Approved and agreed, lessor________________________________________ Doris L. Hay EX-10.34 18 LEASE AGREEMENT BETWEEN XCEL AND RKR ASSOC. 1 EXHIBIT 10-34 [AIR LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET (Do not use this form for Multi-Tenant Property) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, April 15 , 19 96 , is made by and between RKR Associates, a California general partnership ("Lessor") and XCEL Arnold Circuits, Inc., a New Jersey corporation ("Lessee"), (collectively the "Parties," or individually a "Party"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 2455 Bates Avenue Located in the County of Contra Costa State of California and generally described as (described briefly the nature of the property) A single store industrial building designed for use as a printed circuit board manufacturing facility; legal description attached as Exhibit A ("Premises"). (See Paragraph 2 for the further provisions.) 1.3 TERM: approx. Five (5) years and months ("Original Term") commencing April 15, 1996 ("Commencement Date") and ending April 30, 2001 ("Expiration Date"). (See Paragraph 3 for further provisions) 1.4 EARLY POSSESSION:___________________ ("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.) 1.5 BASE RENT: $ 9,600.00 per month ("Base Rent"), payable on the first day of each month commencing May 1, 1996 (April rent to be prorated) (See Paragraph 4 for further provisions.) [ ] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 BASE RENT PAID UPON EXECUTION:$ 9,600.00 as Base Rent for the period May 1, 1996 - May 31, 1996 1.7 SECURITY DEPOSIT: $ 9, 600.00 ("Security Deposit"). (See paragraph 5 for further provisions.) 1.8. PERMITTED USE: Printed circuit board manufacturing (See Paragraph 6 for further provisions.) 1.9 INSURING PARTY: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.10 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by XCEL Corporation, a New Jersey corporation ("Guarantor"). (See Paragraph 37 for further provisions.) 1.11 ADDENDA. Attached hereto is an Addendum or Addenda consisting of paragraph 49 through 55 and Exhibits A All of which constitute a part of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rent, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non-compliance with said warranty exists as of the Commencement Date. Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within thirty (30) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within sixty (60) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non-compliance of the Premises with said warranties. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. PAGE 1 2 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to lessee as agreed herein by the Early Possession Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of the Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case. Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to lessor within ten (10) days thereafter, cancel this Lease, in which even the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period. Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. RENT. 4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. SECURITY DEPOSIT. Lessee shall deposit upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason hereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein) that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereof, and for no other purpose Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee. Lessees assignees or subtenants, and by prospective assignees and subtenants of the Lessee, its assignees and subtenants, for a modification of said permitted purpose for which the premises may be used or occupied, so long as the same will not impair the structural integrity of the improvements on the Premises, the mechanical or electrical system therein, is not significantly more burdensome to the Premises and the improvements thereof, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days give a written notification of same which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release ore 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 given 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, 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 attorneys and consultants 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, 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 of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance 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 certificate, 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 Paragraph 8.3(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 parties 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. 7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants of PAGE 2 3 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and expense and at all times keep the Premises and every part thereof in good order, condition and repair, structural 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, 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 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) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. 7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor contained in Paragraph 2.2 (relating to condition of the Premises), 2.3 (relating to compliance with covenants, restrictions and building code), 9 (relating to destruction of the Premises) and 14 (relating to condemnation of the Premises) it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment therein, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations and/or Installations" are defined as Alterations and/or Utility Installations made by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or abut the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plan. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plan and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $50,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any 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, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION. (a) Ownership. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Installations made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of the Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted "ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good service practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. INSURANCE; INDEMNITY. 8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is the Insuring Party, Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to lessor within ten (10) days following receipt of an invoice for any amount due. 8.2 LIABILITY INSURANCE. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessor of Premises" Endorsement and contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried By Lessor. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. PAGE 3 4 8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS, AND RENTAL VALUE. (a) Building and Improvements. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deed of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such latter amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations shall be insured by Lessee under paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1(c). (b) Rental Value. The Insuring Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of any insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss. (c) Adjacent Premises. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) Tenant's Improvements. If the Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement costs coverage with a deductible of not to exceed $10,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at Least B+, V, 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 not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancellable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereto, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same but at Lessee's expense. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs , liens, judgments, penalties, permits, attorneys and consultants fees, expenses and/or liabilities arising out of, involving, or in dealing with the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers wires, appliances, plumbing, air conditioning, or lighting fixtures, or from any other cause whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not, Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTIONS. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less then 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building costs, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for PAGE 4 5 any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to floor or earthquake shall be subject to paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at lessor's expense, which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible, and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("Exercise Period"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise 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 Paragraph 9.2 (Partial Damage-Insured), whether or not lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty 960) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect "Commence" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the even Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall ave the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve 912) times the then monthly Base Rent or $1000,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance condition occurs for which Lessee is not legally responsible, there shall be abatement of lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months. 9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor, Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 (A) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.1(b), all such payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. (b) Advance Payment. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable taxes before delinquency. 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 as the same become due. Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligations. All moneys paid to lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a) at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. 10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the 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, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein in the ownership of the Premises or in the improvements thereon, the execution of this Lease or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuation PAGE 5 6 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. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger), sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such uncontested to assignment or subletting as a noncurable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to fair market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver of estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the currently monthly Base Rent, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to confirm and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provision of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit a condition to Lessor's consent to such transaction. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease or all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorized and directs any sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee, or until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT: BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350,000 is a reasonable minimum sum per occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and in said notice as rent due and payable to cure said Default. A "Default" is defined as a failure by the Lessee to observe, comply with or perform terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" PAGE 6 7 is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and within ten days of when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the recision of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in sub paragraphs (a), (b) or (c) above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject or a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceed the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessees Default or Breach of this Lease shall not waive Lessor's right to recover damanges under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit as the case may be given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b),(c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under the indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or 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 five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor or Lessor's designee six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished by Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (3) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes PAGE 7 8 title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing with ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution 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 compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, 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 be responsible for the payment of any amount in excess of such net severance damages required to complete such repairs. 15. BROKER'S FEE. 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers (or in the event there is no separate written agreement between Lessor and said Brokers, the sum of $ N/A ) for brokerage services rendered by said Brokers to Lessor in this transaction. 15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further agrees that: (a) if lessee exercises any Option (as defined in Paragraph 39.1) or any Option subsequently granted which is substantially similar to an Option granted to Lessee in this Lease, or (b) 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 (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any said transactions, Lessor shall pay said Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease. 15.4 any buyer or 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 obligation under this Paragraph 15. Each Broker shall be a third party beneficiary of the provision of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any named in Paragraph 1.10) in connection with the negotiation of this Lease and/or the consummation of the transactions contemplated hereby, and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicating in Paragraph 1.10. 16. TENANCY STATEMENT. 16.1 Each Party (as "Responding Party") shall within ten (10) days after written notice fro the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors a may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event o fa transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it wad due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or beach hereof by either Party. 23. NOTICES. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail, the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and ailed within post prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other terms, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or any other term, covenant or condition hereof, Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon receipt of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. PAGE 8 9 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. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device'), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof Lessee agrees that the Lenders holding any such Security Devise shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, (iii) be bound by prepayment of more than one (1) month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereinafter defined) or Broker in any such proceeding, action, or appeal thereof, shall be entitled to reasonable attorneys's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether computed in accordance with any court fee schedule, but shall be such as to full reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatements of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place upon the Premises, except that Lessee may with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installations of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising sings on the Premises, including the roof, as to no unreasonably interfere with the conduct of Lessee's business. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lessor estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants fees) incurred in the consideration of, or response to, a request by Lessee for any Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the tie of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right to first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease to any manner, by reservation or otherwise. PAGE 9 10 39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary, (i) during the period commencing with the giving on any notice of Default under paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (3) days after such obligations becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor give to Lessee three (3) or more notices of Default under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings controlled by Lessor, 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 grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease was not intended to be binding until executed by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institution, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such Multiple Parties shall e the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELEASE; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at Concord, CA Executed at Concord, CA on April 30, 1996 on April 30, 1996 by LESSOR: by LESSEE: RKR ASSOCIATES, A CALIFORNIA XCEL ARNOLD CIRCUITS, INC. A NEW GENERAL PARTNERSHIP JERSEY CORPORATION By /s/ Kenneth Beard By /s/ Carmine T. Oliva Name Printed: Kenneth Beard Name Printed: Carmine T. Oliva Title: General Partner Title: Chairman & CEO By /s/ Ronald Beard By Name Printed: Ronald Beard Name Printed: Title: General Partner Title: Address: Address: Tel. No. (___)________ Fax No. (___)________ Tel. No. (___)________ Fax No. (___)________
By /s/ Richard Beard, G.P. Richard Beard, General Partner NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax. No. (213) 687-8616. PAGE 10 11 ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET BETWEEN RKR ASSOCIATES AND XCEL ARNOLD CIRCUITS, INC. This Addendum to that certain Standard Industrial/Commercial Single-Tenant Lease-Net ("Lease"), dated April 15, 1996, by and between RKR ASSOCIATES, a California general partnership, as "Lessor," and XCEL ARNOLD CIRCUITS, INC., a New Jersey corporation, is made to be effective as of April 15, 1996. 49. Incorporation: Definitions. The terms and provisions of this Addendum are incorporated by this reference in the Lease as though fully set forth therein. Terms not otherwise defined herein shall have the meanings ascribed to them in the Lease. 50. Commencement of Term. Lessor and Lessee agree that notwithstanding the date of April 15, 1996, specified in the Lease as the date for the commencement of the term, the term shall commence on the date of the closing of the purchase of the assets of Etch-Tek, Inc., a California corporation, by Lessee. Notwithstanding the date of the closing of such sale and purchase of assets being on a date other than April 15, 1996, the termination date of the initial term of the Lease shall not be affected, and shall be April 30, 2001. 51. Option To Extend Term. Lessee is given the option to extend the term of this Lease on all the provisions contained in this Lease, except for monthly rent, for three five-year periods following expiration of the initial and first extended term, by giving notice of exercise of the option ("option notice") to Lessor at least eight months but not more than one year before the expiration of the then current term. Provided that, if Lessee is in material default on the date of giving the option notice, the option notice shall be totally ineffective, or if Lessee is in material default on the date the extended term is to commence, the extended term shall not commence and this lease shall expire at the end of the then current term. The monthly rent for the extended term in question shall be the fair market rent for the Premises, taking into account the commencement date of the option term, and the then fair market base rent for comparable vacant space on a triple net basis in similar buildings within a three (3) mile radius of the Premises. The new monthly rent shall not reflect the value of any improvements to the Premises made by Lessee which Lessee has the right to remove at the end of the term. In no event, however, shall the new monthly rent be less than the amount payable during the last month of the term preceding the term of the then current extension option. The parties shall have thirty (30) days after Lessor receives the option notice in which to agree on the monthly rent during the extended term. If the parties agree on the monthly rent for the extended term during that period, they shall 12 immediately execute an amendment to this Lease stating the monthly rent. If the parties are unable to agree on the monthly rent for the extended term within that period, then within ten (10) days after the expiration of that period each party, at its cost and by giving notice to the other party, shall appoint a real estate appraiser with at least 5 years' full-time commercial appraisal experience in the area in which the Premises are located to appraise and set the monthly rent for the extended term. If a party does not appoint an appraiser within ten (10) days after the other party has given notice of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the monthly rent for the extended term. If the two appraisers are appointed by the parties as stated in this paragraph, they shall meet promptly and attempt to set the monthly rent for the extended term. If they are unable to agree within thirty (30) days after the second appraiser has been appointed, they shall attempt to elect a third appraiser meeting the qualifications stated in this paragraph within ten (10) days after the last day the two appraisers are given to set a monthly rent. If they are unable to agree on the third appraiser, either of the parties to this lease by giving ten (10) days' notice to the other party can file a petition with the Presiding Judge of the Contra Costa County Superior Court solely for the purpose of selecting a third appraiser who meets the qualifications stated in this paragraph. Each party shall bear half the cost of the Presiding Judge appointing the third appraiser and of paying the third appraiser's fee. The third appraiser, however selected, shall be a person who has not previously acted in any capacity for either party. Within thirty (30) days after the selection of the third appraiser, a majority of the appraisers shall set the monthly rent for the extended term. If a majority of the appraisers are unable to set the monthly rent within the stipulated period of time; the three appraisals shall be added together and their total divided by three; the resulting quotient shall be the monthly rent for the Premises during the extended term. If, however, the low appraisal and/or the high appraisal are more than ten percent (10%) lower and/or higher than the middle appraisal, the low appraisal and/or the high appraisal shall be disregarded. If only one appraisal is disregarded the remaining two appraisals shall be added together and their total divided by two; the resulting quotient shall be the monthly rent for the Premises during the extended term. If both the low appraisal and the high appraisal are disregarded as stated in this paragraph, the middle appraisal shall be the monthly rent for the Premises during the extended term. 52. Right of First Offer to Purchase the Premises. In the event that during the term of this Lease, Lessor wishes to sell the real property of which the Premises are a part, before entering into an agreement to sell the same to anyone else, Lessor shall notify Lessee of its desire, including the terms and conditions upon which Lessor is willing to sell. Lessee shall thereafter, for a period of thirty (30) days, have the exclusive right to negotiate with Lessor for such a purchase and sale, and Lessor and Lessee agree to negotiate for such a sale in good faith. If Lessee fails to respond to such notice within such thirty (30) day period, or if Lessor and Lessee do not enter 2 13 into a written agreement for such a purchase and sale within that period, Lessee's rights under this paragraph shall be deemed to have been waived, and Lessor shall be free to sell the real property to anyone upon terms no more favorable to that buyer than those offered to Lessee, without any further obligation to Lessee. Notwithstanding the foregoing, the right to negotiate herein conferred upon Lessee shall be deemed terminated during the period in which Lessee is in default under any of the provisions of this Lease, until such default has been cured. Time is of the essence. Lessee's right to negotiate is personal to Lessee, and without Lessor's consent may not be exercised or be assigned voluntarily or involuntarily, by or to any person or entity other than Lessee. If Lessor sells the real property to a third party, thereafter, the rights conferred upon Lessee by this paragraph shall be null and void. 53. Assignment and Subletting. In addition to the provisions of the Lease regarding assignment and subletting, Lessor and Lessee agree that Lessee shall pay to Lessor, as additional rent, within five (5) days following the due dates of such sums, fifty percent (50%) of the amount by which the rent payable by an assignee or sublessee or sublessees of the Lessee exceeds the rent otherwise payable by Lessee to Lessor under this Lease, plus fifty percent (50%) of all other consideration payable for the assignment or sublease. 54. Annual Phase II Site Investigation. Notwithstanding the provisions of Section 6.4 of the Lease, Lessee agrees, at its sole cost and expense, commencing in May of 1997, and during the month of May during each year thereafter during the entire term of this Lease, to have the groundwater at the Premises tested for the presence of Hazardous Substances. The annual testing to be performed pursuant to this Section 54 shall be conducted substantially in accordance with the April 18, 1996, recommendations of PIERS Environmental Services, as contained in the "Estimate and Proposal for Phase II Site Investigation," attached hereto as Schedule 54, and incorporated herein by this reference. The annual testing shall be conducted by a properly qualified and licensed environmental consulting firm selected by Lessee, with the prior written approval of Lessor, such approval not to be unreasonably withheld. Within five (5) business days of Lessee receiving the results of the annual testing, Lessee shall provide Lessor copies of all reports and other documentation of the results of the inspection. 55. Conflicts; Effect. In the event of any conflict between the terms and provisions of this Addendum and those of the Lease, the terms and provisions of // // // // // // 3 14 this Addendum shall control. Except as modified by this Addendum, the terms and provisions of the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Addendum to be effective as of April 15, 1996. "Lessor" RKR ASSOCIATES, a California general partnership By: /s/ Kenneth Beard ----------------------------------- Kenneth Beard, General Partner By: /s/ Ronald Beard ----------------------------------- Ronald Beard, General Partner By: /s/ Richard Beard ----------------------------------- Richard Beard, General Partner "Lessee" XCEL ARNOLD CIRCUITS, INC., a New Jersey corporation By: /s/ Carmine T. Oliva ----------------------------------- Name: Carmine T. Oliva ---------------------------- Title: Chairman and CEO ---------------------------- 4 15 SCHEDULE 54 [PIERS ENVIRONMENTAL SERVICES LETTERHEAD] ESTIMATE AND PROPOSAL FOR PHASE II SITE INVESTIGATION SUBMITTED TO: WORK TO BE PERFORMED AT: Etch-Tek Inc. APN 159-361-008 2455 Bates Avenue 2455 Bates Avenue Concord, CA 94520 Concord, California (510) 671-9800 671-0151 - Fax Attn: Kenneth Beard - ----------------------------------------------------------------------------- APRIL 18, 1996 PROPOSAL #96013-3 PAGE 1 OF 3 Introduction The subject Property is an active printing circuit board manufacturing facility. Various hazardous materials are stored, handled, and used in the manufacturing process systems. Hazardous wastes are also stored and tested on site. The client is selling the business and would like to establish an ongoing periodic program to help identify possible subsurface environmental impact resultant from operations at the facility. Recommendations PIERS recommends performing annual groundwater monitoring at the facility. This can be accomplished by installing permanent groundwater wells (three recommended), or by using a "hydropunch" to collect water samples from selected locations. We recommend testing each of the groundwater samples for Cyanide, Magnesium, Lead, Copper, Nickel, Silver, pH, and Nitrates. One selected sample should also be tested for Volatile Organic Compounds. - ------------------------------------------------------------------------------- ENVIRONMENTAL "HOTLINE" (800) 559-1248 16 April 18, 1996 Proposal #96013-3 Page 2 of 3 Proposed Scope of Work and Related Cost Estimates Alternative 1 - Permanent Groundwater Wall Installation: 1) Install three permanent groundwater monitoring wells in appropriate areas surrounding the facility. Estimated Cost: $9,000 2) Perform annual purging and sampling of the walls. Test the samples at a State Certified Lab for Cyanide, Magnesium, Lead, Copper, Nickel, Silver, pH, and Nitrates. Test one selected sample for Volatile Organic Compounds (EPA Method 8010). Estimated Cost: $1,600 per annum 3) Write a technical report on the findings. Estimated Cost: $350 per annum Alternative 2 - Hydropunch (temporary) Groundwater Sampling: 1) Using a hydropunch, collect groundwater grab samples from three selected areas surrounding the facility. Seal the borings with neat cement. Estimated Cost: $1,600 per annum 2) Test the samples at a State Certified Lab for Cyanide, Magnesium, Lead, Copper, Nickel, Silver, pH, and Nitrates. Test one selected sample for Volatile Organic Compounds (EPA method 8010). Estimated Cost: $1,600 per annum 3) Write a technical report on the findings. Estimated Cost: $350 per annum CONDITIONS Any alteration or additional work required by the client, the regulator(s), or as a result or a change in the scope of work will be negotiated and billed separately or by change order and in approximate accordance with the current PIERS "Schedule of Services." EXCEPTIONS PIERS is not responsible for unstable soil, unforeseen structures, cables, conduits, underground piping, rock debris, high water table, or troubles created by acts of God. Additional charges may be incurred if any of the foregoing conditions are encountered. 17 April 18, 1996 Proposal #96013-3 Page 3 of 3 TERMS OF PAYMENT A deposit equal to 10% of the anticipated total will be payable upon acceptance of this proposal. Progressive billings will be payable promptly upon receipt of the invoice. The entire balance will be payable promptly upon completion of the project. TECHNICAL REPORTS ARE RELEASED UPON RECEIPT OF THE FINAL PAYMENT. Respectfully submitted this 18th day of April, 1996. - ----------------------------------------- PIERS Environmental Services - Consultant Stuart G. Solomon, President ACCEPTANCE AND AUTHORIZATION TO PROCEED The above prices, specifications and conditions are satisfactory and are hereby accepted. PIERS Environmental Services is authorized to perform the work as indicated in the proposal above. Payment will be made as indicated above. - ------------------------------- Date ------------------- Client By (title) EX-10.35 19 OPTION AGREEMENT BETWEEN MICROTEL AND ELK 1 Exhibit 10.35 OPTION AGREEMENT AGREEMENT made as of November 15, 1996 between MicroTel International, Inc., a Delaware corporation (hereinafter called the "Company"), and Elk International Corporation Limited (hereinafter called "Optionee"). NOW, THEREFORE, in consideration of the premises, it is agreed as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right, privilege, and option to purchase 500,000 shares of the Company's common stock, $.0033 par value per share (the "Shares"), at $2.375 per Share, in the manner and subject to the conditions hereinafter provided. 2. Time of Exercise of Option. The option as to the 500,000 Shares, or any of them, may be exercised by the Optionee commencing as of the date hereof and continuing during the period not later than the termination date set forth in paragraph 4 hereof; and 3. Method of Exercise. (a) The option shall be exercised by written notice directed to the Company at its principal place of business, accompanied by payment of the option price for the number of Shares specified and paid for. The option may be exercised to purchase all or any number of full Shares specified and paid for. (b) Payment for the Shares shall be made by cash, check (subject to collection), or wire transfer. (c) The Company shall make immediate delivery of such Shares, provided that if any law or regulation requires the Company to take any action with respect to the Shares specified in such notice before the issuance thereof, then the date of delivery of such Shares shall be extended for the period necessary to take such action. 4. Termination of Option. (a) Except as otherwise stated in this Agreement, the option, to the extent not previously exercised shall terminate forthwith on November 14, 2001, at 5:00 p.m., San Jose, California time (the "Expiration Date"). 5. Outstanding Option. The option granted to the Optionee under this Agreement shall not be affected by any option previously granted to him to purchase Shares of the Company, if any. 6. Reclassification, Consolidation, or Merger. If and to the extent that the number of issued shares of common stock of the Company shall be increased or reduced by a change in par value, split-up, reclassification, distribution of a dividend payable in shares, or the like, the number of Shares subject to option and the 2 option price for them shall be proportionately adjusted. If the Company is reorganized or consolidated or merged with another corporation, the Optionee shall be entitled to receive options covering Shares of such reorganized, consolidated, or merged company in the same proportion, at an equivalent price, and subject to the same conditions. For purposes of the preceding sentence, the excess of the aggregate fair market value of the Shares subject to the option immediately after the reorganization, consolidation, or merger over the aggregate option price of such Shares shall not be more than the excess of the aggregate fair market value of all Shares subject to the option immediately before such reorganization, consolidation, or merger over the aggregate option price of such Shares. The new option or assumption of the old option shall not give the Optionee additional benefits which he did not have under the old option. 7. Rights Prior to Exercise of Option. The option is nontransferable by the Optionee and during his lifetime is exercisable only by him, and the Optionee shall have no rights as a shareholder in the Shares underlying the option until payment of the option price and delivery to him of such Shares as herein provided. 8. Registration Rights. If the Company at any time proposes to register any of its securities under the Securities Act of 1933, as amended (the "1933 Act")(other than pursuant to Form S-8 or other comparable form), the Company shall include the shares of common stock subject to this Option in such registration. The Company shall at such time give prompt written notice to Optionee of its intention to effect such registration and of Optionee's rights under such proposed registration, and upon the request of Optionee delivered to the Company within twenty (20) days after giving of such notice (which request shall specify the number of shares of common stock intended to be disposed of by Optionee), the Company shall include such shares of common stock requested to be included in such registration; provided, however, that if, at any time after giving such written notice of the Company's intention to register any of Optionee's shares of common stock and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with such registration statement, the Company may give written notice of such determination to Optionee and thereupon shall be relieved of its obligation to register such shares of common stock (but not from its obligation to pay registration expenses in connection therewith or to register such shares of Common Stock in a subsequent registration). All expenses incurred in any registration of Optionee's common stock under this Agreement shall be paid by the Company, including, without limitation, printing expenses, fees and disbursements of counsel for the Company, all registration and filing fees for Optionee's common stock under federal and State securities laws, and expenses of complying with the securities or blue sky laws of any jurisdiction in which Optionee reasonably 3 requests the registration of his common stock; provided, however, the Company shall not be liable for (a) any discounts or commissions to any underwriter; (b) any stock transfer taxes incurred; or (c) the fees and expenses of counsel for Optionee, provided that the Company will pay the costs and expenses of Company counsel. 9. Approval by Directors. The granting and adoption of the option is being made pursuant to a the ratification by the Board of Directors. 10. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. MICROTEL INTERNATIONAL. INC. By: /s/ Jack Talan -------------------------------------- 4 OPTION AGREEMENT AGREEMENT made as of November 15, 1996 between MicroTel International, Inc., a Delaware corporation (hereinafter called the "Company"), and Elk International Corporation Limited (hereinafter called "Optionee"). NOW, THEREFORE, in consideration of the premises, it is agreed as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right, privilege, and option to purchase 250,000 shares of the Company's common stock, $.0033 par value per share (the "Shares"), at $2.375 per Share, in the manner and subject to the conditions hereinafter provided. 2. Time of Exercise of Option. The option as to the 250,000 Shares, or any of them, may be exercised by the Optionee commencing as of the date hereof and continuing during the period not later than the termination date set forth in paragraph 4 hereof; and 3. Method of Exercise. (a) The option shall be exercised by written notice directed to the Company at its principal place of business, accompanied by payment of the option price for the number of Shares specified and paid for. The option may be exercised to purchase all or any number of full Shares specified and paid for. (b) Payment for the Shares shall be made by cash, check (subject to collection), or wire transfer. (c) The Company shall make immediate delivery of such Shares, provided that if any law or regulation requires the Company to take any action with respect to the Shares specified in such notice before the issuance thereof, then the date of delivery of such Shares shall be extended for the period necessary to take such action. 4. Termination of Option. (a) Except as otherwise stated in this Agreement, the option, to the extent not previously exercised shall terminate forthwith on November 14, 2001, at 5:00 p.m., San Jose, California time (the "Expiration Date"). 5. Outstanding Option. The option granted to the Optionee under this Agreement shall not be affected by any option previously granted to him to purchase Shares of the Company, if any. 6. Reclassification, Consolidation, or Merger. If and to the extent that the number of issued shares of common stock of the Company shall be increased or reduced by a change in par value, split-up, reclassification, distribution of a dividend payable in shares, or the like, the number of Shares subject to option and the 5 option price for them shall be proportionately adjusted. If the Company is reorganized or consolidated or merged with another corporation, the Optionee shall be entitled to receive options covering Shares of such reorganized, consolidated, or merged company in the same proportion, at an equivalent price, and subject to the same conditions. For purposes of the preceding sentence, the excess of the aggregate fair market value of the Shares subject to the option immediately after the reorganization, consolidation, or merger over the aggregate option price of such Shares shall not be more than the excess of the aggregate fair market value of all Shares subject to the option immediately before such reorganization, consolidation, or merger over the aggregate option price of such Shares. The new option or assumption of the old option shall not give the Optionee additional benefits which he did not have under the old option. 7. Rights Prior to Exercise of Option. The option is nontransferable by the Optionee and during his lifetime is exercisable only by him, and the Optionee shall have no rights as a shareholder in the Shares underlying the option until payment of the option price and delivery to him of such Shares as herein provided. 8. Approval by Directors. The granting and adoption of the option is being made pursuant to the ratification by the Board of Directors. 9. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. MICROTEL INTERNATIONAL, INC. By: /s/ Jack Talan ----------------------------- EX-10.36 20 AMENDMENT TO OPTION AGREEMENT MICROTEL & DRORR 1 Exhibit 10.36 AMENDMENT TO OPTION AGREEMENT AGREEMENT made as of November 15, 1996 between MicroTel International, Inc., a Delaware corporation (hereinafter called the "Company"), and Daniel Dror (hereinafter called "Optionee"). WHEREAS, the Company previously granted an option to the Optionee to purchase 25,000 (post-split) shares of the Company's common stock, $.0033 par value per share (the "Shares"), dated as of March 16, 1995 (the "Option"); and WHEREAS, the Company and the Optionee have entered into an agreement as of the date hereof with respect to the extension of the termination date of such option; NOW, THEREFORE, in consideration of the premises, it is agreed as follows: 1. Section 4 of the Option is hereby amended in its entirety as follows: "4. Termination of Option. (a) Except as otherwise stated in this Agreement, the option, to the extent not previously exercised shall terminate forthwith on November 14, 1999, at 5:00 p.m., San Jose, California time (the "Expiration Date")." 2. If the Company at any time proposes to register any of its securities under the Securities Act of 1933, as amended (the "1933 Act")(other than pursuant to Form S-8 or other comparable form), the Company shall include the shares of common stock subject to this Option in such registration. The Company shall at such time give prompt written notice to Optionee of its intention to effect such registration and of Optionee's rights under such proposed registration, and upon the request of Optionee delivered to the Company within twenty (20) days after giving of such notice (which request shall specify the number of shares of common stock intended to be disposed of by Optionee), the Company shall include such shares of common stock requested to be included in such registration; provided, however, that if, at any time after giving such written notice of the Company's intention to register any of Optionee's shares of common stock and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with such registration statement, the Company may give written notice of such determination to Optionee and thereupon shall be relieved of its obligation to register such shares of common stock (but not from its obligation to pay registration expenses in connection therewith or to register such shares of Common Stock in a subsequent registration). All expenses incurred in any registration of Optionee's common stock under this Agreement shall be paid by the Company, including, without limitation, printing expenses, fees and 2 disbursements of counsel for the Company, all registration and filing fees for Optionee's common stock under federal and State securities laws, and expenses of complying with the securities or blue sky laws of any jurisdiction in which Optionee reasonably requests the registration of his common stock; provided, however, the Company shall not be liable for (a) any discounts or commissions to any underwriter; (b) any stock transfer taxes incurred; or (c) the fees and expenses of counsel for Optionee, provided that the Company will pay the costs and expenses of Company counsel. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. MICROTEL INTERNATIONAL. INC. By: /s/ Jack Talan -------------------------------------- EX-10.37 21 OPTION AGREEMENT BETWEEN MICROTEL AND ELK 1 Exhibit 10.37 OPTION AGREEMENT AGREEMENT made as of December 3, 1996 between MicroTel International, Inc., a Delaware corporation (hereinafter called the "Company"), and Elk International Corporation Limited (hereinafter called "Optionee"). NOW, THEREFORE, in consideration of the premises, it is agreed as follows: 1. Grant of Option. The Company hereby grants to the Optionee the right, privilege, and option to purchase 300,000 shares of the Company's common stock, $.0033 par value per share (the "Shares"), at $.01 per Share, in the manner and subject to the conditions hereinafter provided. 2. Time of Exercise of Option. The option as to the 300,000 Shares, or any of them, may be exercised by the Optionee commencing as of the date hereof and continuing during the period not later than the termination date set forth in paragraph 4 hereof; and 3. Method of Exercise. (a) The option shall be exercised by written notice directed to the Company at its principal place of business, accompanied by payment of the option price for the number of Shares specified and paid for. The option may be exercised to purchase all or any number of full Shares specified and paid for. (b) Payment for the Shares shall be made by cash, check (subject to collection), or wire transfer. (c) The Company shall make immediate delivery of such Shares, provided that if any law or regulation requires the Company to take any action with respect to the Shares specified in such notice before the issuance thereof, then the date of delivery of such Shares shall be extended for the period necessary to take such action. 4. Termination of Option. (a) Except as otherwise stated in this Agreement, the option, to the extent not previously exercised shall terminate forthwith on December 3, 1999, at 5:00 p.m., San Jose, California time (the "Expiration Date"). 5. Outstanding Option. The option granted to the Optionee under this Agreement shall not be affected by any option previously granted to him to purchase Shares of the Company, if any. 6. Reclassification, Consolidation, or Merger. If and to the extent that the number of issued shares of common stock of the Company shall be increased or reduced by a change in par value, split-up, reclassification, distribution of a dividend payable in shares, or the like, the number of Shares subject to option and the 2 option price for them shall be proportionately adjusted. If the Company is reorganized or consolidated or merged with another corporation, the Optionee shall be entitled to receive options covering Shares of such reorganized, consolidated, or merged company in the same proportion, at an equivalent price, and subject to the same conditions. For purposes of the preceding sentence, the excess of the aggregate fair market value of the Shares subject to the option immediately after the reorganization, consolidation, or merger over the aggregate option price of such Shares shall not be more than the excess of the aggregate fair market value of all Shares subject to the option immediately before such reorganization, consolidation, or merger over the aggregate option price of such Shares. The new option or assumption of the old option shall not give the Optionee additional benefits which he did not have under the old option. 7. Rights Prior to Exercise of Option. The option is nontransferable by the Optionee and during his lifetime is exercisable only by him, and the Optionee shall have no rights as a shareholder in the Shares underlying the option until payment of the option price and delivery to him of such Shares as herein provided. 8. Registration Rights. If the Company at any time proposes to register any of its securities under the Securities Act of 1933, as amended (the "1933 Act")(other than pursuant to Form S-8 or other comparable form), the Company shall include the shares of common stock subject to this Option in such registration. The Company shall at such time give prompt written notice to Optionee of its intention to effect such registration and of Optionee's rights under such proposed registration, and upon the request of Optionee delivered to the Company within twenty (20) days after giving of such notice (which request shall specify the number of shares of common stock intended to be disposed of by Optionee), the Company shall include such shares of common stock requested to be included in such registration; provided, however, that if, at any time after giving such written notice of the Company's intention to register any of Optionee's shares of common stock and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with such registration statement, the Company may give written notice of such determination to Optionee and thereupon shall be relieved of its obligation to register such shares of common stock (but not from its obligation to pay registration expenses in connection therewith or to register such shares of Common Stock in a subsequent registration). All expenses incurred in any registration of Optionee's common stock under this Agreement shall be paid by the Company, including, without limitation, printing expenses, fees and disbursements of counsel for the Company, all registration and filing fees for Optionee's common stock under federal and State securities laws, and expenses of complying with the securities or blue sky laws of any jurisdiction in which Optionee reasonably 3 requests the registration of his common stock; provided, however, the Company shall not be liable for (a) any discounts or commissions to any underwriter; (b) any stock transfer taxes incurred; or (c) the fees and expenses of counsel for Optionee, provided that the Company will pay the costs and expenses of Company counsel. 9. Approval by Directors. The granting and adoption of the option is being made pursuant to a the ratification by the Board of Directors. 10. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. MICROTEL INTERNATIONAL. INC. By: /s/ Jack Talan -------------------------------------- Chairman 4 PURCHASE FORM December 23, 1996 To: MicroTel International, Inc. The undersigned hereby irrevocably elects to exercise the attached Option Certificate to the extent of 300,000 shares of Common Stock of MicroTel International, Inc., and herewith makes payment of $3,000 in payment of the purchase price therefor. INSTRUCTIONS FOR REGISTRATION OF STOCK Name: Elk International Corporation Limited -------------------------------------------------------------------------- (Please typewrite or print in block letters) ELK INTERNATIONAL CORPORATION LIMITED By: [ILLEGIBLE] ------------------------------------------- EX-10.38 22 WARRANT TO PURCHASE COMMON STOCK 1 Exhibit 10.38 THE WARRANTS AND COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE "ACT"), AND THE WARRANTS AND COMMON STOCK ISSUABLE ON EXERCISE OF WARRANTS MAY NOT BE SOLD UNLESS THERE IS A REGISTRATION STATEMENT IN EFFECT COVERING THE WARRANTS AND COMMON STOCK OR THERE IS AVAILABLE AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT Void after 5:00 P.M., New York City time, on November 14, 1999 WARRANT TO PURCHASE 90,000 SHARES OF COMMON STOCK OF MICROTEL INTERNATIONAL, INC. This is to certify that, for value received, Elk International Corporation Limited, or assigns (the "Holder" or "Holders") is entitled to purchase, subject to the provisions of this warrant, from Microtel International, Inc., a Delaware corporation (the "Company"), Ninety Thousand (90,000) shares (the "Warrant Shares" or the "Shares") of the common stock, of the Company (the "Common Stock"), at an exercise price of $2.50 per share, at any time during until 5:00 P.M., New York City time, on November 14, 1999 (which shall be referred to herein as the "Exercise Term"), subject to adjustment as set forth hereinafter. This warrant, and any warrant resulting from a transfer or subdivision of this warrant shall sometimes hereinafter be referred to as a "Warrant." The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for a share of Common Stock may be adjusted from time to time as set forth in Section 7 below. 2 1. EXERCISE OF WARRANT. Each Warrant shall entitle the Holder thereof to purchase one share of Common Stock at an exercise price of $2.50 per share of Common Stock. This Warrant may also be exercised in whole or in part at any time or from time to time through the last day of the Exercise Term, or if such day is a day on which banking institutions in the State of California are authorized by law to close, then on the next succeeding day which shall not be such a day, by presentation and surrender hereof to the Company at its principal office, or at the office of its stock transfer agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Purchase Price for the number of shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise and accompanied by the appropriate payment for the Warrant Shares issuable upon such exercise, the Holder shall be deemed to be the holder of record of such Warrant Shares, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder. Certificates for the Warrant Shares shall be delivered to the Holder within a reasonable time, not to 2 3 exceed five (5) business days following the exercise of this Warrant. 2. Intentionally omitted. 3. RESERVATION AND LISTING OF SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and delivery upon exercise of this Warrant, such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. 4. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. Subject to Section (7)(h) hereof, any fraction of a share called for upon any exercise hereof shall be cancelled. 5. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company at its office or at the office of its stock transfer agent, if any, for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of shares of Common Stock as are purchasable hereunder. Subject to Section 10 hereof, upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay the applicable transfer tax, if any, the Company shall, without charge, execute and deliver a 3 4 new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation thereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice signed by the Holder hereof specifying the names and denominations in which new Warrants are to be issued. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant, when executed and delivered, shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. 6. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder of the Company until exercise hereof. 7. REGISTRATION UNDER THE SECURITIES ACT OF 1933. If the Company at any time proposes to register any of its securities under the Securities Act of 1933, as amended (the "1933 Act")(other than pursuant to Form S-8 or other comparable form), the Company shall include the shares of common stock subject to this Warrant in such registration. The Company shall 4 5 at such time give prompt written notice to the Warrantholder of its intention to effect such registration and of the Warrantholder's rights under such proposed registration, and upon the request of the Warrantholder delivered to the Company within twenty (20) days after giving of such notice (which request shall specify the number of shares of common stock intended to be disposed of by the Warrantholder), the Company shall include such shares of common stock requested to be included in such registration; provided, however, that if, at any time after giving such written notice of the Company's intention to register any of the Warrantholder's shares of common stock and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with such registration statement, the Company may give written notice of such determination to the Warrantholder and thereupon shall be relieved of its obligation to register such shares of common stock (but not from its obligation to pay registration expenses in connection therewith or to register such shares of Common Stock in a subsequent registration). All expenses incurred in any registration of the Warrantholder's common stock under this Agreement shall be paid by the Company, including, without limitation, printing expenses, fees and disbursements of counsel for the Company, all registration and filing fees for the Warrantholder's common stock 5 6 under federal and State securities laws, and expenses of complying with the securities or blue sky laws of any jurisdiction in which the Warrantholder reasonably requests the registration of his common stock; provided, however, the Company shall not be liable for (a) any discounts or commissions to any underwriter; (b) any stock transfer taxes incurred; or (c) the fees and expenses of counsel for the Warrantholder, provided that the Company will pay the costs and expenses of Company counsel. 8. SUBDIVISION AND COMBINATION. In case the Company shall at any time subdivide the outstanding shares of Common Stock, the Purchase Price shall forthwith be proportionately increased or decreased. (a) ADJUSTMENT IN NUMBER OF SHARES. (i) Upon each adjustment of the Purchase Price pursuant to the provisions of this Section (8), the number of Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full Share by multiplying a number equal to the Purchase Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Purchase Price. (b) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any 6 7 consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation of all or a substantial part of the property of the Company, the Holder shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the shares of Common Stock underlying the Warrants immediately prior to any such events at a price equal to the product of (x) the number of shares issuable upon exercise of the Warrants and (y) the Purchase Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holder had exercised the Warrants; provided, however, that nothing contained herein shall cause the number of shares issuable upon exercise of this Warrant to be decreased in the event of a combination of shares upon any such reclassification, change, consolidation, merger, sale or conveyance. 9. DEFINITION OF "COMMON STOCK." For the purpose of this Warrant, the term "Common Stock" shall mean, in addition to 7 8 the class of stock designated as the Common Stock, $.01 par value, of the Company on the date hereof, any class of stock resulting from successive changes or reclassifications of the Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. If at any time, as a result of an adjustment made pursuant to one or more of the provisions of Section (8) hereof, the shares of stock or other securities or property obtainable upon exercise of this Warrant shall include securities of the Company other than shares of Common Stock or securities of another corporation, then thereafter the amount of such other securities so obtainable shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in Section (8) hereof and all other provisions of this Warrant with respect to common Stock shall apply on like terms to any such other shares or other securities. 10. TRANSFER TO COMPLY WITH THE ACT. This Warrant or the Shares or any other security issued or issuable upon exercise of this Warrant may not be sold or otherwise disposed of except as follows: a. to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current prospectus under the Act with respect thereto and then only against receipt of a letter from 8 9 such person in which such person represents that he is acquiring the Warrants or Warrant Shares for his own account for investment purposes and not with a view to distribution, and in which such person agrees to comply with the provisions of this Section (10) with respect to any resale or other disposition of such securities; or b. to any person upon delivery of a prospectus then meeting the requirements of the Act relating to such securities and the offering thereof for such sale or disposition. 11. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested. 12. SUCCESSORS. All the covenants and provisions of this Warrant by or for the benefit of the Holder shall inure to the benefit of his successors and assigns hereunder. 13. TERMINATION. This Warrant will terminate on any earlier date when it has been entirely exercised and all the Shares issuable upon exercise of this Warrant have been resold to the public. 14. GOVERNING LAW. This Warrant shall be deemed to be made under the laws of the State of California and for all purposes shall be construed in accordance with the laws of said State. 15. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Warrant and all attachments hereto and all incorporation by references 9 10 set forth herein, set forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them. This Warrant may be amended, the Company may take any action herein prohibited or omit to take any action herein required to be performed by it, and any breach of any covenant, agreement, warranty or representation may be waived, only if the Company has obtained the written consent or waiver of the Holder. No course of dealing between or among any persons having any interest in this Warrant will be deemed effective to modify, amend or discharge any part of this Warrant or any rights or obligations of any person under or by reason of this Warrant. MICROTEL INTERNATIONAL, INC. By: /s/ Jack Talan -------------------------------------- 10 EX-10.39 23 AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE 1 Exhibit 10.39 AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE THIS AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE ("Agreement") is made by and between Francis John Gorry ("Mr. Gorry") on the one hand, and MicroTel International, Inc. ("MicroTel") on the other. SECTION I RECITALS 1.1 A dispute has arisen between the parties regarding a Letter Agreement dated April 18, 1995 relating to, inter alia, the issuance, tender and registration by the Securities and Exchange Commission of one hundred thirty thousand (130,000) shares of unrestricted, freely tradable MicroTel common stock (the "Stock") for the benefit of Mr. Gorry. As a result of MicroTel's failure to issue, register or tender the Stock to Mr. Gorry, Mr. Gorry filed an action in the Santa Clara County Superior Court, title Francis John Gorry v. MicroTel International, Inc., et al., SCSC Case No. CV758208 (the "Action"). 1.2 It is the desire of the above named parties to the action to fully and finally settle and resolve, for valuable consideration, any and all claims and disputes whatsoever between them, except as otherwise provided in this Agreement, and to terminate all relationships, controversies and other matters whatsoever presently existing between them, subject only to the terms, conditions and exceptions set forth in this Agreement. The parties have reached this agreed compromise after considering the substantial expense and uncertainty of litigation, trial and appeals, with the desire to resolve all pending or potential disputes, administrative matters and litigation between them in their entirety and without admitting liability. Liability by any party to any other 2 party for any right, remedy, benefit or cause of action for any reason or upon any theory is expressly denied. THEREFORE, without admitting the validity of or any liability for the claims and defenses held by Mr. Gorry, on the one hand, and MicroTel, on the other, against one another, and to resolve all the disputes amongst themselves, in consideration of the following terms, conditions, covenants and promises as set forth in this Agreement, the parties agree as follows: SECTION II SETTLEMENT AND PAYMENT 2.1 Payments by MicroTel. 2.1.1 Interest Payments. MicroTel shall, as part of this Agreement, pay to Mr. Gorry, the sum of One Thousand Seven Hundred Dollars ($1,700) (the "Interest Payment") on the first working day of each month, with said sum representing one percent monthly interest on the agreed upon value of the Stock ($170,000) (the "Agreed Value"). Such Interest Payments shall be made one month in arrears commencing on June 1, 1996 (with the June 1 payment covering the period of May 1-31, 1996) and continuing until the sooner of December 1, 1996, or the lifting of the restrictions on the Stock pursuant to section 2.3 below. Should MicroTel miss any Interest Payment as required under this section, all Interest Payments due through December 1, 1996 shall become immediately due and payable, and this Agreement shall be enforceable pursuant to the default provisions of section 2.4 below. MicroTel shall be entitled to a pro rata reduction in interest if the restrictions on the Stock are lifted prior to November 30, 1996. 2.1.2 Attorneys' Fees. MicroTel also shall pay Mr. Gorry's reasonable attorney's fees incurred in this action, which currently totals Five Thousand Eight Hundred Twenty- -2- 3 Seven Dollars ($5,827). Accordingly, concurrent with the execution of this Agreement, MicroTel shall deliver to Mr. Gorry a check in the amount of Seven Thousand Five Hundred Twenty-Seven Dollars ($7,527.00) made payable to "Gorry & Meyer L.L.P. Attorney-Client Trust Account," which amount includes the June 1, 1996 payment under this Agreement and the attorneys' fees incurred to date (the "Initial Payment"). After the Initial Payment, all Interest Payments shall be sent to Mr. Gorry at the following address: F. Jack Gorry P.O. Box 5032 Carmel, CA 93921 Any additional reasonable attorneys' fees incurred by Mr. Gorry in entry of the Structured Settlement or enforcing the Agreement shall be paid to Gorry & Meyer L.L.P. by MicroTel upon presentation to MicroTel of invoices therefor by Mr. Gorry's counsel. 2.2 Issuance of Stock by MicroTel. To secure its obligations hereunder, when authorized by the American Stock Exchange and as soon as practicable following the execution of this Agreement, MicroTel shall cause its transfer agent to deliver the certificate(s) representing the Stock standing in the name of "F. Jack Gorry" to Mr. Gorry. 2.3 Lifting of Restrictions. Following the delivery of the certificate(s) representing the Stock, MicroTel shall cause all restrictions with respect to the transferability of the Stock to be lifted so that on or before November 30, 1996, the Stock shall be fully paid, registered and non-assessable shares of MicroTel common stock, freely tradeable and without any restrictions as to transferability. 2.4 Payment of Additional Consideration. MicroTel further agrees that if the market value of the Stock on the date that its restrictions are lifted in accordance with Section 2.3 -3- 4 (the "Tender Date") to Mr. Gorry is less than the Agreed Value, MicroTel shall pay Mr. Gorry within ten (10) days of the Tender Date, the difference between the value of the Stock on the Tender Date and the Agreed Value. 2.5 Obligations of MicroTel upon Failure to Lift Restrictions. In the event that MicroTel is not able to comply with the provisions of Section 2.3 on or before November 30, 1996, then MicroTel shall pay to Mr. Gorry One Hundred and Seventy Thousand Dollars ($170,000) as liquidated damages on or before December 10, 1996. At the time this consideration is tendered to Mr. Gorry, Mr. Gorry shall surrender the certificate(s) representing the Stock that he is holding as security for performance. The parties specifically agree that the liquidated damages paid under this section shall be allocated as follows: twenty-five percent (25%) of the damages shall consist of compensatory damages under the April 18, 1995 Letter Agreement, and the remaining seventy-five percent (75%) shall constitute punitive damages. 2.6 Dismissal of Action. Mr. Gorry shall, within two days of his receipt of the initial payment, execute and file with the Superior Court for the County of Santa Clara a Notice of Structured Settlement which incorporates this settlement agreement, and sets forth the conditions under which an executed Request for Dismissal with Prejudice of SCSC Case No. CV758208 would be filed, along with any and all other documents needed to promptly execute and file the Dismissal with the Superior Court, immediately notify MicroTel that the Dismissal has been filed, and provide MicroTel with conformed copies of the fully executed Dismissal, upon lifting of restrictions on the Stock or, in the alternative, payment under section 2.5 above. -4- 5 2.7 Default by MicroTel. Should MicroTel default under any of the terms of this Agreement, the parties agree that Mr. Gorry may seek enforcement of the terms of this Agreement through the provisions of California Code of Civil Procedure Section 664.6. In addition, should MicroTel fail to make any payment required hereunder when due, Mr. Gorry shall be entitled to recover interest on such unpaid obligation at the rate of one and one-half percent interest per month (the "Default Rate"). SECTION III MUTUAL RELEASE 3.1 Mutual Releases. In consideration of the mutual promises and releases contained herein, and except as expressly provided herein, Mr. Gorry and MicroTel, on behalf of themselves and their respective past, present and future assignee, heirs, executors, attorneys, agents, administrators and successors (collectively the "successors") hereby forever release and discharge each other and each other's successors, agents, servants, employees, officers, directors, shareholders, partners and attorneys from any and all actions, causes of action, suits, debts, damages, accounts, claims, demands, obligations, and liabilities of any type or description whatsoever, known or unknown, foreseen or unforeseen, arising out of the Action with the sole exception that the parties do not intend to release any rights or remedies arising out of the respective rights and obligations of the parties pursuant to this Agreement. SECTION IV WARRANTIES 4.1 Capacity of the Parties. Each of the parties hereby represents and warrants to the other that it has the full power, capacity and authority to enter into this Agreement, and that -5- 6 no portion of any claim, right, demand, action or cause of action that it has or might have arising out of the acts, events, transactions and occurrences referred to herein has been assigned, transferred or conveyed to any person not a party to this Agreement ("nonparty"), by way of subrogation, operation of law or otherwise, and that no releases or settlements are necessary for any nonparty to release and discharge completely any of the parties to this Agreement from the claims released in this Agreement. MicroTel further warrants that all requisite corporate action has been taken with respect to the execution and delivery of this Agreement and, upon execution hereof, this Agreement shall be binding and enforceable against MicroTel in accordance with its terms. 4.2 Full and Final Release. Each of the parties hereby severally represents and warrants to the others that they understand and agree that this Agreement shall act as a full and final release of all claims arising out of the Action including those of every nature or kind that have arisen or could have arisen between the parties hereto prior to the date of execution of this Agreement, whether such claims are currently known or unknown, and whether they were foreseeable, known or unknown. The parties hereto hereby assume full and sole responsibility for any claims, injury, loss, damage or liability that may hereafter be learned of or incurred by reason of or related to the matters alleged and raised (or potentially alleged or raised) in the Action and all related pleadings in this litigation. 4.3 Binding on all Parties. Each of the parties hereby severally represents and warrants to the others that they understand that if the facts upon which this Agreement are based are found hereafter to be different from the facts now believed to be true, this Agreement will remain binding and effective and the parties expressly accept and assume the risk of such possible -6- 7 differences and agree that this Agreement shall remain binding and effective, notwithstanding such potential differences. 4.4 Denial of Liability. Each of the parties hereby severally represents and warrants to the others that it is understood and agreed that this Agreement is a compromise of disputed claims, and that the exchange of consideration hereunder or any other acts, omissions or statements by the parties are not to be construed as an admission of liability of any party for any claims or defenses, with liability being expressly denied, and neither this Agreement nor anything contained in this Agreement shall be interpreted or construed as an admission of liability by MicroTel or by Mr. Gorry, with liability being expressly denied. SECTION V GENERAL PROVISIONS 5.1 Entire Agreement. This Agreement is the entire agreement between the parties hereto and memorializes the agreement entered into between the parties. All parties represent and acknowledge that they have conferred with and have been represented by counsel of their own selection with respect to the terms, conditions and execution of this Agreement and all matters covered by it and related to it. 5.2 Governing Law. This Agreement shall be interpreted and governed according to the law of the State of California. 5.3 Binding on Successors. The provisions of this Agreement shall be binding upon and shall inure to the benefit of the successors, assigns, heirs, executors, administrators, etc., of the respective parties. -7- 8 5.4 Acknowledge Understanding. All parties state that they have carefully read and understood the foregoing Agreement and know the contents thereof, that they have consulted with their attorneys about its purpose and legal effect, and that they are signing same as their own free act with advice of counsel. FRANCIS JOHN GORRY Dated: June 28, 1996 /s/ Francis John Gorry --------- ----------------------------------------- Francis John Gorry MICROTEL INTERNATIONAL, INC. Dated: June 27, 1996 By: /s/ Barry Reifler --------- -------------------------------------- Barry Reifler, Secretary and Chief Financial Officer -8- EX-10.40 24 AMENDED AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE 1 EXHIBIT 10.40 AMENDED AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE THIS AMENDED AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE ("Agreement") is made by and between Francis John Gorry ("Mr. Gorry") on the one hand, and MicroTel International, Inc. ("MicroTel") on the other. SECTION I RECITALS 1.1 A dispute has arisen between the parties regarding a Letter Agreement dated April 18, 1995 relating to, inter alia, the issuance, tender, and registration by the Securities and Exchange Commission of one hundred thirty thousand (130,000) shares of unrestricted, freely tradable MicroTel common stock (the "Stock") for the benefit of Mr. Gorry. As a result of MicroTel's failure to issue, register or tender the stock to Mr. Gorry, Mr. Gorry filed an action in the Santa Clara County Superior Court, titled FRANCIS JOHN GORRY v. MicroTel International, Inc., et al. SCSC Case No. CV758208 (the "Action"). Parties settled the Action pursuant to the terms of an Agreement of Settlement and Mutual Release dated June 28, 1996 (the "Settlement Agreement"). 1.2 It is the desire of the above named parties to the Agreement to amend the Settlement Agreement to reflect certain changes agreed to by the parties, and to extend the date of performance under the Settlement Agreement, while otherwise keeping the terms of the Settlement Agreement intact. THEREFORE, in consideration of the following terms, conditions, covenants and promises as set forth in this Amending Agreement the parties agree as follows: SECTION II SETTLEMENT AND PAYMENT 2.1 Payments by MicroTel 2.1.1 Extension and Interest Payments. MicroTel shall, as part of this Amending Agreement, pay to Mr. Gorry, the sum of Seventeen Thousand Five Hundred Dollars ($17,500) (the "Extension Payment") upon execution of this Amending Agreement, and shall continue the payments of One Thousand Seven Hundred Dollars (the "Interest Payment") on the first working day of each month as set forth in this Settlement Agreement, and continuing until the sooner of July 1, 1997, or the lifting of the restrictions on the stock as defined in the Settlement Agreement, pursuant to Section 2.2 below. The parties agree that the Extension Payment shall constitute further punitive damages against MicroTel. 2.2.2 Attorneys' Fees. MicroTel also shall pay Mr. Gorry's reasonable attorney's fees incurred in connection with this Amending Agreement which currently totals One Thousand Dollars ($1,000). Accordingly, concurrent with the execution of this Amending Agreement, MicroTel shall deliver to Mr. Gorry a check in the amount of One Thousand Dollars ($1,000) made payable to "Gorry & Meyer L.L.P." 2 2.2 Lifting of Restrictions. MicroTel shall cause all restrictions with respect to the transferability of the Stock to be lifted so that on or before June 30, 1997, the Stock shall be fully paid, registered, and non-assessable shares of MicroTel common stock, freely tradable and without any restrictions as to transferability. 2.3 Obligations of MicroTel upon Failure to Lift Restrictions. In the event that MicroTel is not able to comply with the provisions of Section 2.2 or before June 30, 1997, then MicroTel shall pay to Mr. Gorry the sum of One Hundred Seventy Thousand Dollars ($170,000) as liquidated damages on or before July 10, 1997. At the time this consideration is tendered to Mr. Gorry, Mr. Gorry shall surrender the Certificate(s) representing the stock that he is holding as security for performance. The parties specifically agree that the liquidated damages paid under this section shall be allocated as follows: twenty-five percent (25%) of the damages shall consist of Compensatory damages under the April 18, 1995 Letter Agreement, and the remaining shall constitute punitive damages. 2.4 Dismissal of Action. Mr. Gorry shall, within two (2) days of his receipt of the Extension Payment, execute and file with the Superior Court for the County of Santa Clara an Amended Notice of Structured Settlement which incorporates this Amending Agreement and the Settlement Agreement, and sets forth the conditions under which an executed Request for Dismissal with Prejudice of SCSC Case No. CV 758208 would be filed, along with any and all other documents needed to effect a complete and final termination of said litigation as to the parties. Mr. Gorry agrees to promptly execute and file the Dismissal with the Superior Court, immediately notify MicroTel that the Dismissal has been filed, and provide MicroTel with conformed copies of the fully executed Dismissal, upon lifting of restrictions on the stock or, in the alternative, payment under Section 23 above. 2.5 Default by MicroTel. Should MicroTel default under any of the terms of this amending Agreement, the parties agree that Mr. Gorry may seek enforcement of the terms of this amending Agreement through the provisions of California Code of Civil Procedure 664.6. In addition should MicroTel fail to make any payment required when due, Mr. Gorry shall be entitled to recover interest on such unpaid obligation at the rate of one and one half percent (1 1/2%) interest per month (the "Default Rate"). 3.1 Applicability of Settlement Agreement. All other terms and conditions of the Settlement Agreement shall apply to the parties except as herein provided, and except as amended herein, the Settlement Agreement is hereby confirmed and ratified as to its terms by each of the parties and shall continue in full force and effect. 3.2 Governing Law. This Amending Agreement shall be interpreted and governed according to the laws of the State of California. 3.3 Binding on Successors. The provisions of this Amending Agreement shall be binding upon and shall inure to the benefit of the successors, assigns, heirs, executors, administrators, etc. of the respective parties. Page 2 3 3.4 Acknowledge Understanding. All parties state that they have carefully read and understand the foregoing Amending Agreement and know the contents thereof, that they have consulted with attorneys about its purpose and legal effect, and that they are signing same as their own free act with advice of counsel. FRANCIS JOHN GORRY Date: November 30, 1996 /s/ Francis John Gorry -------------------------- Francis John Gorry MICROTEL INTERNATIONAL, INC. Date: November 27, 1996 /s/ Henry A. Mourad -------------------------- Henry A. Mourad, President Page 3 EX-10.41 25 PROMISSORY NOTE BETWEEN MICROTEL AND TALAN 1 Exhibit 10.41 PROMISSORY NOTE $500,000.00 San Jose, California February , 1997 FOR VALUE RECEIVED, MicroTel International, Inc. (the "Maker"), hereby promises to pay Jack Talan (the "Payee"), at such place as Payee may, from time to time, designate, the principal sum of $500,000.00 in lawful money of the United States promptly on April , 1997. Maker further promises to pay interest on the unpaid principal balance hereof at the rate of six percent (6%) per annum, such interest to be paid concurrently with the payment of the principal. This Note can be prepaid in whole or in part at any time without the consent of the Payee. Notwithstanding the due date of this Note specified above, the entire unpaid principal balance of this Note and interest accrued with respect thereto shall be immediately due and payable upon the occurrence of any of the following: The Maker becoming insolvent (however defined or evidenced), committing an act of bankruptcy, making an assignment for the benefit of creditors or making or sending a notice of intended bulk transfer, or if a meeting of creditors is convened or a committee of creditors is appointed for, or any petition or proceeding for any relief under any bankruptcy, reorganization, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute now or hereinafter in effect (whether at law or in equity) is filed or commenced by or against Maker or any property of Maker, or the appointment of a receiver or trustee for Maker or any property of Maker. The Maker waives demand, presentment, protest and notice of any kind. This Note may not be changed, modified or terminated orally, but only by an agreement in writing, signed by the party to be charged. This Note shall be governed by and construed in accordance with the laws of the state of California and shall be binding upon the successors, assigns, heirs, administrators and executors of the Maker and enure to the benefit of the Payee, its 2 successors, endorsees, assigns, heirs, administrators and executors. If any term or provision of this Note shall be held invalid, illegal or unenforceable, the validity of all other terms and provisions hereof shall in no way be affected thereby. MICROTEL INTERNATIONAL, INC. By: /s/ Barry Reifler -------------------------------------- Barry Reifler, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----