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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>/in/edgar/work/0000912057-00-043274/0000912057-00-043274.txt : 20001003
<SEC-HEADER>0000912057-00-043274.hdr.sgml : 20001003
ACCESSION NUMBER: 0000912057-00-043274
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 10
CONFORMED PERIOD OF REPORT: 20000702
FILED AS OF DATE: 20001002
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MAGNETEK INC
CENTRAL INDEX KEY: 0000751085
STANDARD INDUSTRIAL CLASSIFICATION: [3612
] IRS NUMBER: 953917584
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-10233
FILM NUMBER: 733137
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 26 CENTURY BLVD
STREET 2: P O BOX 290159
CITY: NASHVILLE
STATE: TN
ZIP: 37214
BUSINESS PHONE: 6153165100
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: 26 CENTURY BOULEVARD
STREET 2: P O BOX 290159
CITY: NASHVILLE
STATE: TN
ZIP: 37214
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>a2025491z10-k405.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 2, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10233
------------------
MAGNETEK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3917584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10900 WILSHIRE BOULEVARD, SUITE 850
LOS ANGELES, CALIFORNIA 90024
(Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 316-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
The aggregate market value of the voting stock held by
non-affiliates of the Registrant (based on the closing price of such stock, as
reported by the New York Stock Exchange, on September 1, 2000) was $237,756,062.
The number of shares outstanding of the Registrant's Common
Stock, as of September 22, 2000, was 23,081,634 shares, including 100,000
treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the MagneTek, Inc. 2000 Annual Report for the year
ended July 2, 2000 are incorporated by reference into Part II of this Form 10-K.
With the exception of those portions which are expressly incorporated by
reference in the Annual Report on Form 10-K, the MagneTek, Inc. 2000 Annual
Report is not deemed filed as part of this Report.
Portions of the MagneTek, Inc. definitive Proxy Statement to
be filed with the Securities and Exchange Commission within 120 days after the
close of the fiscal year ended July 2, 2000 are incorporated by reference into
Part III hereof.
<PAGE>
MAGNETEK, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2000(1)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. BUSINESS.......................................................................1
ITEM 2. PROPERTIES.....................................................................6
ITEM 3. LEGAL PROCEEDINGS..............................................................7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................7
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........8
ITEM 6. SELECTED FINANCIAL DATA........................................................8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.....................................................................8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.....................................................................8
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................9
ITEM 11. EXECUTIVE COMPENSATION........................................................10
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................10
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..............10
</TABLE>
(1) The Company uses a 52-53 week fiscal year which ends on the Sunday nearest
June 30. For clarity of presentation, all periods are presented as if the
year ended on June 30. Fiscal year 2000 contained 53 weeks and fiscal years
1999 and 1998 each contained 52 weeks.
i
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
MagneTek, Inc. ("MagneTek" or the "Company") supplies digital
power products used in information technology and industrial/instrumentation
markets. These products usually take the form of sub-systems. They are sold
directly or through agents to original equipment manufacturers (OEMs) for
incorporation into their products, to system integrators and value-added
resellers (VARs) for assembly and installation in telecommunications and other
end-user systems, and to distributors for resale to OEMs, contractors and end
users for repair and replacement purposes. Founded in 1984 and listed on the New
York Stock Exchange in 1989 (NYSE: MAG), MagneTek operates four factories in
North America and two in Europe and employs approximately 1,700 people
worldwide. The Company operates in a single segment called Digital Power
Products, which includes two broad product lines, Power Controls and Motion
Controls.
DIGITAL POWER PRODUCTS
GENERAL. MagneTek ranks among the world's 15 largest
independent makers of OEM power supplies. It is an acknowledged innovator in
mixed-signal (analog-to-digital) power electronic sub-system design, heat
reduction technology and the application of microprocessors and
micro-controllers in digital power products. International sales accounted for
28% of net sales in fiscal 2000. IBM, a computer and information services
company, accounted for 16% of the Company's sales in fiscal 2000.
POWER CONTROLS. Power control products accounted for 54% of
the Company's net sales in fiscal 2000. They include: AC-to-DC switching power
supplies; AC-to-DC rectifiers/battery chargers; DC-to-DC power converters;
DC-to-AC power inverters; peripheral component interconnects (PCIs); and voltage
regulator modules (VRMs). These power controls are used primarily in
telecommunications, data-processing, data-communications, data-storage,
networking, imaging, laser processing, and power generation equipment, as well
as medical instrumentation and home appliances. Principal customers include IBM,
Siemens, ItalTel, AT&T Wireless, Alcatel, Nokia, United Technologies, Kodak,
Xerox, Ericsson and Wincor.
MOTION CONTROLS. Motion control products accounted for 46% of
the Company's net sales in fiscal 2000. MagneTek's motion control products
consist primarily of programmable power supplies that control motor speed. They
include alternating (AC) and direct current (DC) variable-frequency motor drives
(VFDs), reduced-voltage motor starters, and related software products. VFDs are
utilized in a wide range of applications, including industrial automation and
materials handling, commercial heating, ventilating and air conditioning. In
addition, the Company supplies VFDs and related software and accessories for
controlling overhead cranes and hoists. Principal customers include American
Standard, Joy Manufacturing and Morris Material Handling, as well as the world's
leading elevator builders and most of the industrial crane and hoist companies
in North America.
BACKLOG. Backlog as of June 30, 2000 was $94.1 million versus
$68.5 million at the end of fiscal 1999. The increased backlog reflects
increased orders from telecommunications, data communications and other
communications infrastructure customers, as well as the acquisition of the EMS
group of companies and Mondel Engineering ULC during fiscal 2000.
1
<PAGE>
COMPETITION. MagneTek's primary competitors include Delta
Electronics, Emerson/Astec/APS, Artesyn Technologies, Invensys/Lambda,
Power-One, Celestica, Vicor, Rockwell/Allen Bradley, Asea Brown Boveri and
Toshiba. Some of these companies have substantially greater resources than
MagneTek.
COMPETITIVE STRENGTHS
Management believes that MagneTek benefits most from
competitive advantages in the following areas:
TECHNOLOGICAL CAPABILITIES. MagneTek emphasizes and leverages
its ability to provide custom-designed and customized solutions for power and
motion control applications through power-electronic (digital) technology. The
Company recruits top talent from universities that stress power electronics in
their curricula, and its technical personnel possess substantial expertise in
disciplines central to digital power systems. These include: mixed-signal
(analog-to-digital) design; heat reduction technology; and the application of
microprocessors and micro-controllers to power products.
CUSTOMER RELATIONSHIPS. MagneTek has established durable
relationships with major manufacturers of data-processing and telecommunications
equipment and systems, business machines, medical electronics, power generators
and fuel cells, cranes and hoist, mining equipment and elevators, among others.
The Company believes that these long-term relationships have resulted from: its
responsiveness, which is superior to that of its larger competitors; its
readiness to meet special customer needs, based on innovative technology; the
quality and cost-effectiveness of its products; its commitment to stand behind
its products; and its after-sale service. Maintenance and development of close
relationships with OEMs, VARs and distributors are important strategic
priorities of the Company.
STATE-OF-THE-ART MANUFACTURING. MagneTek competes as a
high-quality, cost-effective supplier of digital power subsystems that are
incorporated into customers' products and systems. The Company has taken steps
to enhance its competitive position by locating new production facilities in
low-cost labor areas, implementing demand-flow and cellular manufacturing
techniques, and investing in state-of-the-art manufacturing capabilities, such
as surface-mount machinery and advanced electronic test equipment, to enhance
its product quality and reliability.
MARKET CHANNELS AND PRODUCT BREADTH. MagneTek's North American
and European networks of agents, distributors and VARs have been developed over
many years, would be difficult and expensive to duplicate, and constitute a
valuable asset. MagneTek provides a broad diversity of products in each of its
product lines. Since product scope is an important consideration of customers in
their selection of suppliers, the Company's breadth of product has been an
advantage in penetrating and maintaining both OEM relationships and channel
partnerships.
RESTRUCTURING AND CURRENT STRATEGY
Since the mid-1990s, MagneTek has undertaken a series of
strategic initiatives to strengthen its financial position and improve its
competitiveness. A number of businesses have been divested (most importantly
Motors and Generators in 1999), resulting in total proceeds over the last five
years of more than $500 million, which were applied to reduce indebtedness,
repurchase Company stock, and make select product-line acquisitions. In fiscal
2001, MagneTek plans to divest all of its remaining electrical equipment
operations and focus exclusively on markets for digital power products. Proceeds
from these divestitures will be used to repay debt, increase the Company's
investment in research and
2
<PAGE>
development, and make selective acquisitions consistent with the Company's
new digital power focus.
Major goals of MagneTek's restructuring and current business
strategy are as follows:
REDUCTION OF BALANCE SHEET LEVERAGE. From the end of fiscal
1994 to the end of fiscal 2000, MagneTek reduced its Debt-to-Shareholders'
Equity ratio from 4.6:1 to 0.3:1 by using proceeds from business divestitures
and internally generated cash flow and calling outstanding convertible debt
securities. The Company anticipates that proceeds received from the planned sale
of its Lighting Products and Transformer businesses will eliminate all currently
outstanding debt and provide financing for internal growth and selective
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the Company's 2000 Annual Report.
INCREASED EMPHASIS ON DIGITAL POWER PRODUCTS. In coming
periods MagneTek seeks to: improve the profitability and cash flow generating
capability of its continuing operations under delevered conditions; strengthen
its product offerings through internal development and selected product line
additions; and concurrently, grow and diversify in the digital power products
business. Attractive growth opportunities are believed to exist in the digital
power products business in North America, especially in applications where
MagneTek has achieved substantial market positions in Europe.
INTERNATIONAL OPERATIONS
International sales accounted for 28% of MagneTek's net
revenues in fiscal 2000. The Company defines international sales as sales of
products manufactured by its facilities outside the U.S. that are sold outside
of the U.S., as well as sales of products manufactured in the U.S. to purchasers
outside of the U.S. In Europe the Company operates two manufacturing facilities,
one in Italy and one in Hungary, and employs approximately 1,000 people.
SUPPLIERS AND RAW MATERIALS
Virtually all materials and components purchased by the
Company are available from multiple suppliers. During fiscal 2000, raw materials
purchases accounted for approximately 70% of the Company's cost of sales.
Production of digital power products depends heavily on various electronic
components. The Company seeks to obtain competitive pricing on these raw
materials, as well as MRO supplies, by utilizing multiple suppliers available to
its North American and European operations, leveraging its combined purchasing
requirements, and utilizing internet sources when possible.
Based on analyses of the costs and benefits of its level of
vertical integration, MagneTek is continuing to increase its outsourcing of
certain materials and component parts that were previously produced internally.
RESEARCH AND DEVELOPMENT
MagneTek's Research and Development activities, which are
conducted primarily at advanced development centers in Valdarno, Italy,
Chatsworth, California and New Berlin, Wisconsin, are directed toward developing
new products, improving existing products, and customizing or modifying products
to meet customers' specific needs. Total research and development expenditures
were approximately $8.1 million, $11.0 million and $13.0 million, respectively
for the 2000, 1999 and 1998 fiscal years.
3
<PAGE>
TRADEMARKS AND PATENTS
The Company holds numerous patents and believes that it holds
all of the patent, trademark and other intellectual property rights necessary to
conduct its business.
EMPLOYEES
As of September 1, 2000, the Company had approximately 600
salaried employees and approximately 1,100 hourly employees, of whom
approximately 600 were covered by collective bargaining agreements with various
unions. The Company believes that its relationships with its employees are
favorable.
ENVIRONMENTAL MATTERS
GENERAL. The Company has from time to time discovered
contamination by hazardous substances at certain of its facilities. In response
to such a discovery, the Company conducts remediation activities to bring the
facility into compliance with applicable laws and regulations. The Company's
remediation activities for fiscal 2000 did not entail material expenditures, and
its remediation activities for fiscal 2001 are not expected to entail material
expenditures. Future remediation of contaminated areas could entail material
expenditures, depending upon the extent and nature of the contamination, the
cleanup measures employed and the concurrence of governmental authorities.
CENTURY ELECTRIC (MCMINNVILLE, TENNESSEE). Prior to its
purchase by the Company in 1986, Century Electric, Inc. ("Century Electric")
acquired a business from Gould Inc. ("Gould") in May 1983 which included a
leasehold interest in a fractional horsepower electric motor manufacturing
facility located in McMinnville, Tennessee. In connection with this acquisition,
Gould agreed to indemnify Century Electric from and against liabilities and
expenses arising out of the handling and cleanup of certain waste materials,
including but not limited to cleaning up any PCBs at the McMinnville facility
(the "1983 Indemnity"). Investigation has revealed the presence of PCBs and
other substances, including solvents, in portions of the soil and in the
groundwater underlying the facility and in certain offsite soil, sediment and
biota samples. Century Electric has kept the Tennessee Department of Environment
and Conservation, Division of Superfund, apprised of test results from the
investigation. The McMinnville plant has been listed as a Tennessee Inactive
Hazardous Substance Site, a report on that site has been presented to the
Tennessee legislature, and community officials and plant employees have been
notified of the presence of contaminants as above described. In 1995, Gould
completed an interim remedial measure of excavating and disposing onsite soil
containing PCBs. Gould also conducted preliminary investigation and cleanup of
certain onsite and offsite contamination. The cost of any further investigation
and cleanup of onsite and offsite contamination cannot presently be determined.
The Company recently sold its leasehold interest in the McMinnville plant and
believes that the costs for further onsite and offsite cleanup (including
ancillary costs) are covered by the 1983 Indemnity. While the Company believes
that Gould will continue to perform substantially under its indemnity
obligations, Gould's substantial failure to perform such obligations could have
a material adverse effect on the Company.
EFFECT OF FRUIT OF THE LOOM BANKRUPTCY. A company obligated to
indemnify MagneTek against certain environmental liabilities, Fruit of the Loom,
Inc. ("FOL"), has filed a petition for Reorganization under Chapter 11 of the
Bankruptcy Code. MagneTek acquired the stock of Universal Manufacturing Company
("Universal") from a predecessor of FOL. In connection with that acquisition,
the predecessor of FOL indemnified MagneTek against certain environmental
liabilities arising from Universal's pre-acquisition activities. Environmental
liabilities covered by the FOL indemnity include completion of additional
4
<PAGE>
cleanup activities (if any) at MagneTek's Bridgeport, Connecticut facility, and
defense and indemnity of MagneTek concerning offsite disposal locations where
MagneTek may have a share of potential response costs. MagneTek has filed a
proof of claim in FOL's bankruptcy proceeding for matters governed by the FOL
environmental indemnity.
OFFSITE LOCATIONS. The Company has been identified by the
United States Environmental Protection Agency and certain state agencies as a
potentially responsible party for cleanup costs associated with alleged past
waste disposal practices at several offsite locations. Based on the nature of
its alleged connections to those sites, the volume and nature of the alleged
contaminants, the anticipated cleanup costs, the number of parties
participating, any available identification rights and the ability of other
liable parties to pay their shares, the Company's estimated share in liability
(if any) at the offsite facilities is not expected to be material. It is
possible that the Company's actual expenditures at those sites maybe less or
greater than currently anticipated, and that the Company will be named as a
potentially responsible party in the future with respect to other sites.
INDEMNIFICATION OBLIGATIONS FROM DIVESTITURES. In selling
certain business operations, the Company from time to time has agreed, subject
to various conditions and limitations, to indemnify buyers with respect to
environmental liabilities associated with the divested operations. The Company's
indemnification obligations pursuant to such agreements did not entail material
expenditures for fiscal 2000, and its indemnification obligations for fiscal
2001 are not expected to entail material expenditures. Future expenditures
pursuant to such agreements could be material, depending upon the nature of any
future asserted claims subject to indemnification.
CAUTIONARY STATEMENT
This document contains "forward-looking statements" as defined
on the Private Securities Litigation Reform Act of 1995, that are subject to
risks and uncertainties which, in many cases, are beyond the control of the
Company. These include but are not limited to economic conditions in general,
business conditions in telecommunications and electronic equipment markets,
competitive factors such as pricing and technology, and the risk that the
Company's ultimate costs of doing business exceed present estimates.
In addition, the Company's results of operations could be
adversely affected by general business and legal risks, as well as the following
specific risks.
COMPETITION AND PRICING PRESSURES. MagneTek operates in an
intensely competitive environment, and certain of its competitors are
significantly larger and have substantially greater resources than the Company.
Certain of such companies are seeking to employ competitive and management
strategies similar to those of MagneTek. As a result, MagneTek's competitive
standing may be expected to vary from time to time and among different markets.
DEPENDENCE ON SIGNIFICANT CUSTOMERS. MagneTek's sales to its
top five customers represented approximately 25% of its net sales in fiscal
2000. The loss of any such customers or significant decreases in any such
customer's levels of purchases from MagneTek could have a material adverse
effect on the Company's business.
SENSITIVITY TO GENERAL ECONOMIC AND INDUSTRY CONDITIONS.
MagneTek's markets are cyclical in nature and subject to general trends in the
economy. Profitability and cash flow availability could be adversely affected by
any prolonged economic downturn.
5
<PAGE>
INTERNATIONAL SALES AND OPERATIONS; FOREIGN CURRENCY EXPOSURE.
International sales, including sales from domestic operations, accounted for
approximately 28% of MagneTek's net sales in fiscal 2000. As a result of its
international sales and operations, the Company is subject to the risk of
fluctuation in currency exchange rates. Further, MagneTek's international
operations are subject to risks associated with changes in local economic and
political conditions, currency exchange restrictions, regulatory requirements
and taxes.
YEAR 2000 COMPLIANCE. In fiscal years 1998 and 1999 the
Company conveyed its plans and progress in insuring that all systems were Year
2000 compliant. As scheduled, the Company completed remediation and testing for
all systems in the last half of fiscal year 1999. Due to efforts expended, the
Company has experienced no significant disruptions in either critical
information or non-information technology systems. The Company is not aware of
any material problems resulting from Year 2000 issues with products, internal
systems or third party products or services. For the remainder of Year 2000, the
Company will continue to monitor both internal computer applications and those
of third party suppliers and vendors. While the Company does not expect any
problems to occur, should any latent Year 2000 issues arise, they will be
addressed promptly.
ENVIRONMENTAL MATTERS. MagneTek has from time to time
discovered contamination by hazardous substances at certain of its facilities
and in selling certain business operations. The Company has agreed, in some
instances, to provide indemnification against environmental liabilities
associated with divested operations.
RAW MATERIALS. MagneTek's raw material costs represented
approximately 55% of its net sales in fiscal 2000. The principal materials used
by the Company are electronic components. Unanticipated increases in raw
material requirements or price increases would increase production costs and
adversely affect profitability.
ACQUISITIONS. MagneTek's business strategy calls for growth
and diversification in the digital power products business. Pursuing acquisition
opportunities and attempting to integrate and manage acquired businesses
requires significant resources, including management time and skill, and these
efforts may detract from the management or operation of other businesses.
Additionally, acquired businesses may not perform as expected, thereby causing
MagneTek's actual growth or operating results to suffer.
ITEM 2. PROPERTIES.
MagneTek's headquarters and each of its manufacturing
facilities for the continuing operations of the Company are listed below, each
of which is owned by the Company unless shown as leased.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION LEASE TERM SIZE (SQ. FT.) PRINCIPAL USE
- -------------------------- ---------- -------------- --------------------------------
<S> <C> <C> <C>
Chatsworth, California 2003 48,000 Power supply manufacturing
Los Angeles, California 2005 5,000 Corporate headquarters
Menomonee Falls, Wisconsin 2004 74,000 Drives and systems manufacturing
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION LEASE TERM SIZE (SQ. FT.) PRINCIPAL USE
- -------------------------- ---------- -------------- --------------------------------
<S> <C> <C> <C>
New Berlin, Wisconsin 2008 122,400 Drives and systems manufacturing
Pomaz, Hungary 2006, 2007 44,000 Power supply and ballast
manufacturing
Valdarno, Italy -- 149,000 Power supply manufacturing
</TABLE>
The Company believes its facilities are in satisfactory
condition and are adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS.
PRODUCT LIABILITY
The Company is a party to a number of product liability
lawsuits, many of which involve fires allegedly caused by defective ballasts.
All of these cases are being defended by the Company, and management believes
that its insurers will bear all liability, except for applicable deductibles,
and that none of these proceedings individually or in the aggregate will have a
material effect on the Company.
PATENT
In April 1998, Ole K. Nilssen filed a lawsuit in the U.S.
District Court for the Northern District of Illinois alleging the Company is
infringing seven of his patents pertaining to electronic ballast technology. The
plaintiff seeks an unspecified amount of damages and an injunction to preclude
the Company from making, using or selling those products allegedly infringing
his patents. The Company denies that it has infringed, or is infringing, any of
the plaintiff's patents, and has asserted several affirmative defenses. The
Company also filed a counterclaim seeking judicial declaration that it is not
infringing (and has not infringed) the patents asserted by the plaintiff, and
that such asserted patents are invalid. The Company intends to defend this
matter vigorously. At this stage of the litigation, it is difficult to predict
the outcome of the foregoing legal proceeding. However, management of the
Company does not believe that the financial impact of such litigation will be
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the
Company during the quarter ended June 30, 2000.
7
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth the high and low sales prices
of the Company's Common Stock during each quarter of fiscal 1999 and 2000:
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW
-------------- ---- ---
<S> <C> <C>
September 30, 1999 11-5/8 8-13/16
December 31, 1999 9-3/8 6-1/8
March 31, 2000 9-7/8 7-1/4
June 30, 2000 9-1/8 7-3/16
September 30, 1998 16-5/8 9-13/16
December 31, 1998 13-7/8 8-15/16
March 31, 1999 12-13/16 8-1/4
June 30, 1999 11-13/16 8-5/16
</TABLE>
The Company's Common Stock is traded on the New York Stock
Exchange under the ticker symbol "MAG." As of September 22, 2000, there were 259
record holders of its Common Stock. No cash dividends have been paid on the
Common Stock.
MagneTek has not paid any cash dividends on its Common Stock
and does not anticipate paying cash dividends in the near future. The ability of
the Company to pay dividends on its Common Stock is restricted by provisions in
the Company's 1997 bank loan agreement, which provides that the Company may not
declare or pay any dividend or make any distribution with respect to its capital
stock except for the repurchase of up to $72.0 million (of which $62.0 million
has been applied) of the Company's Common Stock so long as no event of default
exists.
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by Part II, Items 6, 7 and 8 is
hereby incorporated by reference to the Selected Financial Data, Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Financial Statements and the Report of Ernst & Young LLP, Independent
Auditors, of the Company's 2000 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
8
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding
the current executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------- --- -------------------------------------------------
<S> <C> <C>
Andrew G. Galef 67 Chairman of the Board of Directors,
President and Chief Executive Officer
Antonio Canova 58 Executive Vice President
Alexander Levran, Ph.D. 50 Senior Vice President, Technology
David P. Reiland 46 Senior Vice President and Chief Financial Officer
John P. Colling, Jr. 44 Vice President and Treasurer
Thomas R. Kmak 50 Vice President and Controller
</TABLE>
Mr. Galef has been the Chairman of the Board of Directors
since July 1984 and the President and Chief Executive Officer of the Company
since May 4, 1999. He also is the Chairman of the Nominating and Corporate
Governance Committee. Mr. Galef was the Chief Executive Officer of the Company
from September 1993 until June 1996. He has been President of The Spectrum
Group, Inc. ("Spectrum"), a private investment and management firm, since its
incorporation in California in 1978 and its Chairman and Chief Executive Officer
since 1987. Prior to the formation of Spectrum, Mr. Galef was engaged in
providing professional interim management services to companies with serious
operating and financial problems. Mr. Galef is presently a director of Warnaco,
Inc., a diversified apparel manufacturer, and its parent, The Warnaco Group,
Inc., and was formerly Chairman of Aviall, Inc., a company providing aircraft
engine refurbishment and related products and services, and Exide Corporation, a
manufacturer of automotive and industrial batteries. Mr. Galef also currently
serves as a director, and was formerly the Chairman, of Petco Animal Supplies,
Inc. In addition, Mr. Galef serves as chairman or a director of other privately
held Spectrum portfolio companies.
Mr. Canova has been Executive Vice President, with
responsibility for the Company's Power Supplies business since October 1993. He
has served as managing director of MagneTek S.p.A. in Italy since March 1991. He
held the same position with Plessey S.p.A. from 1988 until March 1991 when
Plessey S.p.A. was acquired by the Company. From 1969 to 1988, Mr. Canova served
as general manager of Plessey S.p.A.
Dr. Levran has been Senior Vice President, Technology since
January 1995. He served as Vice President, Technology from July 1993 until
January 1995. From 1991 to June 1993, Dr. Levran was employed by EPE
Technologies, Inc., a subsidiary of Groupe Schneider, as Vice President of
Engineering and Technology with worldwide engineering responsibilities. From
1981 to 1991, he held various engineering management positions with Teledyne
Inet, a subsidiary of Teledyne, Inc., most recently as Vice President of
Engineering. Dr. Levran received his Ph.D. in electrical engineering from the
Polytechnic Institute of New York in 1981.
9
<PAGE>
Mr. Reiland has been Senior Vice President since July 1996 and
Chief Financial Officer of the Company since July 1988. Mr. Reiland was also an
Executive Vice President of the Company from July 1993 until July 1996 and
Senior Vice President from July 1989 until July 1993. He was Controller of the
Company from August 1986 to October 1993, and was Vice President, Finance from
July 1987 to July 1989. Prior to joining the Company, Mr. Reiland was an Audit
Manager with Arthur Andersen & Co. where he served in various capacities since
1980.
Mr. Colling has been Vice President of the Company since July
1990, Treasurer of the Company since June 1989 and was assistant treasurer of
the Company from July 1987 to June 1989. Prior to that, Mr. Colling was the
assistant treasurer of Century Electric, where he served in various capacities
since August 1981.
Mr. Kmak has been Vice President of the Company since October
1993, Controller since November 1994 and Operations Controller from October 1993
to November 1994. Mr. Kmak was the vice president, finance of the Company's
Motors and Controls business from November 1986 when Century Electric was
acquired by the Company until July 1992 and served as vice president,
operational finance of the Company's Motors and Controls business from July 1992
until October 1993. Prior to the acquisition Mr. Kmak had been with Century
Electric since 1976, serving in various capacities.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Part III, Items 10, 11, 12 and
13, is hereby incorporated by reference to the Company's definitive Proxy
Statement to be mailed to Stockholders in October 2000, except for information
regarding the Executive Officers of the Company, which is provided in response
to Item 10, above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Index to Consolidated Financial Statements,
Consolidated Financial Statement Schedules and Exhibits:
<TABLE>
<CAPTION>
EDGARIZED ANNUAL REPORT TO
FORM 10-K PAGE STOCKHOLDERS PAGE
-------------- -----------------
<S> <C> <C>
1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income for Years Ended -- 11
June 30, 2000, 1999 and 1998
Consolidated Balance Sheets at June 30, 2000 and 1999 -- 12
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
EDGARIZED ANNUAL REPORT TO
FORM 10-K PAGE STOCKHOLDERS PAGE
-------------- -----------------
<S> <C> <C>
Consolidated Statements of Stockholders' Equity for -- 14
Years Ended June 30, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for Years Ended -- 15
June 30, 2000, 1999 and 1998
Notes to Consolidated Financial Statements -- 16
Report of Ernst & Young LLP, Independent Auditors -- 33
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Report of Ernst & Young LLP, Independent Auditors S-1 51
Schedule II -- Valuation and Qualifying Accounts S-2 52
</TABLE>
All other schedules have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the Consolidated Financial Statements and related notes.
<TABLE>
<CAPTION>
EDGARIZED ANNUAL REPORT TO
FORM 10-K PAGE STOCKHOLDERS PAGE
-------------- -----------------
<S> <C> <C>
3. EXHIBIT INDEX 11 44
</TABLE>
The following exhibits are filed as part of this Annual Report
Form 10-K, or are incorporated herein by reference. Where an exhibit is
incorporated by reference, the number which precedes the description of the
exhibit indicates the documents to which the cross-reference is made.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1 (1) Restated Certificate of Incorporation of the Company, as filed with the Delaware
Secretary of State on November 21, 1989.
3.2 (2) By-laws of the Company, as amended and restated.
4.1 (3) Specimen Common Stock Certificate.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10.1 (4) 1987 Stock Option Plan of MagneTek, Inc. ("1987 Plan").
10.2 (5) Amendments No. 1 and 2 to 1987 Plan.
10.3 (6) Amendments No. 3 and 4 to 1987 Plan.
10.4 (7) Amendment No. 5 to 1987 Plan.
10.5 (8) Second Amended and Restated 1989 Incentive Stock Compensation Plan of MagneTek, Inc.
("1989 Plan").
10.6 (7) Amendment No. 1 to 1989 Plan.
10.7 (7) Standard Terms and Conditions Relating to Non-Qualified Stock Options, revised as of
July 24, 1996, pertaining to the 1987 Plan and the 1989 Plan.
10.8 (7) Form of Non-Qualified Stock Option Agreement Pursuant to the Second Amended and
Restated 1989 Incentive Stock Compensation Plan of the Company.
10.9 (9) MagneTek, Inc. 1997 Non-Employee Director Stock Option Plan.
10.10 (4) Senior Executive Medical Expense Reimbursement Plan for the Company.
10.11 (6) 1991 Discretionary Director Incentive Compensation Plan of the Company.
10.12 (10) 1999 Stock Incentive Plan of the Company (the "1999 Plan").
10.13 (10) 2000 Employee Stock Plan of the Company (the "2000 Plan").
10.14 (7) Form of Restricted Stock Agreement Pursuant to the Second Amended and Restated 1989
Incentive Stock Compensation Plan of the Company.
10.15 (10) Standard Terms and Conditions Relating to Non-Qualified Stock Options, effective as
of October 19, 1999, pertaining to the 1999 Plan and the 2000 Plan.
10.16 (11) Form of Rights Agreement dated as of March 4, 1997 by and between the Company and The
Bank of New York, as Rights Agent, as amended and restated as of February 2, 2000.
10.17 (12) MagneTek, Inc. Amended and Restated Director Compensation and Deferral Investment
Plan.
10.18 (13) Non-Qualified Stock Option Agreement between the Company and David P. Reiland.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
10.19 (5) Registration Rights Agreement dated as of April 29, 1991 among the Company, Andrew G.
Galef, Frank Perna, Jr. and the other entities named therein.
10.20 (7) Registration Rights Agreement dated as of June 28, 1996 by and between the Company
and U.S. Trust Company of California, N.A.
10.21 (14) Executive Management Agreement dated as of July 1, 1994, by and between the Company
and The Spectrum Group, Inc.
10.22 (15) Amendment dated as of January 25, 1995 to the Executive Management Agreement between
the Company and The Spectrum Group, Inc.
10.23 (16) Amendment No. 1 to the Executive Management Agreement dated as of June 30, 2000
between the Company and The Spectrum Group, Inc.
10.24 (17) Change of Control Agreement dated October 20, 1998 between Antonio Canova and
MagneTek, Inc.
10.25 (17) Change of Control Agreement dated October 20, 1998 between Brian R. Dundon and
MagneTek, Inc.
10.26 (17) Change of Control Agreement dated October 20, 1998 between Alexander Levran and
MagneTek, Inc.
10.27 (17) Change of Control Agreement dated October 20, 1998 between David P. Reiland and
MagneTek, Inc.
10.28 (17) Change of Control Agreement dated October 20, 1998 between John P. Colling, Jr. and
MagneTek, Inc.
10.29 (17) Change of Control Agreement dated October 20, 1998 between Thomas R. Kmak and
MagneTek, Inc.
10.30 (18) Security Agreement dated March 1, 1993 between the Industrial Development Board of
the City of Huntsville ("the Huntsville IDB") and the Company (the "Huntsville
Security Agreement").
10.31 (19) First Supplemental Security Agreement dated as of August 1, 1993 by and between the
Huntsville IDB and The CIT Group/Equipment Financing, Inc. ("CIT").
10.32 (19) Second Supplemental Security Agreement dated as of October 1, 1993 by and between the
Huntsville IDB and CIT.
10.33 (18) Equipment Lease Agreement of even date with the Huntsville Security Agreement among
the parties thereto.
10.34 (19) Amendment to Equipment Lease Agreement dated as of August 1, 1993 between the
Huntsville IDB and the Company.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.35 (19) Second Amendment to Equipment Lease Agreement dated as of October 1, 1993 between the
Huntsville IDB and the Company.
10.36 (20) Lease Agreement dated as of November 1, 1988 between the Huntsville IDB and
Burnett-Nickelson Investments ("Lease Agreement") as to which the Company succeeded
to the lessee's obligations.
10.37 (21) First, Second and Third Amendments to Lease Agreement.
10.38 (22) Fourth Amendment to Lease Agreement.
10.39 (21) Bond Guaranty Agreement between the Company, as Guarantor and First Alabama Bank
dated as of February 1, 1993 relating to the Lease Agreement.
10.40 (21) Indenture dated as of November 1, 1988 relating to First Mortgage Industrial Revenue
Bonds (Burnett-Nickelson Project Series 1988) between Huntsville IDB and First
Alabama Bank, as Trustee, relating to the Huntsville facility (the "Indenture").
10.41 (21) First, Second and Third Supplemental Indentures to the Indenture.
10.42 (22) Fourth Supplemental Indenture to the Indenture.
10.43 (23) Environmental Agreement among the Company, Universal Manufacturing Corporation and
Farley Northwest Industries, Inc., as amended.
10.44 (23) Letter Agreement dated as of January 9, 1986, between the Company and Farley
Northwest Industries, Inc., pursuant to Stock Purchase Agreement.
10.45 (23) Tax Agreement dated as of February 12, 1986, between the Company and Farley Northwest
Industries, Inc.
10.46 (23) Agreement dated as of January 9, 1986, between the Company and Farley/Northwest
Industries, Inc. relating to the Totowa facility.
10.47 (24) Restated Credit Agreement dated as of June 20, 1997 between the Company, as Borrower,
NationsBank of Texas, N.A., as Agent, CIBC Inc., The First National Bank of Chicago,
The Long-Term Credit Bank of Japan, Ltd., Bankers Trust Company, Credit Lyonnais --
New York Branch, and Union Bank of California, N.A., as Co-Agents, and Certain
Lenders (the "Restated Credit Agreement").
10.48 (24) Guaranty dated as of December 29, 1996 by MagneTek Financial Services, Inc., as
Guarantor, for the benefit of NationsBank, in its capacity as Agent for the Lenders
now or in the future party to the Credit Agreement dated as of March 31, 1995 between
the Company, certain lenders and NationsBank (the "1995 Credit Agreement").
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.49 (24) Security Agreement dated as of December 29, 1996 by the Company and MagneTek
Financial Services, Inc. for the benefit of NationsBank, in its capacity as Agent for
the Lenders now or in the future party to the 1995 Credit Agreement.
10.50 (24) Security Agreement dated as of March 31, 1995 by the Company and the other debtors
party thereto for the benefit of NationsBank, in its capacity as Agent for the
Lenders now or in the future party to the 1995 Credit Agreement (the "1995 Security
Agreement").
10.51 (24) Supplement to Security Agreement dated as of March 31, 1995 between the Company and
NationsBank, in its capacity as Agent for the Lenders now or in the future party to
the 1995 Credit Agreement, with reference to the 1995 Security Agreement.
10.52 (25) First Amendment dated as of March 27, 1998 to the Restated Credit Agreement.
10.53 (16) Second Amendment dated as of March 26, 1999 to the Restated Credit Agreement.
10.54 (16) Third Amendment dated as of July 30, 1999, to the Restated Credit Agreement.
10.55 (10) Fourth Amendment dated as of September 28, 1999 to the Restated Credit Agreement.
10.56 (16) Lease on Chatsworth, California facility dated May 22, 1997.
10.57 (16) Lease on Los Angeles, California facility dated June 5, 2000.
10.58 (26) Lease on New Berlin, Wisconsin facility.
10.59 (5) Third Modification of Lease dated as of December 31, 1990 on New Berlin, Wisconsin
facility.
10.60 (22) Fourth Modification of Lease dated as of February 12, 1993 on New Berlin, Wisconsin
facility.
10.61 (16) Lease on Pomaz, Hungary facility.
10.62 (27) Lease on Menomonee Falls, Wisconsin facility dated as of July 23, 1999.
10.63 (28) Asset Purchase Agreement dated as of April 26, 1999 between the Company and Emerson
Electric Co.
10.64 (29) Asset Purchase Agreement dated as of June 28, 1999 by and among the Company, MagneTek
Service (U.K.), Limited and A.O. Smith Corporation.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.65 (27) Asset Purchase Agreement dated July 23, 1999 among the Company, Electric Motor
Systems, Inc., Electromotive Systems, Inc., EMS/Rosa Automation Engineering, Inc.,
Robert G. Friedrich and Steven J. Badinghaus.
13 (16) 2000 Annual Report (pp. 3-33).
23 (16) Consent of Ernst & Young LLP, independent auditors.
27 (16) Financial Data Schedule.
</TABLE>
- -------------------
(1) Previously filed with the Registration Statement on Form S-3 filed on
August 1, 1991, Commission File No. 33-41854, and incorporated herein by
this reference.
(2) Previously filed with Form 10-K for Fiscal Year ended July 2, 1995
and incorporated herein by this reference.
(3) Previously filed with Amendment No. 1 to Registration Statement filed on
May 10, 1989 and incorporated herein by this reference.
(4) Previously filed with Form 10-K for Fiscal Year ended June 30, 1987 and
incorporated herein by this reference.
(5) Previously filed with Form 10-K for Fiscal Year ended June 30, 1991 and
incorporated herein by this reference.
(6) Previously filed with Form 10-K for Fiscal Year ended June 30, 1992 and
incorporated herein by this reference.
(7) Previously filed with Form 10-K for Fiscal Year ended June 30, 1996 and
incorporated herein by this reference.
(8) Previously filed with Form 10-Q for quarter ended December 31, 1994 and
incorporated herein by this reference.
(9) Previously filed with the Registration Statement on Form S-8 filed on
February 10, 1998, Commission File No. 333-45935, and incorporated
herein by this reference.
(10) Previously filed with Form 10-Q/A for quarter ended September 30, 1999
and incorporated herein by this reference.
(11) Previously filed with Form 8A/A dated March 7, 2000 and incorporated
herein by this reference.
(12) Previously filed with the Registration Statement on Form S-8 filed on
February 10, 1998, Commission File No. 333-45939, and incorporated
herein by this reference.
(13) Previously filed with Form 10-Q for quarter ended March 31, 1997 and
incorporated herein by this reference.
16
<PAGE>
(14) Previously filed with Form 10-Q for quarter ended March 31, 1994 and
incorporated herein by this reference.
(15) Previously filed with Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by this reference.
(16) Filed herewith.
(17) Previously filed with Form 10-Q for quarter ended December 31, 1998 and
incorporated herein by this reference.
(18) Previously filed with Form 10-Q for quarter ended March 31, 1993 and
incorporated herein by this reference.
(19) Previously filed with Form 10-Q for quarter ended September 30, 1993 and
incorporated herein by this reference.
(20) Previously filed with Form 8-K dated January 5, 1990 and incorporated
herein by this reference.
(21) Previously filed with Form 10-K for fiscal year ended June 27, 1993 and
incorporated herein by this reference.
(22) Previously filed with Form 10-K for Fiscal Year ended July 3, 1994 and
incorporated herein by this reference.
(23) Previously filed with Amendment No. 1 to Registration Statement filed on
February 14, 1986 and incorporated herein by this reference.
(24) Previously filed with Form 10-K for Fiscal Year ended June 30, 1997 and
incorporated herein by this reference.
(25) Previously filed with Form 10-K for Fiscal Year ended June 30, 1998 and
incorporated herein by this reference.
(26) Previously filed with the Registration Statement filed on May 3, 1985 and
incorporated herein by this reference.
(27) Previously filed with Form 10-K for Fiscal year ended June 27, 1999 and
incorporated herein by this reference.
(28) Previously filed with Form 8-K dated April 26, 1999 and incorporated herein
by this reference.
(29) Previously filed with Form 8-K dated August 2, 1999 and incorporated herein
by this reference.
(b) Reports on Form 8-K:
The Company filed no Reports on Form 8-K during the last quarter of the
2000 fiscal year.
(c) Refer to (a) 3 above.
(d) Refer to (a) 2 above.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Nashville, State of Tennessee, on the 2nd day of October, 2000.
MagneTek, Inc.
(Registrant)
/s/ ANDREW G. GALEF
------------------------------------
Andrew G. Galef
Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ ANDREW G. GALEF Chairman of the Board of Directors, October 2, 2000
- --------------------------------------------- President and Chief Executive
Andrew G. Galef Officer (Principal Executive
Officer)
/s/ THOMAS G. BOREN Director October 2, 2000
- ---------------------------------------------
Thomas G. Boren
/s/ DEWAIN K. CROSS Director October 2, 2000
- ---------------------------------------------
Dewain K. Cross
/s/ PAUL J. KOFMEHL Director October 2, 2000
- ---------------------------------------------
Paul J. Kofmehl
/s/ FREDERICK D. LAWRENCE Director October 2, 2000
- ---------------------------------------------
Frederick D. Lawrence
/s/ MITCHELL I. QUAIN Director October 2, 2000
- ---------------------------------------------
Mitchell I. Quain
/s/ ROBERT E. WYCOFF Director October 2, 2000
- ---------------------------------------------
Robert E. Wycoff
/s/ DAVID P. REILAND Senior Vice President and October 2, 2000
- --------------------------------------------- Chief Financial Officer
David P. Reiland (Principal Financial Officer)
/s/ THOMAS R. KMAK Vice President and Controller October 2, 2000
- --------------------------------------------- (Principal Accounting Officer)
Thomas R. Kmak
</TABLE>
18
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of MagneTek, Inc. as of
June 30, 2000 and 1999, and for each of the three years in the period ended June
30, 2000, and have issued our report thereon dated August 18, 2000 (incorporated
by reference elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule listed in Item 14(a) of this Annual
Report on Form 10-K. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Nashville, Tennessee
August 18, 2000
S-1
<PAGE>
SCHEDULE II
MAGNETEK, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1998, 1999 AND 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
June 30, 1998 of year earnings Allowance Other(a) of year
- ------------------- ----------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful
receivables $1,031 $1,743 ($1,753) $36 $1,057
June 30, 1999
- -------------------
Allowance for
doubtful
receivables $1,057 $3,062 ($2,549) ($6) $1,564
June 30, 2000
- -------------------
Allowance for
doubtful
receivables $1,564 $8,452 ($7,132) $415 $3,299
</TABLE>
(a) Represents primarily opening allowances for doubtful accounts balances
of acquired companies and Foreign Translation Adjustments.
S-2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>2
<FILENAME>a2025491zex-10_23.txt
<DESCRIPTION>EXHIBIT 10.23
<TEXT>
<PAGE>
AMENDMENT NO. 1 TO
EXECUTIVE MANAGEMENT AGREEMENT
This Amendment No. 1 to Executive Management Agreement (this "Amendment") is
made and entered into as of June 30, 2000, by and between MagneTek, Inc. (the
"Company"), a Delaware corporation, and The Spectrum Group, Inc.
("Spectrum"), a California corporation.
WITNESSETH
WHEREAS, the Company and Spectrum entered into a five-year Executive
Management Agreement dated as of July 1, 1994 (the "Agreement") which would
have expired by its terms on July 1, 1999; and
WHEREAS, the Board of Directors of the Company adopted certain
resolutions as of May 5, 1999 extending the Agreement through June 30, 2000;
and
WHEREAS, the Company and Spectrum at this time desire to amend the
Agreement so as to extend it through December 31, 2002.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the Company and Spectrum agree as
follows:
1. Section 1.A of the Agreement is hereby amended by deleting the words
"July 1, 1999" and replacing them with the words "December 31, 2002".
2. Section 3 of the Agreement is hereby amended by deleting the words
"July 1, 1999" and replacing them with the words "December 31, 2002".
3. Section 5.A of the Agreement is hereby amended by deleting the
addresses and replacing them with the following:
"If to the Company:
MagneTek, Inc.
26 Century Boulevard
Suite 600
Nashville, TN 37214
Attention: General Counsel
<PAGE>
If to Spectrum:
The Spectrum Group, Inc.
11050 Santa Monica Boulevard
2nd Floor
Los Angeles, CA 90025
Attention: Chairman"
4. Except as amended hereby, the Agreement remains in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 to Executive Management Agreement as of the date first above written.
MAGNETEK, INC.
By:----------------------
THE SPECTRUM GROUP, INC.
By:----------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.53
<SEQUENCE>3
<FILENAME>a2025491zex-10_53.txt
<DESCRIPTION>EXHIBIT 10.53
<TEXT>
<PAGE>
EXHIBIT 10.53
SECOND AMENDMENT TO RESTATED CREDIT AGREEMENT
THIS DOCUMENT is entered into as of March 26, 1999, between MAGNETEK,
INC., a Delaware corporation ("BORROWER"), certain Lenders, NATIONSBANK, N.A.
(successor by merger with NationsBank of Texas, N.A., "AGENT"), as Agent for
Lenders, and CIBC INC., THE FIRST NATIONAL BANK OF CHICAGO, THE LONG-TERM CREDIT
BANK OF JAPAN, LTD., BANKERS TRUST COMPANY, CREDIT LYONNAIS - NEW YORK BRANCH,
and UNION BANK OF CALIFORNIA, N.A., as Co-Agents for Lenders.
Borrower, Agent, Co-Agents, and Lenders are party to the Restated
Credit Agreement (as renewed, extended, and amended, the ("CREDIT AGREEMENT")
dated as of June 20, 1997, providing for a $350,000,000 revolving credit
facility. Borrower, Agent, and Determining Lenders have agreed, upon the
following terms and conditions, to the amendment described in PARAGRAPH 2 below
in order to permit the sale of certain assets. Accordingly, for adequate and
sufficient consideration, Borrower, Agent, and Lenders agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Credit Agreement have the same meanings when used in this
document and (B) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT. SECTION 9.11 is amended by (A) deleting the word "AND" before
CLAUSE (h) in that section and (B) adding the following to the end of that
section:
, AND (I) THE SALE BY BORROWER TO EMERSON ELECTRIC COMPANY FOR
$115,000,000 OF ITS GENERATOR BUSINESS, INCLUDING ITS
ALTERNATOR MANUFACTURING FACILITY IN LEXINGTON, TENNESSEE, ALL
OF ITS INVENTORY AT THAT FACILITY, ALL OF ITS ACCOUNTS
RECEIVABLE FROM ITS GENERATOR BUSINESS, CERTAIN OTHER
EQUIPMENT AND INVENTORY FOR THAT BUSINESS LOCATED OUTSIDE OF
ITS LEXINGTON, TENNESSEE, FACILITY, AND ALL OF ITS OWNERSHIP
OF ITS SUBSIDIARY MAGNETEK CHINA LIMITED, A CAYMAN ISLAND
COMPANY.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective until Agent receives
counterparts of this document executed by Borrower, each Domestic Restricted
Company, and Determining Lenders.
4. RATIFICATIONS. Borrower (A) ratifies and confirms all provisions of the Loan
Documents as amended by this document, (B) ratifies and confirms that, (EXCEPT
in respect of the release of Lender Liens on the assets described in PARAGRAPH 2
above and as permitted by SECTION 5.5(b)), all guaranties, assurances, and Liens
granted, conveyed, or assigned to Agent under the Loan Documents are not
released, reduced, or otherwise adversely affected by this document and continue
to guarantee, assure, and secure full payment and performance of the present and
future Obligation, and (C) agrees to perform such acts and duly authorize,
execute, acknowledge, deliver, file, and record such additional documents and
certificates as Agent may request in order to create, perfect, preserve, and
protect those guaranties, assurances, and Liens.
5. REPRESENTATIONS. To induce Agent, Co-Agents, and Lenders to enter into this
document, Borrower represents and warrants to Agent, Co-Agents, and Lenders that
as of the date of this document (A) all representations and warranties in the
Loan Documents are true and correct in all material respects EXCEPT
SECOND AMENDMENT
<PAGE>
to the extent that any of them speak to a different specific date or the facts
on which any of them were based have been changed by transactions contemplated
or permitted by the Credit Agreement, and (B) no Material Adverse Event,
Default, or Potential Default exists.
6. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or incurred
by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
release or other related documents.
7. MISCELLANEOUS. All references in the Loan Documents to the "CREDIT AGREEMENT"
refer to the Credit Agreement as amended by this document. This document is a
"LOAN DOCUMENT" referred to in the Credit Agreement, and the provisions relating
to Loan Documents in SECTIONS 1 and 14 of the Credit Agreement are incorporated
in this document by reference. Except as specifically amended by this document,
the Credit Agreement is unchanged and continues in full force and effect. This
document may be executed in any number of counterparts with the same effect as
if all signatories had signed the same document. All counterparts must be
construed together to constitute one and the same instrument. This document
binds and inures to each of the undersigned and their respective successors and
permitted assigns, subject to the terms of the Credit Agreement. THIS DOCUMENT
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
2 SECOND AMENDMENT
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.54
<SEQUENCE>4
<FILENAME>a2025491zex-10_54.txt
<DESCRIPTION>EXHIBIT 10.54
<TEXT>
<PAGE>
EXHIBIT 10.54
THIRD AMENDMENT TO RESTATED CREDIT AGREEMENT
(And Waiver)
THIS DOCUMENT is entered into as of July 30, 1999, between MAGNETEK, INC.,
a Delaware corporation ("BORROWER"), certain Lenders, BANK OF AMERICA, N.A.
(formerly NationsBank, N.A., formerly NationsBank of Texas, N.A., "AGENT"), as
Agent for Lenders, and BANKERS TRUST COMPANY, CIBC INC., CREDIT LYONNAIS - NEW
YORK BRANCH, THE FIRST NATIONAL BANK OF CHICAGO, GENERAL ELECTRIC CAPITAL
CORPORATION (assignee of The Long-Term Credit Bank of Japan, Ltd.), and UNION
BANK OF CALIFORNIA, N.A., as Co-Agents for Lenders.
Borrower, Agent, Co-Agents, and Lenders are party to the Restated Credit
Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as
of June 20, 1997, providing for a revolving credit facility. Borrower, Agent,
and Determining Lenders have agreed, upon the following terms and conditions, to
(1) the amendments described in PARAGRAPH 2 below in order to, among other
things, permit the sale of certain assets and provide for a reduction in the
total Commitments, and (2) the waiver described in PARAGRAPH 3 below.
Accordingly, for adequate and sufficient consideration, Borrower, Agent, and
Determining Lenders agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms
defined in the Credit Agreement have the same meanings when used in this
document and (B) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENTS.
(A) SECTION 9.11 is amended by (1) deleting the word "AND" before CLAUSE
(i) in that section and (2) adding the following to the end of that section:
, AND (j) THE SALE BY BORROWER AND ITS SUBSIDIARY, MAGNETEK SERVICE
(U.K.), LIMITED, OF SUBSTANTIALLY ALL OF THE ASSETS, PROPERTIES, AND
INTERESTS IN PROPERTIES AND RIGHTS USED IN THE DOMESTIC BUSINESS OF
DEVELOPING, MANUFACTURING, SELLING, AND DISTRIBUTING FRACTIONAL,
INTEGRAL, AND DC ELECTRIC MOTORS AND THE CAPITAL STOCK OF MAGNETEK
HUNGARIAN KFT, IGMEX, S.A. DE C.V., MAGNETEK UNIVERSAL ELECTRIC
LIMITED, MAGNETEK CANADA LIMITED, MAGNETEK (SEA) PTE LTD., AND
MAGNETEK B.V. (COMPANIES FORMED, RESPECTIVELY, UNDER THE LAWS OF
HUNGARY, MEXICO, THE UNITED KINGDOM, CANADA, SINGAPORE, AND THE
NETHERLANDS) TO A.O. SMITH CORPORATION FOR UP TO $253,000,000 PURSUANT
TO THE ASSET PURCHASE AGREEMENT DATED AS OF JUNE 28, 1999, BETWEEN
BORROWER, MAGNETEK SERVICE (U.K.), LIMITED, AND A.O. SMITH
CORPORATION, SO LONG AS (i) BORROWER DELIVERS TO AGENT ON THE DAY THAT
THE SALE IS FULLY CONSUMMATED A CERTIFICATE OF A RESPONSIBLE OFFICER
CERTIFYING THAT THE SALE HAS BEEN FULLY CLOSED AS OF THE DATE STATED
IN THE CERTIFICATE AND THE AMOUNT OF THE NET PROCEEDS RECEIVED FROM
SUCH SALE (I.E., THE FULL GROSS PROCEEDS LESS ORDINARY ATTORNEYS' FEES
AND OTHER CLOSING COSTS, BUT NOT LESS THAN $249,000,000), AND (ii) BY
NO LATER THAN THE BUSINESS DAY FOLLOWING THE DAY ON WHICH THAT SALE IS
CONSUMMATED, THOSE PROCEEDS ARE APPLIED, TO THE EXTENT NECESSARY, TO
PREPAY IN FULL THE PRINCIPAL DEBT IN ACCORDANCE WITH SECTION 3.2(b)
WITHOUT REGARD TO THE INTEGRAL MULTIPLE REQUIREMENT IN THAT SECTION.
THIRD AMENDMENT
<PAGE>
(B) Notwithstanding the prepayment required by PARAGRAPH 2(A) above, the
total Commitments are not terminated by that prepayment but will be reduced to
$200,000,000 upon the consummation of the sale to A.O. Smith Corporation as
contemplated in that paragraph as further provided in the attached AMENDED
SCHEDULE 2.1.
(C) For purposes of SECTION 14.2, Agent's address on the signature page of
the Credit Agreement is entirely amended as follows:
BANK OF AMERICA, N.A.
600 PEACHTREE STREET, NE, 9TH FLOOR
ATLANTA, GA 30308-2213
ATTN: NANCY S. GOLDMAN
PRINCIPAL
FAX: 404-607-6467
(D) SCHEDULES 2.1 and 7.3 are entirely amended in the forms of, and each
reference to those schedules in the Credit Agreement are now to, the attached
AMENDED SCHEDULES 2.1 and 7.3, respectively.
3. WAIVER. Upon and subject to the following terms and conditions and only for
the period (the "WAIVER PERIOD") from the date that the sale to A.O. Smith
Corporation described in PARAGRAPH 2(A) above is fully consummated (if ever)
through and including September 29, 1999, Determining Lenders waive any
Potential Default or Default that may exist solely as a result of Borrower's
failure to be in compliance with any of the financial covenants in SECTIONS 10.2
and 10.3 during or at the end of the Waiver Period but not thereafter.
(A) During the Waiver Period, Borrower covenants and agrees that (1)
Borrower shall not be entitled to request, and neither Agent nor any Lender
shall be required to grant, any releases of any Collateral as provided in
SECTION 5.5, and (2) Borrower shall not be entitled to, and shall not, use the
proceeds of any Borrowings under the Credit Agreement for the redemption or
repurchase any of its capital stock under SECTION 9.10 or otherwise.
(B) Except as expressly stated, this PARAGRAPH 3 is not a waiver of
existing or future Potential Defaults or existing Defaults or a waiver of
Agent's or any Lender's Rights to insist upon compliance by all other relevant
parties with each Loan Document.
4. CONDITIONS PRECEDENT. PARAGRAPHS 2 and 3 above are not effective until Agent
receives (A) counterparts of this document executed by Borrower and Determining
Lenders, (B) an amendment fee to be paid to each Lender who has executed and
delivered to Agent a counterpart of this document by 5:00 p.m. Atlanta time on
July 30, 1999, equal to 0.05% of that Lender's Commitment as it is to be reduced
effective as of the consummation of the sale to A.O. Smith Corporation described
in PARAGRAPH 2(A), and (C) a fully executed copy of the final Asset Purchase
Agreement with A.O. Smith Corporation and all attachments and amendments to it.
5. RATIFICATIONS. Borrower (A) ratifies and confirms all provisions of the Loan
Documents as amended by this document, (B) ratifies and confirms that, (except
in respect of the release of Lender Liens on the assets described in PARAGRAPH 2
above and as permitted by SECTION 5.5(b)), all guaranties, assurances, and Liens
granted, conveyed, or assigned to Agent under the Loan Documents are not
released, reduced, or
2 THIRD AMENDMENT
<PAGE>
otherwise adversely affected by this document and continue to guarantee, assure,
and secure full payment and performance of the present and future Obligation,
and (C) agrees to perform such acts and duly authorize, execute, acknowledge,
deliver, file, and record such additional documents and certificates as Agent
may request in order to create, perfect, preserve, and protect those guaranties,
assurances, and Liens.
6. REPRESENTATIONS. To induce Agent, Co-Agents, and Lenders to enter into this
document, Borrower represents and warrants to Agent, Co-Agents, and Lenders that
as of the date of this document (A) all representations and warranties in the
Loan Documents are true and correct in all material respects EXCEPT to the
extent that any of them speak to a different specific date or the facts on which
any of them were based have been changed by transactions contemplated or
permitted by the Credit Agreement, (B) no Material Adverse Event, Default, or
Potential Default exists, C) MagneTek Financial Services, Inc., has been
dissolved and all of its assets have been transferred to Borrower, and (D)
Borrower is the only Domestic Restricted Company.
7. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or incurred
by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's counsel in connection with the
negotiation, preparation, delivery, and execution of this document and any
release or other related documents.
8. MISCELLANEOUS. All references in the Loan Documents to the "CREDIT
AGREEMENT" refer to the Credit Agreement as amended by this document. This
document is a "LOAN DOCUMENT" referred to in the Credit Agreement, and the
provisions relating to Loan Documents in SECTIONS 1 and 14 of the Credit
Agreement are incorporated in this document by reference. Except as
specifically amended by this document, the Credit Agreement is unchanged and
continues in full force and effect. This document may be executed in any
number of counterparts with the same effect as if all signatories had signed
the same document. All counterparts must be construed together to constitute
one and the same instrument. This document binds and inures to each of the
undersigned and their respective successors and permitted assigns, subject to
the terms of the Credit Agreement. THIS DOCUMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.]
3 THIRD AMENDMENT
<PAGE>
EXECUTED as of the date first stated in this Third Amendment to Restated
Credit Agreement.
MAGNETEK, INC., as BORROWER BANK OF AMERICA, N.A. (formerly
NationsBank, N.A., formerly
NationsBank of Texas, N.A.), as AGENT
and a LENDER
By ______________________________ By __________________________________
John P. Colling, Jr., Vice President Nancy S. Goldman, Principal
and Treasurer
BANKERS TRUST COMPANY, as a CO-AGENT CIBC INC., as a CO-AGENT and a LENDER
and A LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
CREDIT LYONNAIS - NEW YORK BRANCH, as THE FIRST NATIONAL BANK OF CHICAGO, as
a CO-AGENT and a LENDER a CO-AGENT and a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
GENERAL ELECTRIC CAPITAL UNION BANK OF CALIFORNIA, N.A., as a
CORPORATION (assignee of The Long-Term CO-AGENT and a LENDER
Credit Bank of Japan, Ltd.), as a
CO-AGENT and a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
ARAB BANKING CORPORATION (B.S.C.), as a BANK AUSTRIA CREDITANSTALT CORPORATE
LENDER FINANCE, INC., as a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
By __________________________________
Name:_____________________________
Title:____________________________
SIGNATURE PAGE
PAGE 1 OF 2
<PAGE>
FIRST UNION NATIONAL BANK, as a FUJI BANK, LIMITED, ATLANTA AGENCY,
LENDER as a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
NATEXIS BANQUE (formerly Banque SOCIETE GENERALE, SOUTHWEST AGENCY,
Francaise du Commerce Exterieur), as a LENDER
as a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
By ______________________________
Name:_________________________
Title:________________________
THE SUMITOMO BANK, LIMITED, as BANK HAPOALIM, (assignee, in part,
a LENDER of Societe Generale, Southwest
Agency), as a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
CREDIT AGRICOLE INDOSUEZ (formerly THE TOKAI BANK, LTD. NEW YORK BRANCH,
Caisse Nationale de Credit Agricole), as a LENDER
as a LENDER
By ______________________________ By __________________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
By ______________________________
Name:_________________________
Title:________________________
SIGNATURE PAGE
PAGE 2 OF 2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.56
<SEQUENCE>5
<FILENAME>a2025491zex-10_56.txt
<DESCRIPTION>EXHIBIT 10.56
<TEXT>
<PAGE>
EXHIBIT 10.56
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only, May
22, 1997, is made by and between MASON AVENUE PROPERTIES ("Lessor") and OMEGA
POWER SYSTEMS, INC. ("Lessee") (collectively, the "Parties," or individually, a
"Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 8966 Mason Avenue, located in the County of Los Angeles (Chatsworth),
State of California, and generally described as (describe briefly the nature of
the property and, if applicable, the "Project," if the property is located
within a Project) that certain newly remodeled concrete tilt up facility
comprising approximately 44,340+/- square feet on 94,150+/- square feet of MR2
zoned land ("Premises"). (See also Paragraph 2)
1.3 TERM: Five (5) years and six months ("Original Term") commencing
October 1, 1997 ("Commencement Date") and ending March 31, 2003 ("Expiration
Date"). (See also Paragraph 3)
1.4 EARLY POSSESSION: June 1, 1997 ("Early Possession Date"). (See also
Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $23,500.20 per month ("Base Rent"), payable on the first
day of each month commencing October 1, 1997. (See also Paragraph 4)
/ / 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: $23,500.20 as Base Rent for the
period October 1 through and including October 31, 1997.
1.7 SECURITY DEPOSIT: $23,500.20 ("Security Deposit"). (See also
Paragraph 5)
1.8 AGREED USE: General office, manufacture, assembly and distribution
of electronic power systems. (See also Paragraph 6)
1.9 INSURING PARTY. Lessor is the "Insuring Party" unless otherwise
stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):
/ / Capital Commercial Attn: Tim Foutz represents Lessor exclusively ("Lessor's
Broker"); or
/ / Beitler Commercial Attn: R. Kassen & T. Tucker represents Lessee
exclusively ("Lessee's Broker").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to Lessor's Broker the fee agreed to in their
separate written agreement. Brokers to be paid per exclusive listing agreement.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by _______________ ("Guarantor"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1.5 through 59 and Exhibits "A" and "B," 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 size set forth in this Lease, or that may have been
used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and
tree of debris on the Commencement Date or the Early Possession Date, whichever
first occurs ("Start Date"), and, so long as the required service contracts
described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30)
days following the Start Date, warrants that the existing electrical, plumbing,
fire sprinkler, lighting, heating, ventilating and air conditioning systems
("HVAC"), loading doors, if any, and all other such elements in the Premises,
other than those constructed by Lessee, shall be in good operating condition on
said date and that the structural elements of the roof, bearing walls and
foundation of any buildings on the Premises (the "Building") shall be free of
material defects. If a non-compliance with said warranty exists as of the Start
Date, Lessor shall, as Lessor's sole obligation with respect to such matter,
except as otherwise provided in this Lease, promptly alter 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, after the Start Date,
Lessee does not give Lessor written notice of any non-compliance with this
warranty within: (i) one year as to the surface of the roof and the structural
portions of the roof, foundations and bearing walls, (ii) six (6) months as to
the HVAC systems, (iii) thirty (30) days as to the remaining systems and other
elements of the Building, correction of such non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense. (See JDO & Associates
Plans)
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
substantially comply with all applicable laws, covenants or restrictions of
record, building codes, regulations and ordinances ("Applicable Requirements")
in effect on the Start 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. NOTE: Lessee is
responsible for determining whether or not the zoning is appropriate for
Lessee's intended use, and acknowledges that past uses of the Premises may no
longer be allowed. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided, promptly alter 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 Start Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense. If the Applicable
Requirements are hereafter changed (as opposed to being in existence at the
Start Date, which is addressed in Paragraph 6.2(e) below) so as to require
during the term of this Lease the construction of an addition to or an
alteration of the Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Building ("Capital
Expenditure"), Lessor and Lessee shall allocate the cost of such work as
follows:
Page 1
<PAGE>
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days alter
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(c); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically feasible to
pay its share thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with Interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to finance
Lessor's share, or if the balance of the Rent due and payable for the remainder
of this Lease is not sufficient to fully reimburse Lessee on an offset basis,
Lessee shall have the right to terminate this Lease upon thirty (30) days
written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
[INSERT]
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessees
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real
Property. Taxes and insurance premiums and to maintain the Premises) shall
however, be in effect during such period. Any such early possession shall not
affect the Expiration Date. (See attached Addendum for additional provisions).
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the Early
Possession Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the-Early Possession Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessees right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee when required and Lessee does
not terminate this Lease, as aforesaid, any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or
omissions of Lessee. If possession of the Premises is not delivered within four
(4) months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due. Rent for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of said month. Payment of Rent shall be made to Lessor at
its address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less than
the amount then due shall not be a waiver of Lessor's rights to the balance of
such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease, If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof, if Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease, It the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof, If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold
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or delay its consent to any written request for a modification of the Agreed
Use, so long as the same will not impair the structural integrity of the
improvements on the Premises or the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises. If Lessor elects to withhold
consent, Lessor shall within five (5) business days after such request give
written notification of same, which notice shall include an explanation of
Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safely or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage lank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessees obligations shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages which existed as a
result of Hazardous Substances on the Premises prior to the Start Date or which
are caused by the gross negligence, or intentional acts of Lessor, its agents or
employees. Lessor's obligations, as and when required by the Applicable
Requirements, shall include, but not be limited to, the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date. Lessee shall
cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) LANDLORD TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee, shall, at Lessee's sole expense, fully,
diligently and in a timely manner, rnaterially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and consultants
shall have the right to enter into Premises at any time, in the case of an
emergency, and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease. The cost of any such inspections shall be paid by Lessor, unless a
material violation of Applicable Requirements, or a contamination is found to
exist or be imminent, or the inspection is requested or ordered by a
governmental authority on account of Lessee's use of the Premises. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections, so
long as such inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), except as modified in the Addendum, Lessee shall, at Lessee's
sole expense, keep
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the Premises, Utility Installations, and Alterations in good order, condition
and repair (whether or not the portion of the Premises requiring repairs, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
but not limited to, all equipment or facilities, such as plumbing (see Addendum
7.1(a)), HVAC, electrical, lighting facilities, boilers, pressure vessels, fire
protection system, fixtures, walls (interior and exterior), foundations,
ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in
good order, condition and re air shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the service
contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. Lessee shall, during the term of this Lease, keep the exterior
appearance of the Building in a first-class condition consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, including, when necessary, the exterior repainting of the
Building.
(b) SERVICE CONTRACTS. Except as modified in the Addendum, Lessee
shall, at Lessee's sole expense, procure and maintain contracts, with copies to
Lessor, in customary form and substance for, and with contractors specializing
and experienced in the maintenance of the following equipment and improvements,
Basic Elements), if any, as and when installed on the Premises: (i) HVAC
equipment, (ii) boiler, and pressure vessels, (iii) fire protection systems,
(iv) landscaping and irrigation systems, (v) roof covering and drains, and (vi)
asphalt and parking tots, (vii) clarifiers and (viii) any other equipment, if
reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal income
tax regulations or guidelines for depreciation thereof (including interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligation
at any time. Except as modified in the Addendum.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2,3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation),
it is intended by the Parties hereto that, except as modified in the Addendum,
Lessor have no obligation, in any manner whatsoever, to repair and maintain the
Premises, or the equipment therein, all of which obligations are intended to be
that of the Lessee, It is the intention of the Parties that the terms of this
Lease govern the respective obligations of the Parties as to maintenance and
repair of the Premises, and they expressly waive the benefit of any statute now
or hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed $50,000 in the aggregate
or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shaft be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring alt applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility. If Lessee shall contest the 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. If Lessor shall require, Lessee shall furnish a surety bond in an
amount equal to one and one-half times the amount of such contested lien, claim
or demand, indemnifying Lessor against liability for the same. If Lessor elects
to participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not
later than ninety (90) days prior to the end of the term of this Lease, Lessor
may require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or termination of this Lease. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
Expiration Dale or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear excepted. "Ordinary
wear and tear" shall not include any damage or deterioration that would have
been prevented by good maintenance practice. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures,
furnishings, and equipment as well as the removal of any storage tank installed
by or for Lessee, and the removal, replacement, or remediation of any soil,
material or groundwater contaminated by Lessee. Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee. The failure by Lessee to
timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express
written consent of Lessor shall constitute a holdover under the provisions of
Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice. See Addendum 8.1
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee
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and Lessor against claims for bodily injury, personal injury and property damage
based upon or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$2,000,000 per occurrence with an "Additional Insured-Managers or Lessors of
Premises Endorsement" and contain the "Amendment of the Pollution Exclusion
Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The
Policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.
(b) CARRIED BY LESSOR. Lessor, at Lessor's cost and expense, shall
maintain liability insurance as described in Paragraph 8.2(a), in addition to,
and not in lieu of, the insurance required to be maintained by Lessee. Lessee
shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor and to any Lender insuring loss or damage to the Premises. The amount of
such insurance shall be equal to the full replacement cost of the Premises, as
the same shall exist from time to time, or the amount required by any Lenders,
but in no event more than the commercially reasonable and available insurable
value thereof. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations, Trade Fixtures, and Lessee's personal
property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor.
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 debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said Insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the Premises,
the Lessee shall pay for any increase in the premiums for the property insurance
of such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. If reasonably available, and if Lessor
requests Lessee to do so in writing, Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duty licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's sole negligence, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and against
any and all claims, loss of rents and/or damages, liens, judgments, penalties,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the use and/or occupancy of the Premises by
Lessee. If any action or proceeding is brought against Lessor by reason of any
of the foregoing matters, Lessee shall upon notice defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury 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. Lessor shaft not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in six (6) months or loss from
the date of the damage or destruction. Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations,
which cannot reasonably be repaired in six (6) months or less from the date of
the damage or destruction. Lessor shall notify Lessee in writing within thirty
(30) days from the date of the damage or destruction as to whether or not the
damage is Partial or Total.
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(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "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 any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available. Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect, If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3. 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).
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice, In the event Lessor elects to terminate this Lease, Lessee shall
have the right within ten (10) days after receipt of the termination notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage without reimbursement from Lessor. Lessee shall provide Lessor with
said funds or satisfactory assurance thereof within thirty (30) days after
making such commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of this Lease there is damage for which the cost to repair exceeds one (1)
month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of(i) the
date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair. remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within sixty (60) days after such obligation shall accrue, Lessee
may. at any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice,
of Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice and such
repair or restoration is not commenced within thirty (30) days thereafter, this
Lease shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within said thirty (30) days, this Lease shall continue
in full force and effect. "Commence" shall mean either the unconditional
authorization of the preparation of the required plans, or the beginning of the
actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of assessment: real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or
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termination of this Lease. Lessee's share of such taxes shall be prorated to
cover only that portion of the tax bill applicable to the period that this Lease
is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes. Lessor shall have the right
to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any
Rent payment. Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that such taxes be paid in advance to Lessor by Lessee,
either: (I) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance
with the payment of the Base Rent, If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of taxes divided by the number of months remaining before
the month in which said installment becomes delinquent. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable taxes. If the amount collected by Lessor is insufficient to pay such
Real Property. Taxes when due, Lessee shall pay Lessor. upon demand, such
additional sums as are necessary to pay such obligations. All moneys paid to
Lessor under this Paragraph may be intermingled with other moneys of Lessor and
shall not bear interest, In the event of a Breach by Lessee in the performance
of its obligations under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may at the option of Lessor, be treated
as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations. Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively; "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of twenty-live percent
(25"/o) or more of the voting control of Lessee shall constitute a change in
control for this purpose. See Addendum 12.1(b).
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition. financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period, If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000 or
ten percent (10%) of the current monthly Base Rent applicable to the portion of
the Premises which is the subject of the proposed assignment or sublease,
whichever is greater. as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every 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 to in writing.
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 Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease: provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
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(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) 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. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any other
monetary payment required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice:
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in 11 U.S.C. ss. 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 that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty. (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the then existing resources of Lessee, equals or exceeds the combined
financial resources of Lessee and the Guarantors that existed at the time of
execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of retelling. including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "Inducement Provisions,"
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms, covenants and conditions of this Lease. Upon Breach of this Lease
by Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by Lessor
under such an Inducement Provision shall be immediately due and payable by
Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.
The acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this paragraph shall not
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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
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to five percent (5%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder,
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary. Base Rent shall, at Lessor's option.
become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor 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. The interest ("Interest") charged shall be equal to the prime rate
charged by the largest state chartered bank in the state in which the Premises
are located plus 4%, but shall not exceed the maximum rate allowed by law.
Interest is payable in addition to the potential late charge provided for in
Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed: provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are reasonably
required for its performance, then Lessor shall not be in breach if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. if more than ten percent (100%) of any building, 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 proportion to the reduction in utility of
the Premises caused by such Condemnation. Condemnation awards and/or payments
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part
taken, or for severance damages: provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of business
goodwill and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor, In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 Intentionally Omitted.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10. 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest.
15.3 Intentionally Omitted.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE.
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 an estoppel certificate 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, or any
part thereof, Lessee and all Guarantors shall deliver to any potential lender or
purchaser designated by Lessor such financial statements as may be reasonably
required by such lender or purchaser. including but not limited to Lessee's
financial statements for the past three (3) years. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lesser shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing. the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, the original Lessor under this Lease, and
all subsequent holders of the Lessor's interest in this Lease shall remain
liable and responsible with regard to the potential duties and liabilities of
Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABIIITY. 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.
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19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross
negligence or willful misconduct, the obligations of Lessor under this Lease
shall not constitute personal obligations of Lesser, the individual partners of
Lessor or its or their individual partners, directors, officers or shareholders,
and Lessee shall look to the Premises, and to no other assets of Lesser, for the
satisfaction of any liability of Lessor with respect to this Lease, and shall
not seek recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no ether prior or contemporaneous agreement or understanding' shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lesser or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall net be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any 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 previsions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. 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 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 termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (1500/o) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
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 upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any. such Security Devices shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior to
the lien of its Security Device by giving written notice thereof to Lessee, 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 emission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises, In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or
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judgment. The term, "Prevailing Party" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lesser and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lesser may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "For Safe" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "For Lease" signs. Lessee may at any time place on or
about the Premises any ordinary "For Sublease" sign,
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall net be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to. a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given, In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determinations the
determining party shall furnish its reasons in writing and in reasonable detail
within ten (10) business days following such request.
37. GUARANTOR.
37.1 Intentionally Omitted.
37.2 Intentionally Omitted.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises;(c) the right to purchase or the right of first refusal to
purchase the Premises.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. See Addendum 39.2
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee). (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of Default, whether or not the Defaults are
cured, during the twelve (12) month period immediately preceding the exercise of
the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option. if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of Lessor to give notice thereof). (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during 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 a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. flit 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.
44. AUTHORITY. If either Party hereto Is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
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45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties arising out of this
Lease is not attached to this Lease.
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.
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND
THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Westlake Village, CA Executed at: Chatsworth, CA
on: May 28, 1997 on: May 23, 1997
By LESSOR: By LESSEE:
MASON AVENUE PROPERTIES OMEGA POWER SYSTEMS, INC.
By: /s/ S. DARYL PARKER By: /s/ AVI BERNSTEIN
----------------------------- -----------------------------
Name Printed: S. Daryl Parker Name Printed: Avi Bernstein
Title: Partner Title: President
By: /s/ JAMES MICHAEL WELCH By: /s/ JOSEPH RABINOVITZ
----------------------------- -----------------------------
Name Printed: James Michael Welch Name Printed: Joseph Rabinovitz
Title: Partner Title: Secretary
Address: 5351 N. Sterling Center Drive Address: 20400 Plummer Street
Westlake Village, CA 91361 Chatsworth, CA 91311
Telephone: (818) 889-3600 Telephone: (818) 993-4801
Facsimile: (818) 991-2808 Facsimile: (818) 727-2248
Federal ID No.: Federal ID No.:
----------------- -----------------
BROKER: BROKER:
CAPITAL COMMERCIAL BEITLER COMMERCIAL
Executed at: Encino, CA Executed at: Sherman Oaks, CA
on: May 29, 1997 on: May 29, 1997
By: /s/ TIMOTHY P. FOUTZ By: /s/ RON KASSEN/TIM TUCKER
----------------------------- -----------------------------
Name Printed: Timothy P. Foutz Name Printed: Ron Kassen/Tim Tucker
Title: Executive Vice President Title:
Address: 16000 Ventura Blvd., Address: 15165 Ventura Blvd.,
Suite #900 Suite #400
Encino, CA 91436 Sherman Oaks, CA 91403
Telephone: (818) 905-2400 x. 114 Telephone: (818) 501-5001
Facsimile: (818) 905-2425 Facsimile: (818) 986-1500
Federal ID No.: 95-3454226 Federal ID No.: 95-3579783
NOTE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 637-6777. Fax No. (213)
687-8616
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ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE--NET (MODIFIED)
DATED MAY 22,1997 BY AND BETWEEN
MASON AVENUE PROPERTIES, AS LESSOR
AND OMEGA POWER SYSTEMS, INC., AS LESSEE
This Addendum to Lease ("Lease Addendum") is made and entered into by and
between MASON AVENUE PROPERTIES, ("Lessor"), and OMEGA POWER SYSTEMS, INC.
("Lessee"), and is dated as of the date set forth on the first page of the Lease
between Lessor and Lessee ("Lease") to which this Addendum is attached. 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 at length
in the body of the Lease. To the extent that the provisions of this Addendum are
inconsistent with the terms and conditions of the Lease, the terms and
conditions hereof shall control.
1.5 BASE RENT (CONTINUED): Notwithstanding any contrary provision hereof, the
monthly Base Rental under this Paragraph 1.5 of the Lease shall be payable in
accordance with the following schedule:
(a) The Base Rent for the initial eighteen months (Months: 1 - 18 or
October 1, 1997 - March 31, 1999) shall be Twenty Three Thousand Five Hundred
and 20/100 Dollars ($23,500.20) per month ("Base Rent").
(b) The Base Rent for the following eighteen months (19 - 36 or April 1,
1999 - September 30, 2000), shall be Twenty Four Thousand Three Hundred Eighty
Seven and 00/100 Dollars ($24,387.00) per month.
(c) The Base Rent for months (37 - 66 or October 1, 2000 - March 31,
2003), shall be Twenty Five Thousand Two Hundred Seventy Three and 80/100
Dollars ($25,273.80) per month.
2.3(d).ADA COMPLIANCE. Lessor shall deliver the Premises in substantial
compliance with existing ADA requirements. This compliance is based upon the Los
Angeles Department of Building and Safety Final Inspection of Lessor's newly
remodeled work which by law includes substantial compliance of the building to
current ADA regulations. The compliance is evidenced by the Building and Safety
Final Inspection. All work shall be in compliance with the plans and drawings as
prepared by JDO & Associates, sheets A - 1 through A - 5 and D - 1 through D -
8, dated December 6, 1996 and approved by the City of Los Angeles, Building and
Safety Department as evidenced by Permit # 97 - VN 1747, dated January 14, 1997.
(See Exhibit "A"). If the Lessee applies for additional permit(s) in order to
make the facility suitable for Lessee's occupancy, (as referenced in paragraph
14 "Lessee Improvements") further ADA work may be required by Building & Safety
as a condition of permit issuance. In that event, costs of the additional ADA
work will be paid for by Lessee.
3.2 EARLY POSSESSION (CONTINUED): Notwithstanding the Commencement Date
specified herein, the parties hereto agree that Lessee shall have the right to
have possession of the Premises upon substantial completion of Lessor's current
building improvements, execution of this Lease by both parties and the delivery
of a fully executed copy thereof by Lessor to Lessee. (The compliance is
evidenced by the Building and Safety Final Inspection. All work shall be in
compliance with the plans and drawings as prepared by JDO & Associates, sheets A
- -1 through A - 5 and D - 1 through D - 8, dated December 6, 1996 and approved by
the City of City of Los Angeles, Building and Safety Department as evidenced by
Permit # 97 - VN 1747, dated January 14, 1997. [See Exhibit "A"]) This
possession shall be subject to all of the terms, covenants and conditions of
this Lease (including the tax,
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insurance, utility, and maintenance obligations of Lessee, to the extent
applicable) other than the payment of the base rent from the date of such
possession but in no event later than June 1, 1997, through the day immediately
preceding the Commencement Date ("Possession Period"). If, through no fault of
Lessee, Lessor fails to place Lessee in possession of the Premises on or before
the Early Possession Date, Base Rent shall abate for the number of days
following the Commencement Date that is equal to the period measured from the
Early Possession Date to the date that Lessee is actually placed in possession
of the Premises.
The purpose of such possession shall be to enable Lessee to prepare the Premises
for its use and occupancy, including without limitation, the construction of
Lessee alterations and installation of Lessee's trade fixtures and utility
installations. Lessee shall not, by reason of such possession, interfere with
Lessor or Lessor's agents in the performance of any obligations Lessor may have
under this Lease in connection with the Premises, including the obligation of
Lessor, if applicable, to complete any construction, or to obtain any required
final approval from any governmental agency having jurisdiction with respect to
any such obligation of Lessor.
Lessor shall have no liability for any loss, damage or injury to Lessee's
personal property, equipment, employees or agents which may be on or about the
Premises during the Possession Period unless said loss, damage or injury is
caused by the gross negligence or willful misconduct of Lessor, or any of its
employees and contractors. Lessee agrees to hold Lessor harmless from any cost,
expense or liability of any kind whatsoever arising out of Lessee's so entering
into the Premises during the Possession Period, in accordance with the
applicable provisions of this Lease. In addition to the work described on
Exhibit "A", Lessor shall also substantially complete the following work:
1) Complete the finish of the building (paint & flooring) in accordance with the
Finish Schedule attached hereto as Exhibit "B".
2) Slurry coat, patch & restripe the parking area shown on Sheet A-I of
Exhibit "A".
3) Service and repair all HVAC equipment. Furthermore, Lessor shall provide all
service and repairs for the 180 days following lease execution.
4) Deliver all existing lighting and electrical systems in good working order as
of the lease commencement date.
5) Complete the repairs and reconditioning of the landscape and irrigation
systems.
6) Replace all stained or damaged ceiling tiles so that the ceiling tiles will
be uniform in appearance within each area after the damaged or stained tiles
are replaced.
7) Replace all damaged or "yellowed" plastic fluorescent lens covers throughout
the existing office areas.
8) Upon completion of Lessor's work, clean the entire building of debris caused
by Lessor's work and deliver the building to Lessee in a move-in condition.
The cleaning shall include detailing of the restrooms and washing of the
windows.
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9) Lessor will reimburse Lessee the sum of $10,000.00 for Lessee's Improvements
within the building. Upon presentation of invoices evidencing completion of
said work, Lessor shall have five (5) business days in which to inspect the
Premises. All work performed by Lessee shall meet all current building codes
and regulations (State & Federal), and be in accordance with the terms of
this Lease.
7.1(a). SUBSURFACE PLUMBING: During the term of this Lease, Lessee shall not be
responsible for any repair to existing subsurface plumbing which may be
occasioned by the failure of existing pipes or latent defects. Lessee shall be
responsible for any repair which is occasioned by the acts of Lessee, its
employees or agents resulting in a blockage of, or damage to, the plumbing.
7.2. BUILDING MAINTENANCE. Notwithstanding any contrary provision hereof, Lessor
agrees that at all times during the term hereof or any extension thereof, it
shall maintain the foundations, structural portions- of the exterior walls, and
the structural portions of the roof, except for damage caused by Lessee and/or
resulting from the negligence of Lessee, Lessee's employees or agents.
8.1 CONTINUED: Lessee shall pay for all insurance required under Paragraph 8
except for the cost attributable to the liability insurance carried by Lessor in
Paragraph 8.1.
12.1(b) Notwithstanding the provisions of Paragraph 12.1(b) of the Lease, 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 , any corporation resulting from the consolidation or
merger with Lessee, provided, however, that assignee shall assume, in full, the
obligations of Lessee under this Lease. A public offering of stock or other
securities in Lessee, regardless of its effect on the ownership or voting
control of Lessee, shall not constitute an assignment requiring consent of
Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Options may be exercised by Lessee or
any entity qualified under Paragraph 12 of the printed Lease form.
50. LIMITED ENVIRONMENTAL SITE AUDIT ("LESA"). Lessor shall deliver to Lessee,
prior to occupancy, a Limited Environmental Site Assessment ("LESA") as prepared
by Park Environmental concerning the subject property. Not later than 45 days
nor sooner than 60 days prior to the termination of the lease, Lessee will
provide to Lessor a Limited Environmental Site Assessment ("LESA") concerning
the property. The report will be current as of a date not more than sixty (60)
days before the termination of the lease. The purpose of the LESA is to
determine and provide evidence that Lessee has complied with all applicable
laws, ordinances, rules and regulations of any governmental agency having
jurisdiction concerning the use, storage and/or disposition of Hazardous
Substances on the leased property during the term of the lease and/or any
extensions thereof. Failure of the LESA to discover a disposal or release of a
Hazardous Substance on the Premises, during the term hereof, shall not limit
Lessee's liability. If, however, the LESA should discover evidence of the
disposal or release of a Hazardous Substance on the Premises, said finding shall
not be conclusive in establishing Lessee's liability therefor. The LESA shall be
in writing and shall be prepared by a licensed contractor or engineer competent
and qualified to perform such investigation on behalf of the Lessee. Lessee
shall obtain Lessor's prior written approval of the organization or individual
who will be preparing the LESA. The LESA or any other investigation shall
include conducting a site reconnaissance to visually assess present site
conditions; interviewing key employees having knowledge of historic chemical
usage,
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storage and disposal practices, and site usage; and preparing a written report
documenting the preparers' findings, conclusions, and recommendations of the
LESA. If the LESA shall indicate a condition requiring remediation or the posing
of a potential liability to the Lessor, Lessee shall forthwith do such
additional investigation as is recommended in the LESA and/or cure the
condition(s) specified in the LESA or revealed by such additional investigation,
at Lessee's sole cost and expense, and shall complete the additional
investigations and the recommended work without delay. It is understood that
Lessee is only responsible for any new conditions arising since the date that
Lessor gives Lessee exclusive possession of the Premises. Lessor shall provide
to Lessee an updated LESA within ten (10) days of Lease execution evidencing no
material changes.
51. OPTION TO EXTEND. Lessor hereby grants to Lessee one (1) option to extend
the term of this Lease for the entire Premises for the period described below,
commencing when the prior term expires, upon each and all of the following terms
and conditions.
51.1.EXTENSION TERM. Lessor hereby grants to Lessee one (1) option to
extend the term of this Lease for the entire Premises for a term of sixty (60)
additional months.
51.2 NOTICE. If Lessee desires to extend the term of the Lease for the
Extension Term, Lessee shall give to Lessor written notice thereof by a date
which is not less than four (4) months and not more than nine (9) months prior
to the expiration date of the original Term of this Lease. If that written
notice is not timely given and received, the option to extend set forth in this
Section 51 shall automatically terminate.
51.3 SAME TERMS AS LEASE. All terms and conditions of this Lease, except
where specifically modified by this option, shall apply.
51.4 BASE RENT. If Lessee shall exercise its option to extend the term of
this Lease for said additional period of sixty (60) months, the monthly Base
Rental to be paid hereunder shall be subject to annual adjustments, upward only
commencing with the second (2nd) year of the Option Term.
(i) The Base Rent for the first twelve (12) months of the
lease extension period shall be Twenty Five Thousand Two Hundred Seventy Three
and 80/100 Dollars ($25,273.80) per month.
51.5 RENTAL INCREASES DURING OPTION TERM. The Base Rent for the second
twelve months of the lease extension period shall be the Base Rent per month
payable during the immediately preceding period subject to adjustment, upward
only, the same percentage proportion that 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 - Anaheim - Riverside, California ("All Items,
1982/84 = 100) ("Index") for the month December 2003 which is three (3) months
prior to the month in which the adjustment is to take effect of the Index for
the calendar month of December 2002 which is three months prior to the
termination of the adjustment in Paragraph 51.4 (i) (ii) above.
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Notwithstanding the foregoing, in no event shall the Adjusted Base Rent payable
for the second twelve months of the option term be adjusted upward less than
three (3%) percent per annum or greater than six (6%) percent per annum over the
Base Rental for the immediate prior period. The sum so calculated shall
constitute the new monthly Base Rent hereunder. Should the Bureau of Labor
Statistics discontinue the publication of the Index or publish the same less
frequently, or alter the same in some other manner, Lessor shall adopt a
substitute index or procedure which reasonably reflects and monitors consumer
prices.
51.6 RENTAL INCREASES DURING OPTION TERM. The Base Rent for the third
twelve months of the lease extension period shall be the Base Rent per month
payable during the immediately preceding period subject to adjustment, upward
only, the same percentage proportion that 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 - Anaheim - Riverside, California ("All Items,
1982/84 = 100) ("Index") for the month of December 2004 which is three (3)
months prior to the month in which the adjustment is to take effect of the index
for the calendar month of December 2003 which is three months prior to the
termination of the adjustment in Paragraph 51.5 above. Notwithstanding the
foregoing, in no event shall the Adjusted Base Rent payable for the third twelve
months of the option term be adjusted upward less than three (3%) percent per
annum or greater than six (6%) percent per annum over the Base Rental for the
immediate prior period. The sum so calculated shall constitute the new monthly
Base Rent hereunder. Should the Bureau of Labor Statistics discontinue the
publication of the Index or publish the same less frequently, or alter the same
in some other manner, Lessor shall adopt a substitute index or procedure which
reasonably reflects and monitors consumer prices.
51.7 RENTAL INCREASES DURING OPTION TERM. The Base Rent for the fourth
twelve months of the lease extension period shall be the Base Rent per month
payable during the immediately preceding period subject to adjustment, upward
only, the same percentage proportion that 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 - Anaheim - Riverside, California ("All Items,
1982/84 = 100) ("Index") for the month of December 2005 which is three (3)
months prior to the month in which the adjustment is to take effect of the Index
for the calendar month of December 2004 which is three months prior to the
termination of the adjustment in Paragraph 51.6 above. Notwithstanding the
foregoing, in no event shall the Adjusted Base Rent payable for the fourth
twelve months of the option term be adjusted upward less than three (3%) percent
per annum or greater than six (6%) percent per annum over the Base Rental for
the immediate prior period. The sum so calculated shall constitute the new
monthly Base Rent hereunder. Should the Bureau of Labor Statistics discontinue
the publication of the Index or publish the same less frequently, or alter the
same in some other manner, Lessor shall adopt a substitute index or procedure
which reasonably reflects and monitors consumer prices.
51.8 RENTAL INCREASES DURING OPTION TERM. The Base Rent for the final
twelve months of the lease extension period shall be the Base Rent per month
payable during the immediately preceding period subject to adjustment, upward
only, the same percentage proportion that 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 - Anaheim - Riverside, California ("All Items,
1982/84 = 100) ("Index") for the month of December 2006 which is three (3)
months prior to the month in which the adjustment is to take effect of the Index
for the calendar month of December 2005 which is three months prior to the
termination of the adjustment in Paragraph 51.7 above. Notwithstanding the
foregoing, in no event shall the Adjusted Base Rent payable for the final
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twelve months of the option term be adjusted upward less than three (3%) percent
per annum or greater than six (6%) percent per annum over the Base Rental for
the immediate prior period. The sum so calculated shall constitute the new
monthly Base Rent hereunder. Should the Bureau of Labor Statistics discontinue
the publication of the Index or publish the same less frequently, or alter the
same in some other manner, Lessor shall adopt a substitute index or procedure
which reasonably reflects and monitors consumer prices.
52. AIR CONDITIONING MAINTENANCE. It is agreed by the Parties hereto that
Lessor, at Lessor's sole cost and expense, shall maintain during the first six
(6) months following the Early Possession Date a regular full-service air
conditioning maintenance contract with a qualified air conditioning contractor.
Furthermore, it is agreed that Lessee shall, upon demand, reimburse Lessor for
the cost of such maintenance contract following the above described six (6)
month period. The maintenance contract shall include the changing of filters at
the intervals recommended by the equipment manufacturer or maintenance
contractor, and the other regular maintenance recommended in the service manual
written by the original equipment manufacturer. It is expressly understood and
agreed by and between the Parties hereto that the maintenance obligations
include the replacement of any components of such heating and air conditioning
equipment which such contractor shall determine must be replaced from time to
time during the term hereof or any extension thereof to maintain such equipment
in good operating condition and repair.
Notwithstanding any contrary provision of this Lease, if at any time during the
term hereof, any component of the heating, ventilating and air conditioning
equipment located in the Premises, which is the obligation of Lessee to
reimburse for said maintenance, requires replacement in the reasonable opinion
of a contractor reasonably acceptable to Lessor and Lessee, the cost of which
component shall be $750.00 or more ("Major Component"), Lessor and Lessee shall
share the cost which is applicable to the term of this Lease. For the purposes
of the provision, the useful life of any such Major Component shall be
determined in accordance with:
1. Replacement of compressor 5 years
2. Replacement of Fire box 10 years
For example: If the compressor in HVAC Unit 3 is in need of replacement and the
cost to replace it, including labor, materials and tax, is $1,200.00 and the
failure takes place in the twelfth (12) month of the Lease, the Lessee's portion
of the cost would be figured in this manner: since the balance of the term of
the Lease would be approximately 56 months* and the life of the compressor would
be 60 months, the amount of Lessee's cost would be 56/60 x $1,200.00 = $1,120.00
*ORIGINAL LEASE TERM IS FOR FIVE (5) YEARS AND SIX (6) MONTHS OR 66 MONTHS
If both the compressor and the fire box in any single unit need replacement at
the same time, this event shall constitute the complete failure of that unit,
and the unit will be replaced by a similar, serviceable unit at Lessor's sole
cost. Lessor shall warrant the replacement unit for ninety (90) days in the
event the replacement unit is a reconditioned unit; if the replacement unit is
new, the warranty will be for one (1) year.
Lessor shall be financially responsible for such care and maintenance for the
initial six (6) months from lease execution; thereafter, Lessor shall bill
Lessee for the cost of care and maintenance of such equipment at Lessor's cost
for such maintenance, and Lessee shall pay to Lessor the amounts so billed as
additional rent hereunder as and when due The amounts billed to Lessee shall be
reasonable and priced competitively within the local Heating, Ventilating, and
Air Conditioning trade.
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53. LANDSCAPE MAINTENANCE. Notwithstanding any contrary provision hereof, the
parties hereto agree that, during the term hereof, Lessor shall have the right
to maintain all exterior landscaping on the subject Premises on behalf of
Lessee, at Lessee's sole cost and expense. Lessor reserves the right to engage
the services of an independent landscape contractor to do such work, in such
event, Lessor shall bill Lessee periodically at Lessor's cost for such
maintenance, and Lessee shall pay to Lessor the amounts so billed as additional
rent hereunder as and when due. To ensure the cost and quality of such landscape
maintenance, Lessor shall at periodic intervals have the landscape maintenance
competitively bid. The current charge for the monthly landscape maintenance is
$175.00 which does not include plant replacement, tree trimming and repairs to
the irrigation system.
54. OPTION TO PURCHASE: Lessor shall grant to Lessee an Option to Purchase the
44,340 square foot Premises and the Lessor's interest under this Lease upon the
following terms and conditions:
Lessee must exercise the Option To Purchase, if it is to be exercised at all,
within one hundred twenty (120) days of the Lease execution. Otherwise, said
Option shall be null and void and be of no further force and effect. As to this
Option, time is of the essence. In order to exercise this Option, Lessee must
give written notice of the exercise of this Option ("Exercise Notice") to Lessor
and Lessor must receive said Exercise Notice during the Option Period, time
being of the essence, and if not so given and received, this Option shall
automatically expire and be of no further force or effect. Lessee must also
deliver to Lessor concurrently with the Exercise Notice, a cashier's check in
the amount of $130,000.00 made payable to Escrow Holder ("Deposit"), to be
deposited into escrow by Lessor upon the opening of escrow and to be part of the
Purchase Price.
Within ten (10) working days after the date on which Lessor shall have received
Lessee's Exercise Notice exercising this Option, Lessor and Lessee shall execute
a standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate
in the form attached hereto as Exhibit "C", which is incorporated herein by this
reference ("Purchase Agreement"), which Purchase Agreement shall expressly
provide that it shall be used by the Escrow Holder as its escrow instructions,
together with such ordinary and usual general instructions which Escrow Holder
shall require in conjunction with the Purchase Agreement ("Escrow
instructions"). Lessee and Lessor agree that Old Republic Title Company located
at 101 East Glenoaks Blvd., Glendale, CA 91207, or such other escrow holder upon
which Lessor and Lessee mutually agree, shall be the Escrow Holder for carrying
out the provisions of this Option ("Escrow Holder"). The Escrow Officer shall be
Ms. Carolyn Marcial, or such other escrow holder upon which Lessor and Lessee
mutually agree. Escrow shall be deemed to be "opened" as of the receipt by
Escrow Holder of a signed copy of the Purchase Agreement and Escrow instructions
from both parties, together with the Lessee's initial deposit. If Lessee shall
exercise this Option during the Option Period, the transfer to title to Lessee
and payment of the Purchase Price to Lessor, shall occur on or before sixty (60)
days after the opening of escrow ("Closing"), and, until the closing, all of the
terms, covenants and conditions of this Lease shall remain in full force and
effect.
The purchase price to be paid by Lessee to Lessor for the property which
is the subject of this Option, if Lessee exercises this Option, shall be
$2,882,100.00. The Purchase Agreement and Escrow Instructions shall contain the
following provisions:
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(a) The Closing shall occur on or before the date specified above in this
agreement.
(b) Lessor shall deposit the Deposit referred to above with Escrow Holder upon
the opening thereof, with Lessee to deposit the balance of the Purchase Price
with Escrow Holder in the form of a cashier's check not later than 2:00 P.M. of
the day prior to the Closing or such other rules as specified by Escrow Holder.
(c) Lessor shall convey to Lessee title to the subject property, subject only to
the purchase money deed of trust, easements, subsurface mineral rights and
restrictions of record. Property taxes and insurance premiums shall be prorated
as of the Closing, and assessments of record, if any, shall be amortized as
permitted by law.
(d) Escrow fees shall be shared equally.
(e) Interest and rents, if any, will be prorated in the date of Closing.
(f) The cost of a standard A.L.T.A. Owner's Policy of title insurance policy to
be issued to Lessee, as Buyer, at the Closing shall be paid for by Lessor, as
Seller. The first $3,000.00 of the survey costs necessary to obtain the A.L.T.A.
title
policy shall be paid for by Buyer. Survey costs exceeding $3,000.00 shall be
paid by Seller; provided, however, that Seller's liability for any such survey
costs in excess of $3,000.00 shall only apply to a survey of the Premises, as it
existed as of the Early Possession Date, and Buyer shall be responsible for
survey costs attributable to any alteration of the Premises following the Early
Possession Date.
(g) The policy of title insurance shall be issued by Old Republic Title Company
located at 101 East Glenoaks Blvd., Glendale, CA 9107 ("Title Company"). The
Title Officer in this transaction shall be: Mr. David Williams.
(h) The parties agree to execute any additional instructions as are usual and
customary.
(i) All real estate transfer taxes shall be paid by Lessor, as Seller.
(j) The Purchase Agreement shall provide for Liquidated Damages in the amount of
$130,000.00. Should the Liquidated Damages' provision be invoked, the commission
rate paid to the brokers shall be equal to five percent (5%) of the stipulated
damages.
(k) If required by Seller, Buyer agrees to cooperate with Seller to accommodate
Seller's Section 1031 Exchange, at no additional cost, expense or liability of
any kind whatsoever to Buyer, except for Buyer's continuing contractual
obligations under the Lease. In no event, however, will Buyer be required to
take title to any exchange property in order to facilitate such exchange.
(l) Buyer acknowledges that Buyer is buying the Property in its existing
condition as of the Closing.
(m) Adjustments to the Purchase Price:
Should Lessee, hereinafter called ("Buyer") close said escrow prior to
October 31, 1997; then and only then, shall the purchase price of
$2,882,100 be reduced by $75,000.00.
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Should Lessee, hereinafter called ("Buyer") close said escrow prior to
November 31, 1997; then and only then, shall the purchase price of
$2,882,100 be reduced by $50,000.00.
Should Lessee, hereinafter called ("Buyer") close said escrow prior to
December 31, 1997; then and only then, shall the purchase price of
$2,882,100 be reduced by $25,000.00. Commencing January 1, 1998, there
shall be no further reduction to the original purchase price of
$2,882,100.00
55. SIGN RIGHTS. Lessee shall have the right to install its identification
sign on either the exterior of the Premises, subject to the prior written
approval by Lessor and subject to Lessee's agreement to remove such sign and
make the repairs occasioned by such removal at the termination of this Lease.
Lessee agrees by its execution hereof that, in the event it shall install any
sign on the exterior of the Premises, or in any landscaped area adjacent to the
Premises, it shall remove such sign at the termination of this Lease and shall
make any and all repairs to the building exterior and/or landscaping occasioned
by such removal, at its sole cost and expense, not later than ten (10) days
after the termination of this Lease. Such repairs shall include, but not be
limited to, the filling of holes and/or cracks and the painting of portions of
the building exterior which, in the reasonable opinion of Lessor, must be
repainted in order for the removal of such sign to leave no visible effect.
56. PAVING. Lessee shall reimburse Lessor for Lessee's share of the cost of
asphalt paving repairs and resealing of the parking lot area every 24 months.
The cost of such paving, repairs and resealing to Lessee shall not exceed
$4,000.00 every 24 months or Lessor's cost (whichever is less).
57. SEISMIC UPGRADES. Lessor shall deliver the Premises in compliance with
Division 91 seismic codes. This compliance is based upon the existing building
configuration and with those laws, rules and regulations as of the date of lease
execution.
58. ANNUAL ROOF INSPECTION. Beginning in September of 1998, and annually
thereafter including the Option Term(s), Lessee shall obtain a written roof
inspection report from a qualified roofing consultant ("Roof Report"). The
purpose of the Roof Report shall be to assess the condition of the roof on the
Premises as of each such inspection date and to make recommendations for the
maintenance procedures to be undertaken to maintain the roof in a watertight
condition. Lessee shall make the repairs recommended in the Roof Report
promptly. upon its receipt of each such Roof Report. A copy of said Roof Report
shall be mailed to Lessor. Lessee shall only be responsible for the first
$2,000.00 of annual maintenance cost to the roof commencing with the
commencement date of the lease except for roof maintenance costs which are
attributable to Lessee's negligence or Lessee's new roof penetrations made after
the lease early possession date, which maintenance costs shall be solely the
responsibility of the Lessee and not be included in the $2,000.00 limit stated
previously. This $2,000.00 shall be applicable only to the composition roofing
and waterproofing of roof penetrations and not to the structural portions of the
roof.
59. LESSOR'S WARRANTY/HAZARDOUS SUBSTANCES. Lessor hereby warrants and
represents to Lessee that, with respect to any hazardous substance(s) as defined
in the 1996 AIR Standard Industrial/Commercial Single-Tenant Lease - NET
("Hazardous Substance"):
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(a) Lessor has no actual knowledge of any Hazardous Substance(s) having
been stored, treated, or disposed of on the subject Premises or on
relevant adjoining properties; and
(b) That it has no notice of any pending or threatened action or
proceeding arising out of the condition of the Premises or alleged
violation of environmental, health, or safety statutes, ordinances, or
regulations; and
(c) That to the best of its knowledge, as of the Commencement Date or
upon the completion of the Lessor's obligations, the Premises are or
will be in compliance with all applicable building codes,
environmental, health and safety requirements in existence as of the
Commencement Date.
(d) Lessor shall indemnify Lessee, its officers, employees and agents
from and against all liability including all foreseeable consequential
damages, directly or indirectly arising out of the use, generation,
storage, or disposal of hazardous materials by Owners, or any prior
Tenant of Lessor, for the subject Property.
READ AND APPROVED: CONFIDENTIAL
MASON AVENUE PROPERTIES OMEGA POWER SYSTEMS, INC.
By: /s/ By: /s/
----------------------------- -----------------------------
Printed Name: S. DARYL PARKER Printed Name: AVI BERNSTEIN
------------------- -------------------
Title: PARTNER Title:
-------------------------- --------------------------
Dated: MAY 28, 1997 Dated: MAY 23, 1997
-------------------------- --------------------------
MASON AVENUE PROPERTIES OMEGA POWER SYSTEMS, INC.
By: /s/ By: /s/
----------------------------- -----------------------------
Printed Name: JAMES MICHAEL WELCH Printed Name: JOSEPH RABINOVITZ
------------------- -------------------
Title: PARTNER Title: SECRETARY
-------------------------- --------------------------
Dated: MAY 28, 1997 Dated: MAY 23, 1997
-------------------------- --------------------------
10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.57
<SEQUENCE>6
<FILENAME>a2025491zex-10_57.txt
<DESCRIPTION>EXHIBIT 10.57
<TEXT>
<PAGE>
EXHIBIT 10.57
EXECUTED ORIGINAL
MURDOCK PLAZA
OFFICE LEASE
10900 WILSHIRE, LLC,
a California limited liability company,
as Landlord,
and
MAGNETEK, INC.,
a Delaware corporation,
as Tenant.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES..................................................................4
ARTICLE 2 LEASE TERM............................................................................................5
ARTICLE 3 BASE RENT.............................................................................................5
ARTICLE 4 ADDITIONAL RENT.......................................................................................5
ARTICLE 5 USE OF PREMISES......................................................................................12
ARTICLE 6 SERVICES AND UTILITIES...............................................................................13
ARTICLE 7 REPAIRS..............................................................................................15
ARTICLE 8 ADDITIONS AND ALTERATIONS............................................................................15
ARTICLE 9 COVENANT AGAINST LIENS...............................................................................17
ARTICLE 10 INSURANCE...........................................................................................18
ARTICLE 11 DAMAGE AND DESTRUCTION..............................................................................20
ARTICLE 12 NONWAIVER...........................................................................................22
ARTICLE 13 CONDEMNATION........................................................................................23
ARTICLE 14 ASSIGNMENT AND SUBLETTING...........................................................................23
ARTICLE 15 SURRENDER OF PREMISES; REMOVAL OF TRADE FIXTURES....................................................28
ARTICLE 16 HOLDING OVER........................................................................................28
ARTICLE 17 ESTOPPEL CERTIFICATES...............................................................................29
ARTICLE 18 SUBORDINATION.......................................................................................29
ARTICLE 19 DEFAULTS; REMEDIES..................................................................................30
ARTICLE 20 ATTORNEYS' FEES.....................................................................................32
ARTICLE 21 SECURITY DEPOSIT....................................................................................32
ARTICLE 22 INTENTIONALLY OMITTED...............................................................................33
ARTICLE 23 SIGNS...............................................................................................33
ARTICLE 24 COMPLIANCE WITH LAW.................................................................................34
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ARTICLE 25 LATE CHARGES........................................................................................34
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT;
PAYMENTS BY TENANT..................................................................................35
ARTICLE 27 ENTRY BY LANDLORD...................................................................................35
ARTICLE 28 TENANT PARKING......................................................................................36
ARTICLE 29 MISCELLANEOUS PROVISIONS............................................................................37
</TABLE>
EXHIBITS
A OUTLINE OF PREMISES
B RULES AND REGULATIONS
C NOTICE OF LEASE TERM DATES
D INTENTIONALLY OMITTED
E FORM OF TENANTS ESTOPPEL CERTIFICATE
F REMOVED WALL
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INDEX
<TABLE>
<CAPTION>
PAGE(s)
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<S> <C>
Additional Rent...................................................................................................6
Alterations......................................................................................................15
Base Rent.........................................................................................................4
Base Year.........................................................................................................6
Brokers..........................................................................................................39
Building..........................................................................................................4
Control..........................................................................................................27
Damage Termination Date..........................................................................................21
Damage Termination Notice........................................................................................21
Direct Expenses...................................................................................................6
Estimate.........................................................................................................11
Estimate Statement...............................................................................................11
Estimated Excess.................................................................................................11
Excepted Matters.................................................................................................41
Excess...........................................................................................................10
Expense Year......................................................................................................6
Force Majeure....................................................................................................39
Holidays.........................................................................................................13
Landlord..........................................................................................................1
Landlord Parties.................................................................................................18
Lease.............................................................................................................1
Lease Commencement Date...........................................................................................4
Lease Expiration Date.............................................................................................5
Lease Term........................................................................................................5
Lease Year........................................................................................................5
Net Worth........................................................................................................27
Notices..........................................................................................................39
Operating Expenses................................................................................................6
Premises..........................................................................................................4
Quoted Rent......................................................................................................24
Real Property.....................................................................................................4
Renovations......................................................................................................40
rent.............................................................................................................31
Rent..............................................................................................................6
Security Deposit.................................................................................................32
Statement........................................................................................................10
Subject Space....................................................................................................23
Summary...........................................................................................................1
Tax Expenses......................................................................................................8
Tax Expenses......................................................................................................6
Tenant............................................................................................................1
Tenant Parties...................................................................................................18
Tenant's Security System.........................................................................................15
Tenant's Share...................................................................................................10
</TABLE>
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ARTICLE 1
REAL PROPERTY, BUILDING AND PREMISES
1.1 REAL PROPERTY, BUILDING AND PREMISES. Upon and subject to the
terms set forth in this Lease, Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the premises set forth in SECTION 6.2 of the Summary
(the "Premises"), which Premises are located in the building (the "Building")
set forth in Section 6.1 of the Summary, reserving, however, to Landlord: (i)
the sole and exclusive right to consent to the use or occupancy of the Premises
by any person other than Tenant, whether by sublease, assignment or otherwise,
and all right, title and interest in the economic value of the leasehold estate
in the Premises for the Lease Term, all as more fully set forth in ARTICLE 14 of
this Lease, (ii) all of the Building, except for the space within the inside
surfaces bounding the Premises, and except as provided below in this ARTICLE 1,
and (iii) the rights, interests and estates reserved to Landlord by provisions
of this Lease or operation of law. The outline of the Premises is set forth in
EXHIBIT A attached hereto. The rentable square footages of the Premises and the
Building are set forth in SECTION 6 of the Summary. The Building, the parking
structure servicing the Building, the land upon which the Building stands, and
the land, improvements and other buildings surrounding the Building which are
designated from time to time by Landlord as appurtenant to or servicing the
Building, are herein sometimes collectively referred to herein as the "Real
Property." Tenant acknowledges that Landlord has made no representation or
warranty regarding the condition of the Real Property except as specifically set
forth in this Lease. Upon the full execution and delivery of this Lease by
Landlord and Tenant, Landlord shall deliver the Premises and "Base Building," as
that term is defined below, to Tenant, and Tenant shall accept the Premises and
Base Building from Landlord in their presently existing, "as-is" condition. The
"Base Building" shall consist of those portions of the Premises which were in
existence prior to the construction of the tenant improvements in the Premises
for the prior tenant of the Premises. Upon delivery of the Premises to Tenant,
Tenant shall have the right to occupy the Premises for purposes of completing
Tenant's improvements in the Premises, including installing cabling,
communications and computer equipment and furniture systems and certain
additional improvements as set forth in Section 8.1 of this Lease, prior to the
"Lease Commencement Date" as defined in ARTICLE 2, subject to all the terms and
conditions of this Lease, other than Tenant's obligation to pay "Base Rent", as
that term is defined in Article 3 below, and "Tenant's Share" of "Direct
Expenses", as those terms are defined in Article 4, below, as though the Lease
Commencement Date had occurred. Tenant is hereby granted the right to the
nonexclusive use of the common corridors and hallways, stairwells, elevators,
restrooms and other public or common areas located on the Real Property;
provided, however, that the manner in which such public and common areas are
maintained and operated shall be at the sole discretion of Landlord and the use
thereof shall be subject to the rules, regulations and restrictions attached
hereto as EXHIBIT B (the "Rules and Regulations"). Landlord reserves the right
to make alterations or additions to or to change the location of elements of the
Real Property and the common areas thereof.
1.2 VERIFICATION OF RENTABLE AND USABLE SQUARE FEET OF PREMISES AND
BUILDING. For purposes of this Lease, "rentable square feet" and "usable square
feet" of the Premises shall be deemed to be as set forth in SECTION 6.2 of the
Summary and the rentable square feet of the Building shall be deemed to be as
set forth in SECTION 6.3 of the Summary.
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ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the
date of this Lease. The term of this Lease (the "Lease Term") shall be as set
forth in SECTION 7.1 of the Summary and shall commence on the date (the "Lease
Commencement Date") set forth in SECTION 7.2 of the Summary, and shall terminate
on the date (the "Lease Expiration Date") set forth in SECTION 7.3 of the
Summary, unless this Lease is sooner terminated as hereinafter provided. For
purposes of this Lease, the term "Lease Year" shall mean each consecutive twelve
(12) month period during the Lease Term; provided, however, that the first Lease
Year shall commence on the Lease Commencement Date and end on the last day of
the eleventh month thereafter and the second and each succeeding Lease Year
shall commence on the first day of the next calendar month; and further provided
that the last Lease Year shall end on the Lease Expiration Date. At any time
during the Lease Term, Landlord may deliver to Tenant a notice in the form as
set forth in EXHIBIT C, attached hereto, which Tenant shall execute and return
to Landlord within five (5) days of receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without notice or demand, to Landlord at a lockbox
designated by Landlord, or at such other place as Landlord may from time to time
designate in writing, in the form of a check (which is drawn upon a bank which
is located in the State of California) or currency which, at the time of
payment, is legal tender for private or public debts in the United States of
America, base rent ("Base Rent") as set forth in SECTION 8 of the Summary,
payable in equal monthly installments as set forth in SECTION 8 of the Summary
in advance on or before the first day of each and every calendar month during
the Lease Term, without any setoff or deduction whatsoever. The Base Rent for
the first full calendar month of the Lease Term, shall be paid at the time of
Tenant's execution of this Lease. If any "Rent," as that term is defined in
SECTION 4.1, below, payment date (including the Lease Commencement Date) falls
on a day of a calendar month other than the first day of such calendar month or
if any Rent payment is for a period which is shorter than one calendar month
such as during the last month of the Lease Term, the Rent for any fractional
calendar month shall accrue on a daily basis for the period from the date such
payment is due to the end of such calendar month or to the end of the Lease Term
at a rate per day which is equal to 1/365 of the Rent. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 ADDITIONAL RENT. In addition to paying the Base Rent specified in
ARTICLE 3 of this Lease, Tenant shall pay as additional rent "Tenant's Share" of
the annual "Direct Expenses," as those terms are defined in SECTIONS 4.2.6 AND
4.2.2 of this Lease, respectively, which are in
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excess of the amount of Direct Expenses applicable to the "Base Year," as that
term is defined in SECTION 4.2.1 of this Lease. Such additional rent, together
with any and all other amounts payable by Tenant to Landlord, as additional rent
or otherwise, pursuant to the terms of this Lease, shall be hereinafter
collectively referred to as the "Additional Rent." The Base Rent and Additional
Rent are herein collectively referred to as the "Rent." All amounts due under
this ARTICLE 4 as Additional Rent shall be payable for the same periods and in
the same manner, time and place as the Base Rent. Without limitation on other
obligations of Tenant which shall survive the expiration of the Lease Term, the
obligations of Tenant to pay the Additional Rent provided for in this ARTICLE 4
shall survive the expiration of the Lease Term.
4.2 DEFINITIONS. As used in this ARTICLE 4, the following terms shall
have the meanings hereinafter set forth:
4.2.1 "Base Year" shall mean the period set forth in SECTION 9.1
of the Summary.
4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "Expense Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires.
4.2.4 "Operating Expenses" shall mean all expenses, costs and
amounts of every kind and nature which Landlord shall pay or incur during any
Expense Year because of or in connection with the ownership, management,
maintenance, repair, replacement, restoration or operation of the Real Property,
including, without limitation, any amounts paid or incurred for (i) the cost of
supplying all utilities, the cost of operating, maintaining, repairing,
replacing, renovating and managing the utility systems, mechanical systems,
sanitary and storm drainage systems, and escalator and elevator systems, and the
cost of supplies, tools, and equipment and maintenance and service contracts in
connection therewith; (ii) the cost of licenses, certificates, permits and
inspections and the cost of contesting the validity or applicability of any
governmental enactments which may affect Operating Expenses, and the costs
incurred in connection with the implementation and operation of a transportation
system management program or similar program; (iii) the cost of earthquake
insurance and other insurance carried by Landlord, in such amounts as Landlord
may reasonably determine; (iv) fees, charges and other costs, including
management fees (or amounts in lieu thereof), consulting fees (including but not
limited to any consulting fees incurred in connection with the procurement of
insurance), legal fees and accounting fees, of all persons engaged by Landlord
or otherwise reasonably incurred by Landlord in connection with the management,
operation, maintenance and repair of the Real Property; (v) the cost of parking
area repair, restoration, and maintenance, including, but not limited to,
resurfacing, repainting, restriping, and cleaning; (vi) wages, salaries and
other compensation and benefits of all persons engaged in the operation,
maintenance or security of the Real Property, and employer's Social Security
taxes, unemployment taxes or insurance, and any other taxes which may be levied
on such wages, salaries, compensation and benefits; provided, that if any
employees of Landlord provide services for more than one building of Landlord,
then a prorated portion of such employees' wages, benefits and taxes shall be
included in Operating Expenses based on the portion of their working time
devoted to the Real Property,
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and provided further, that no portion of any employee's wages, benefits, or
taxes allocable to time spent on the development or marketing of the Real
Property shall be included in Operating Expenses; (vii) payments under any
easement, license, operating agreement, declaration, restrictive covenant, or
instrument pertaining to the sharing of costs by the Building; (viii)
amortization (including interest on the unamortized cost at a rate equal to the
floating commercial loan rate announced from time to time by Bank of America, a
national banking association, or its successor, as its prime rate, plus 2% per
annum (the "Interest Rate")) of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of the Building
and Real Property; and (ix) the cost of capital expenditures or other costs
incurred in connection with the Real Property which relate to the operation,
repair, maintenance and replacement of all existing systems, equipment,
facilities or structures which serve the Real Property in the whole or in part;
provided, however, that each such permitted capital expenditure shall be
amortized (including interest on the unamortized cost) over its useful life as
Landlord shall reasonably determine. If the Building is not fully occupied
during all or a portion of the Base Year or any Expense Year, Landlord shall
make an appropriate adjustment to the variable components of Operating Expenses
for such year as reasonably determined by Landlord employing sound accounting
principles, to determine the amount of Operating Expenses that would have been
paid had the Building been ninety-five percent (95%) occupied, and the amount so
determined shall be deemed to have been the amount of Operating Expenses for
such year. Operating Expenses for the Base Year shall include market-wide labor
rate increases due to extraordinary circumstances, including but not limited to
boycotts and strikes, and utility rate increases due to extraordinary
circumstances including, but not limited to, conservation surcharges, boycotts,
embargoes or other shortages, or amortized costs relating to capital
improvements; provided, however, that at such time as any such particular
assessments, charges, costs or fees are no longer included in Operating
Expenses, such particular assessments, charges, costs or fees shall be excluded
from the Base Year calculation of Operating Expenses. Notwithstanding the
foregoing, for purposes of this Lease, Operating Expenses shall not, however,
include (A) except as otherwise set forth above in this Section 4.2, bad-debt
expenses, depreciation, interest and amortization on mortgages, or ground lease
payments, if any; (B) real estate brokers' leasing commissions; (C) the cost of
providing any service directly to and paid directly by any tenant; (D) any costs
expressly excluded from Operating Expenses elsewhere in this Lease; (E) costs of
any items to the extent Landlord receives reimbursement from insurance proceeds
(such proceeds to be excluded from Operating Expenses in the year in which
received, except that any deductible amount under any insurance policy shall be
included within Operating Expenses) or from a third party; (F) costs of items
considered capital improvements (versus capital expenditures under item (ix),
above) and costs considered capital which are incurred with respect to equipment
which serves the Real Property in the whole or in part (other than costs with
respect to existing equipment), which capital costs shall be determined under
generally accepted accounting principles consistently applied (the "Capital
Items"), except for (1) Capital Items which are intended as a labor-saving
device or to effect other economies in the operation or maintenance of the Real
Property, or any portion thereof, to the extent of cost savings reasonably
anticipated by Landlord, or (2) Capital Items that are required under any
governmental law or regulation, and in either event such Capital Items shall be
amortized (including interest on the unamortized cost) over their useful life as
Landlord shall reasonably determine; (G) marketing costs, including leasing
commissions, attorneys' fees in connection with the negotiation and preparation
of letters, deal memos, letters of intent, leases, subleases
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and/or assignments, space planning costs, key money, construction costs, and
other costs and expenses incurred in connection with lease, sublease and/or
assignment negotiations and transactions with present or prospective tenants or
other occupants of the Building, including attorneys' fees, settlements,
judgments, and other costs and expenditures incurred in connection with disputes
with present or prospective tenants or other occupants of the Building; (H)
costs, including permit, license and inspection costs, incurred with respect to
the installation of other tenants' or occupants' improvements made for tenants
or other occupants in the Building or incurred in renovating or otherwise
improving, decorating, painting or redecorating vacant space for tenants or
other occupants in the Building; (I) rentals and other related expenses for
leasing a heating, ventilation and air conditioning system, elevators, or other
items (except when needed in connection with normal repairs and maintenance of
the Building) which if purchased, rather than rented, would constitute a capital
improvement not included in Operating Expenses pursuant to this Lease; (J)
depreciation, amortization and interest payments, except as specifically
included in Operating Expenses pursuant to the terms of this Lease and except on
materials, tools, supplies and vendor-type equipment purchased by Landlord to
enable Landlord to supply services Landlord might otherwise contract for with a
third party, where such depreciation, amortization and interest payments would
otherwise have been included in the charge for such third party's services, all
as determined in accordance with generally accepted accounting principles,
consistently applied, and when depreciation or amortization is permitted or
required, the item shall be amortized over its reasonably anticipated useful
life; (K) expenses in connection with services or other benefits which are not
offered to Tenant or for which Tenant is charged for directly but which are
provided to another tenant or occupant of the Building, without charge; (L)
overhead and profit increment paid to Landlord or to subsidiaries or affiliates
of Landlord for goods and/or services in the Building to the extent the same
exceeds the costs of such by unaffiliated third parties on a competitive basis;
(M) Landlord's general overhead and general and administrative expenses; (N)
advertising and promotional expenditures, and costs of signs in or on the
Building identifying the owner of the Building or other tenants' signs; (O)
electric power costs or other utility costs for which any tenant directly
contracts with the local public service company (but Landlord shall have the
right to "gross up" as if the floor was vacant); (P) tax penalties incurred as a
result of Landlord's negligence, inability or unwillingness to make payments or
file returns when due; (Q) costs arising from Landlord's charitable or political
contributions; (R) costs incurred by Landlord due to the violation by Landlord
or any other tenant of the terms and conditions of any lease of space in the
Building; and (S) costs arising from the gross negligence or willful misconduct
of "Landlord Parties" (defined in Section 10.1 below).
4.2.5 "Tax Expenses" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary
(including, without limitation, real estate taxes, general and special
assessments, transit taxes, leasehold taxes or taxes based upon the receipt of
rent, including gross receipts or sales taxes applicable to the receipt of rent,
unless required to be paid by Tenant, personal property taxes imposed upon the
fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances,
furniture and other personal property used in connection with the Building),
which Landlord shall pay or incur during any Expense Year (without regard to any
different fiscal year used by such governmental or municipal authority) because
of or in connection with the ownership, leasing and operation of the Real
Property. For purposes of this Lease, Tax Expenses shall be calculated as if the
tenant
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improvements in the Building were fully constructed and the Real Property, the
Building, and all tenant improvements in the Building were fully assessed for
real estate tax purposes, and accordingly, during the portion of any Expense
Year occurring during the Base Year, Tax Expenses shall be deemed to be
increased appropriately.
4.2.5.1 Tax Expenses shall include, without limitation:
(i) Any assessment, tax, fee, levy or charge in addition
to, or in substitution, partially or totally, of any assessment, tax, fee, levy
or charge previously included within the definition of real property tax, it
being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election ("Proposition 13")
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, conservation, refuse removal and for other governmental
services formerly provided without charge to property owners or occupants, and,
in further recognition of the decrease in the level and quality of governmental
services and amenities as a result of Proposition 13, Tax Expenses shall also
include any governmental or private assessments or the Project's contribution
towards a governmental or private cost-sharing agreement for the purpose of
augmenting or improving the quality of services and amenities normally provided
by governmental agencies. It is the intention of Tenant and Landlord that all
such new and increased assessments, taxes, fees, levies, and charges and all
similar assessments, taxes, fees, levies and charges be included within the
definition of Tax Expenses for purposes of this Lease;
(ii) Any assessment, tax, fee, levy, or charge allocable
to or measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any gross income tax with respect to the receipt
of such rent, or upon or with respect to the possession, leasing, operating,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof;
(iii) Any assessment, tax, fee, levy or charge, upon this
transaction or any document to which Tenant is a party, creating or transferring
an interest or an estate in the Premises; and
(iv) Any possessory taxes charged or levied in lieu of
real estate taxes.
4.2.5.2 Any expenses incurred by Landlord in attempting to
protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in
the Expense Year such expenses are paid. Tax refunds shall be credited against
Tax Expenses, and refunded to Tenant, regardless of when received, based on the
Expense Year to which the refund is applicable, provided that in no event shall
the amount to be refunded to Tenant for any such Expense Year exceed the total
amount paid by Tenant as Additional Rent under this Article 4 for such Expense
Year. All special assessments which may be paid in installments shall be paid by
Landlord in the maximum number of installments permitted by law and not included
in Operating Expenses except in the year in which the assessment is actually
paid; provided, however, that if the prevailing practice in comparable buildings
located in the vicinity of the Building is to pay such assessments on an early
basis, and Landlord pays the same on such basis, such assessments shall
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be included in Operating Expenses in the year paid by Landlord. The amount of
Tax Expenses for the Base Year attributable to the valuation of the Real
Property, inclusive of tenant improvements, shall be known as "Base Taxes." If,
in any Expense Year subsequent to the Base Year, the amount of Tax Expenses
decreases, then for purposes of all subsequent Expense Years, including the
Expense Year in which such decrease in Tax Expenses occurs, the Base Taxes shall
be decreased by an amount equal to the decrease in Tax Expenses.
4.2.5.3 Notwithstanding anything to the contrary contained in
this SECTION 4.2.5 (except as set forth in SECTION 4.2.5.1 or levied in whole
or part in lieu of Tax Expenses), there shall be excluded from Tax Expenses
(i) all excess profits taxes, franchise taxes, gift taxes, capital stock
taxes, inheritance and succession taxes, estate taxes, federal and state
income taxes, and other taxes to the extent applicable to Landlord's general
or net income (as opposed to rents, receipts or income attributable to
operations at the Building), (ii) any items included as Operating Expenses,
and (iii) any items paid by Tenant under SECTION 4.4 of this Lease.
4.2.5.4 Tax Expenses for the Base Year shall include any increase
in Tax Expenses attributable to special assessments, charges, costs or fees, or
due to modifications or changes in governmental laws or regulations, including
but not limited to the institution of a split tax roll; provided, however, that
at such time as any such particular assessments, charges, costs, fees, or
modifications are no longer included in Tax Expenses, such particular
assessments, charges, costs, fees, or modifications shall be excluded from the
Base Year calculation of Tax Expenses.
4.2.6 "Tenant's Share" shall mean the percentage set forth in
SECTION 9.2 of the Summary. Tenant's Share was calculated by multiplying the
number of rentable square feet of the Premises by 100 and dividing the product
by the total rentable square feet in the Building. In the event either the
Premises and/or the Building is expanded or reduced, Tenant's Share shall be
appropriately adjusted, and, as to the Expense Year in which such change occurs,
Tenant's Share for such year shall be determined on the basis of the number of
days during such Expense Year that each such Tenant's Share was in effect.
4.3 CALCULATION AND PAYMENT OF ADDITIONAL RENT.
4.3.1 CALCULATION OF EXCESS. If for any Expense Year ending or
commencing within the Lease Term, Tenant's Share of Direct Expenses for such
Expense Year exceeds Tenant's Share of the amount of Direct Expenses applicable
to the Base Year, then Tenant shall pay to Landlord, in the manner set forth in
SECTION 4.3.2, below, and as Additional Rent, an amount equal to the excess (the
"Excess").
4.3.2 STATEMENT OF ACTUAL DIRECT EXPENSES AND PAYMENT BY TENANT.
Landlord shall endeavor to give to Tenant, on or before the first day of April
following the end of each Expense Year, a statement (the "Statement") which
shall state the Direct Expenses incurred or accrued for such preceding Expense
Year, and which shall indicate the amount, if any, of any Excess. Upon receipt
of the Statement for each Expense Year ending during the Lease Term, if an
Excess is present, Tenant shall pay, with its next installment of Base Rent due,
the full amount of the Excess for such Expense Year, less the amounts, if any,
paid during such Expense Year as
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"Estimated Excess," as that term is defined in SECTION 4.3.3, below. The failure
of Landlord to timely furnish the Statement for any Expense Year shall not
prejudice Landlord from enforcing its rights under this ARTICLE 4. Even though
the Lease Term has expired and Tenant has vacated the Premises, when the final
determination is made of Tenant's Share of the Direct Expenses for the Expense
Year in which this Lease terminates, taking into consideration that the Lease
Expiration Date may have occurred prior to the final day of the applicable
Expense Year, if an Excess is present, Tenant shall immediately pay to Landlord
an amount as calculated pursuant to the provisions of SECTION 4.3.1 of this
Lease, and if Tenant has paid more as Estimated Excess than the actual Excess,
Landlord shall, within thirty (30) days after the date of the Statement, deliver
a check payable to Tenant in the amount of the overpayment. The provisions of
this SECTION 4.3.2 shall survive the expiration or earlier termination of the
Lease Term.
4.3.3 STATEMENT OF ESTIMATED DIRECT EXPENSES. In addition,
Landlord shall give Tenant a yearly expense estimate statement (the "Estimate
Statement") which shall set forth Landlord's reasonable estimate (the
"Estimate") of what the total amount of Direct Expenses for the then-current
Expense Year shall be and the estimated excess (the "Estimated Excess") as
calculated by comparing Direct Expenses, which shall be based upon the Estimate,
to the amount of Direct Expenses applicable to the Base Year, which Estimate
Statement may be revised and reissued by Landlord from time to time. The failure
of Landlord to timely furnish the Estimate Statement for any Expense Year shall
not preclude Landlord from enforcing its rights to collect any Estimated Excess
under this ARTICLE 4. If pursuant to the Estimate Statement (or a revision
thereof) an Estimated Excess is calculated for the then-current Expense Year,
Tenant shall pay, with its next installment of Base Rent due, a fraction of the
Estimated Excess (or the increase in the Estimated Excess if pursuant to a
revised Estimated Statement) for the then-current Expense Year (reduced by any
amounts paid pursuant to the last sentence of this SECTION 4.3.3). Such fraction
shall have as its numerator the number of months which have elapsed in such
current Expense Year to the month of such payment, both months inclusive, and
shall have twelve (12) as its denominator. Until a new Estimate Statement is
furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an
amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in
the previous Estimate Statement delivered by Landlord to Tenant.
4.4 TAXES AND OTHER CHARGES FOR WHICH TENANT IS DIRECTLY RESPONSIBLE.
Tenant shall reimburse Landlord, as Additional Rent, upon demand for any and all
taxes required to be paid by Landlord (except to the extent included in Tax
Expenses by Landlord), excluding state, local and federal personal or corporate
income taxes measured by the net income of Landlord from all sources and estate
and inheritance taxes, whether or not now customary or within the contemplation
of the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to
the cost or value of Tenant's equipment, furniture, fixtures and other
personal property located in the Premises, or by the cost or value of any
leasehold improvements made in or to the Premises by or for Tenant, to the
extent the cost or value of such leasehold improvements exceeds the cost or
value of a building standard build-out as determined by Landlord regardless
of whether title to such improvements shall be vested in Tenant or Landlord;
4.4.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the
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Premises, any portion of the Real Property or the parking facility used by
Tenant in connection with this Lease; or
4.4.3 Said taxes are assessed upon this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises.
4.5 LANDLORD'S BOOKS AND RECORDS. Within ninety (90) days after
receipt of a Statement by Tenant, if Tenant disputes the amount of Additional
Rent set forth in the Statement, a reputable certified public accountant
(which accountant is a member of a reputable independent nationally
recognized accounting firm and has had previous experience in reviewing
financial operating records of landlords of office buildings; provided that
such accountant is not retained by Tenant on a contingency fee basis),
designated and paid for by Tenant, may, after reasonable notice to Landlord
and at reasonable times, inspect Landlord's records with respect to the
Statement at Landlord's offices, provided that Tenant is not then in default
under this Lease and Tenant has paid all amounts required to be paid under
the applicable Estimate Statement and Statement, as the case may be. In
connection with such inspection, Tenant and Tenant's agents must agree in
advance to follow Landlord's reasonable rules and procedures regarding
inspections of Landlord's records, and shall execute a commercially
reasonable confidentiality agreement regarding such inspection. Tenant's
failure to dispute the amount of Additional Rent set forth in any Statement
within ninety (90) days of Tenant's receipt of such Statement shall be deemed
to be Tenant's approval of such Statement and Tenant, thereafter, waives the
right or ability to dispute the amounts set forth in such Statement. If after
such inspection, Tenant still disputes such Additional Rent, a determination
as to the proper amount shall be made, at Tenant's expense, by an independent
certified public accountant (the "Accountant") selected by Landlord and
subject to Tenant's reasonable approval; provided that if such determination
by the Accountant proves that Direct Expenses were overstated by more than
seven percent (7%), then the cost of the Accountant and the cost of such
determination shall be paid for by Landlord. Landlord shall be required to
maintain records of all Direct Expenses set forth in each Statement delivered
to Tenant for two (2) years following Landlord's delivery of the applicable
Statement. In no event shall this Section 4.5 be deemed to allow any review
of any of Landlord's records by any subtenant of Tenant. Tenant agrees that
this SECTION 4.5 shall be the sole method to be used by Tenant to dispute the
amount of any Direct Expenses payable or not payable by Tenant pursuant to
the terms of this Lease, and Tenant hereby waives any other rights at law or
in equity relating thereto.
ARTICLE 5
USE OF PREMISES
Tenant shall use the Premises solely for the "Permitted Use," as that
term is defined in Section 13 of the Summary, and Tenant shall not use or permit
the Premises to be used for any other purpose or purposes whatsoever without the
prior written consent of Landlord, which may be withheld in Landlord's sole
discretion, and shall not allow occupancy density of use of the Premises which
is greater than the average density of the other tenants of the Building. Tenant
further covenants and agrees that it shall not use, or suffer or permit any
person or persons to use, the Premises or any part thereof for any use or
purpose contrary to the Rules and Regulations, or in violation of the laws of
the United States of America, the State of California, or the
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ordinances, regulations or requirements of the local municipal or county
governing body or other lawful authorities having jurisdiction over the
Building. Tenant shall faithfully observe and comply with the Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of such Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building. Tenant shall comply
with all recorded covenants, conditions, and restrictions now or hereafter
affecting the Real Property. Tenant shall not use or allow another person or
entity to use any part of the Premises for the storage, use, treatment,
manufacture or sale of hazardous materials or substances as defined pursuant to
any applicable federal, state or local governmental or quasi-governmental law,
code, ordinance, rule, or regulation. Landlord acknowledges, however, that
Tenant will maintain products in the Premises which are incidental to the
operation of its offices, such as photocopy supplies, secretarial supplies and
limited janitorial supplies, which products contain chemicals which are
categorized as hazardous materials. Landlord agrees that the use of such
products in the Premises in compliance with all applicable laws and in the
manner in which such products are designed to be used shall not be a violation
by Tenant of this ARTICLE 5.
ARTICLE 6
SERVICES AND UTILITIES
6.1 STANDARD TENANT SERVICES. Landlord shall provide the following
services on all days during the Lease Term, unless otherwise stated below.
6.1.1 Subject to all governmental rules, regulations and
guidelines applicable thereto, Landlord shall provide heating and air
conditioning when necessary for normal comfort for normal office use in the
Premises, from Monday through Friday, during the period from 8:00 a.m. to 6:00
p.m., and on Saturdays during the period from 9:00 a.m. to 1:00 p.m., except for
Sundays and New Year's Day, President's Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the day after Thanksgiving Day, Christmas Day and
any other nationally and locally recognized holidays (collectively, the
"Holidays").
6.1.2 Landlord shall provide adequate electrical wiring,
facilities and power for normal general office use as determined by Landlord;
provided, however, that electrical usage, to the extent the same exceeds four
(4) watts connected load per usable square foot of the Premises per hour during
Building standard business hours, shall be deemed excess consumption and shall
be subject to the terms of SECTION 6.2, below. Tenant shall bear the cost of
replacement of non-Building standard lamps, starters and ballasts for lighting
fixtures within the Premises.
6.1.3 Landlord shall provide city water from the regular Building
outlets for drinking, lavatory and toilet purposes.
6.1.4 Landlord shall provide janitorial services Monday through
Friday except the date of observation of the Holidays, in and about the
Premises.
6.1.5 Landlord shall provide nonexclusive automatic elevator
service at all times.
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6.2 OVERSTANDARD TENANT USE. Tenant shall not, without Landlord's
prior written consent, use heat-generating machines, machines other than normal
fractional horsepower office machines, or equipment or lighting other than
building standard lights in the Premises, which may affect the temperature
otherwise maintained by the air conditioning system or increase the water
normally furnished for the Premises by Landlord pursuant to the terms of SECTION
6.1 of this Lease. If such consent is given, Landlord shall have the right to
install supplementary air conditioning units or other facilities in the
Premises, including supplementary or additional metering devices, and the cost
thereof, including the cost of installation, operation and maintenance,
increased wear and tear on existing equipment and other similar charges, shall
be paid by Tenant to Landlord upon billing by Landlord. If Tenant uses water,
electricity, heat or air conditioning in excess of that supplied by Landlord
pursuant to SECTION 6.1 of this Lease, Tenant shall pay to Landlord, upon
billing, the cost of such excess consumption, the cost of the installation,
operation, and maintenance of equipment which is installed in order to supply
such excess consumption, and the cost of the increased wear and tear on existing
equipment caused by such excess consumption; and Landlord may install devices to
separately meter any increased use and in such event Tenant shall pay the
increased cost directly to Landlord, on demand, including the cost of such
additional metering devices. If Tenant desires to use heat, ventilation or air
conditioning during hours other than those for which Landlord is obligated to
supply such utilities pursuant to the terms of SECTION 6.1 of this Lease, Tenant
shall give Landlord such prior notice, as Landlord shall from time to time
establish as appropriate, of Tenant's desired use and Landlord shall supply such
utilities to Tenant at such hourly cost to Tenant as Landlord shall from time to
time establish. If Tenant uses an independent HVAC system which is not part of
the Building-standard HVAC system, then Tenant shall pay Landlord the charge
therefor established by Landlord from time to time, including the cost of
increased wear and tear on the existing equipment. Amounts payable by Tenant to
Landlord for such use of additional utilities shall be deemed Additional Rent
hereunder and shall be billed on a monthly basis.
6.3 INTERRUPTION OF USE. Tenant agrees that Landlord shall not be
liable for damages, by abatement of Rent or otherwise, for failure to furnish or
delay in furnishing any service (including telephone and telecommunication
services), or for any diminution in the quality or quantity thereof, when such
failure or delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building after
reasonable effort to do so, by any accident or casualty whatsoever, by act or
default of Tenant or other parties, or by any other cause beyond Landlord's
reasonable control; and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Tenant's use and possession
of the Premises or relieve Tenant from paying Rent or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any of the services or utilities as set forth in this ARTICLE
6. Landlord may comply with voluntary controls or guidelines promulgated by any
governmental entity relating to the use or conservation of energy, water, gas,
light or electricity or the reduction of automobile or other emissions without
creating any liability of Landlord to Tenant under this Lease, provided that the
Premises are not thereby rendered untenantable.
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6.4 TENANT'S SECURITY SYSTEM. Tenant may, at its own expense, install
its own security system ("Tenant's Security System") in the Premises; provided,
however, that Tenant shall coordinate the installation and operation of Tenant's
Security System with Landlord to assure that Tenant's Security System is
compatible with Landlord's security system and the Building systems and to the
extent that Tenant's Security System is not compatible with Landlord's security
system and the Building systems, Tenant shall not be entitled to install or
operate it. Tenant shall be solely responsible, at Tenant's sole cost and
expense, for the monitoring, operation and removal of Tenant's Security System.
ARTICLE 7
REPAIRS
Landlord shall repair and maintain the structural portions of the
Building, including the basic plumbing, heating, ventilating, air-conditioning
and electrical systems installed or furnished by Landlord and not located within
the Premises, unless such maintenance and repairs are caused in part or in whole
by the act, neglect, fault or omission of any duty by Tenant or the "Tenant
Parties," as that term is defined in SECTION 10.1, below, in which event Tenant
shall pay to Landlord, as Additional Rent, the reasonable cost of such
maintenance and repairs. Tenant shall, at Tenant's own expense, pursuant to the
terms of this Lease, including without limitation ARTICLE 8 hereof, keep the
Premises, including all improvements, fixtures and furnishings therein, in good
order, repair and condition at all times during the Lease Term. In addition,
Tenant shall, at Tenant's own expense but under the supervision and subject to
the prior approval of Landlord, and within any reasonable period of time
specified by Landlord, pursuant to the terms of this Lease, including without
limitation ARTICLE 8 hereof, promptly and adequately repair all damage to the
Premises and replace or repair all damaged or broken fixtures and appurtenances;
provided however, that, at Landlord's option, or if Tenant fails to make such
repairs, Landlord may, but need not, make such repairs and replacements, and
Tenant shall pay Landlord the cost thereof, including a percentage of the cost
thereof (to be uniformly established for the Building) sufficient to reimburse
Landlord for all overhead, general conditions, fees and other costs or expenses
arising from Landlord's involvement with such repairs and replacements forthwith
upon being billed for same. Landlord may, but shall not be required to, enter
the Premises at all reasonable times to make such repairs, alterations,
improvements and additions to the Premises or to the Building or to any
equipment located in the Building as Landlord shall desire or deem necessary or
as Landlord may be required to do by governmental or quasi-governmental
authority or court order or decree. Tenant hereby waives and releases its right
to make repairs at Landlord's expense under Sections 1941 and 1942 of the
California Civil Code or under any similar law, statute, or ordinance now or
hereafter in effect.
ARTICLE 8
ADDITIONS AND ALTERATIONS
8.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof (except
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with respect to Alterations to be made at the commencement of this Lease), and
which consent shall not be unreasonably withheld by Landlord. The construction
of the initial improvements to the Premises shall also be governed by the terms
of this ARTICLE 8. Notwithstanding anything in the foregoing to the contrary,
with respect to the initial improvements to the Premises, subject to the
remaining provisions of this Article 8, Landlord hereby consents to Tenant's
removal, at Tenant's sole cost and expense, of an existing wall dividing two (2)
rooms within the Premises, as shown on Exhibit F attached hereto, and Tenant
shall not be required to restore such wall upon the expiration or earlier
termination of this Lease. In addition, Tenant shall be permitted to recarpet
the Premises and to repaint the walls of the Premises, provided, however,
Landlord shall reimburse Tenant for the cost of repainting the Premises in an
amount not to exceed $7,500.00, upon Tenant's delivery to Landlord of (i)
invoices marked as having been paid for work performed and materials delivered
in connection with such work, and (ii) properly executed unconditional
mechanic's lien releases in compliance with both California Civil Code Section
3262(d)(2) and either Section 3262(d)(3) or Section 3262(d)(4).
8.2 MANNER OF CONSTRUCTION. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its sole discretion may deem desirable,
including, but not limited to, the requirement that upon Landlord's request,
Tenant shall, at Tenant's expense, remove such Alterations upon the expiration
or any early termination of the Lease Term, and/or the requirement that Tenant
utilize for such purposes only contractors, materials, mechanics and materialmen
selected by Landlord. Tenant shall construct such Alterations and perform such
repairs in conformance with any and all applicable rules and regulations of any
federal, state, county or municipal code or ordinance and pursuant to a valid
building permit, issued by the City of Los Angeles, in conformance with
Landlord's construction rules and regulations. All work with respect to any
Alterations must be done in a good and workmanlike manner and diligently
prosecuted to completion to the end that the Premises shall at all times be a
complete unit except during the period of work. In performing the work of any
such Alterations, Tenant shall have the work performed in such manner as not to
obstruct access to the Building or the common areas for any other tenant of the
Building, and as not to obstruct the business of Landlord or other tenants in
the Building, or interfere with the labor force working in the Building. Upon
completion of any Alterations, Tenant agrees to cause a timely Notice of
Completion to be recorded in the office of the Recorder of the County of Los
Angeles in accordance with the terms of Section 3093 of the Civil Code of the
State of California or any successor statute, and Tenant shall deliver to the
Building management office a reproducible copy of the "as built" drawings of the
Alterations.
8.3 PAYMENT FOR IMPROVEMENTS. In the event Tenant orders any
Alterations or repair work directly from Landlord or from a contractor selected
by Landlord, the charges for such work shall be deemed Additional Rent under
this Lease, payable upon billing therefor, either periodically during
construction or upon the substantial completion of such work, at Landlord's
option. Upon completion of any work not ordered directly from Landlord, Tenant
shall deliver to Landlord evidence of payment, contractors' affidavits and full
and final waivers of all liens for labor, services or materials. In addition,
Tenant shall pay to Landlord an amount equal to ten percent (10%) of the cost of
any such work to compensate Landlord for all overhead, general conditions, fees
and other costs and expenses arising from Landlord's involvement with such work.
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8.4 CONSTRUCTION INSURANCE. In the event that Tenant makes any
Alterations, Tenant agrees to carry "Builder's All Risk" insurance in an amount
approved by Landlord covering the construction of such Alterations, and such
other insurance as Landlord may require, it being understood and agreed that all
of such Alterations shall be insured by Tenant pursuant to ARTICLE 10 of this
Lease immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee.
8.5 LANDLORD'S PROPERTY. All Alterations, improvements, fixtures
and/or equipment which may be installed or placed in or about the Premises, and
all signs installed in, on or about the Premises, from time to time, shall be at
the sole cost of Tenant and shall be and become the property of Landlord, except
that Tenant may remove any Alterations, improvements, fixtures and/or equipment
which Tenant can substantiate to Landlord have not been paid for with any tenant
improvement allowance funds provided to Tenant by Landlord, provided Tenant
repairs any damage to the Premises and Building caused by such removal.
Furthermore, if Landlord, as a condition to Landlord's consent to any
Alteration, requires that Tenant remove any Alteration upon the expiration or
early termination of the Lease Term, Landlord may, by written notice to Tenant
prior to the end of the Lease Term, or given upon any earlier termination of
this Lease, require Tenant at Tenant's expense to remove such Alterations and to
repair any damage to the Premises and Building caused by such removal. If Tenant
fails to complete such removal and/or to repair any damage caused by the removal
of any Alterations, Landlord may do so and may charge the cost thereof to
Tenant. Notwithstanding anything in the foregoing to the contrary, Tenant shall
not be required to remove any improvements or alterations existing in the
Premises as of the date of delivery of the Premises by Landlord to Tenant.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon the Real Property, Building
or Premises, and any and all liens and encumbrances created by Tenant shall
attach to Tenant's interest only. Landlord shall have the right at all times to
post and keep posted on the Premises any notice which it deems necessary for
protection from such liens. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen or others to be placed against the Real
Property, the Building or the Premises with respect to work or services claimed
to have been performed for or materials claimed to have been furnished to Tenant
or the Premises, and, in case of any such lien attaching or notice of any lien,
Tenant covenants and agrees to cause it to be immediately released and removed
of record. Notwithstanding anything to the contrary set forth in this Lease, in
the event that such lien is not released and removed on or before the date
occurring five (5) days after notice of such lien is delivered by Landlord to
Tenant, Landlord, at its sole option, may immediately take all action necessary
to release and remove such lien, without any duty to investigate the validity
thereof, and all sums, costs and expenses, including reasonable attorneys' fees
and costs, incurred by Landlord in connection with such lien shall be deemed
Additional Rent under this Lease and shall immediately be due and payable by
Tenant.
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ARTICLE 10
INSURANCE
10.1 INDEMNIFICATION AND WAIVER. To the extent not prohibited by law,
Landlord, its partners, trustees, ancillary trustees and their respective
officers, directors, shareholders, beneficiaries, agents, servants, employees,
and independent contractors (collectively, the "Landlord Parties") shall not be
liable for any damage either to person or property or resulting from the loss of
use thereof, which damage is sustained by Tenant or by other persons claiming
through Tenant. Tenant shall indemnify, defend, protect, and hold harmless
Landlord Parties from any and all loss, cost, damage, expense and liability
(including without limitation court costs and reasonable attorneys' fees)
incurred in connection with or arising from any cause in, on or about the
Premises or from the negligence or willful misconduct of Tenant or of any person
claiming by, through or under Tenant, its partners, and their respective
officers, agents, servants, employees, and independent contractors
(collectively, the "Tenant Parties"), in, on or about the Real Property, during
the Lease Term, provided that the terms of the foregoing indemnity shall not
apply to the gross negligence or wilful misconduct of Landlord or the Landlord
Parties. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of an event covered by the foregoing
indemnity, Tenant shall pay to Landlord its costs and expenses incurred in such
suit, including without limitation, its actual professional fees such as
appraisers', accountants' and attorneys' fees. The provisions of this SECTION
10.1 shall survive the expiration or sooner termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination.
10.2 TENANT'S COMPLIANCE WITH LANDLORD'S FIRE AND CASUALTY INSURANCE.
The coverage and amounts of insurance carried by Landlord in connection with the
Building shall at a minimum be comparable to the coverage and amounts of
insurance which are carried by reasonably prudent landlords of comparable
buildings located in the vicinity of the Building. Upon inquiry by Tenant, from
time to time, Landlord shall inform Tenant of such coverage carried by Landlord.
Tenant shall, at Tenant's expense, comply with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for any insurance policies
carried by Landlord, then Tenant shall reimburse Landlord for any such increase.
Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
10.3 TENANT'S INSURANCE. Tenant shall maintain the following
coverages in the following amounts.
10.3.1 Commercial General Liability Insurance covering the
insured against claims of bodily injury, personal injury and property damage
arising out of Tenant's operations, assumed liabilities or use of the Premises,
including a Commercial General Liability endorsement covering the insuring
provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in SECTION 10.1 of this Lease, for limits of liability not
less than: (i) Bodily Injury and Property Damage Liability - $2,000,000 each
occurrence and $2,000,000 annual aggregate, and (ii) Personal Injury Liability -
$2,000,000 each occurrence and $2,000,000 annual aggregate.
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10.3.2 Physical Damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise and all other items of
Tenant's property on the Premises installed by, for, or at the expense of
Tenant, and (ii) all improvements, alterations and additions to the Premises.
Such insurance shall be written on an "all risks" of physical loss or damage
basis, for the full replacement cost value new without deduction for
depreciation of the covered items and in amounts that meet any co-insurance
clauses of the policies of insurance and shall include a vandalism and malicious
mischief endorsement, sprinkler leakage coverage and earthquake sprinkler
leakage coverage.
10.3.3 Loss-of-income and extra-expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent tenants or
attributable to prevention of access to the Premises or to the Building as a
result of such perils.
10.3.4 Worker's Compensation and Employers' Liability or other
similar insurance pursuant to all applicable state and local statutes and
regulations.
10.3.5 FORM OF POLICIES. The minimum limits of policies of
insurance required of Tenant under this Lease shall in no event limit the
liability of Tenant under this Lease. Such insurance shall (i) name Landlord,
and any other party it so specifies, as an additional insured; (ii) specifically
cover the liability assumed by Tenant under this Lease, including, but not
limited to, Tenant's obligations under SECTION 10.1 of this Lease; (iii) be
issued by an insurance company having a rating of not less than A-:XII in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the State of California; (iv) be primary insurance as to all claims
thereunder and provide that any insurance carried by Landlord is excess and is
non-contributing with any insurance requirement of Tenant; (v) provide that said
insurance shall not be canceled or coverage changed unless thirty (30) days'
prior written notice shall have been given to Landlord and any mortgagee of
Landlord; and (vi) contain a cross-liability endorsement or severability of
interest clause acceptable to Landlord. Tenant shall deliver said policy or
policies or certificates thereof to Landlord on or before the Lease Commencement
Date and at least thirty (30) days before the expiration dates thereof.
10.4 SUBROGATION. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are contained
in their respective insurance policies, Landlord and Tenant hereby waive any
right that either may have against the other on account of any loss or damage to
their respective property to the extent such loss or damage is insurable under
policies of insurance for fire and all risk coverage, theft, or other similar
insurance. If either party fails to carry the amounts and types of insurance
required to be carried by it pursuant to this Article 10, in addition to any
remedies the other party may have under this Lease, such failure shall be deemed
to be a covenant and agreement by such party to self-insure with respect to the
type and amount of insurance which such party so failed to carry, with full
waiver of subrogation with respect thereto.
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10.5 ADDITIONAL INSURANCE OBLIGATIONS. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to this
ARTICLE 10, and such other reasonable types of insurance coverage and in such
reasonable amounts covering the Premises and Tenant's operations therein, as may
be reasonably requested by Landlord, but in no event shall such increased
amounts of insurance or such other reasonable types of insurance be in excess of
that required by landlords of comparable buildings located in the vicinity of
the Building. Notwithstanding anything to the contrary contained in this Lease,
in the event of any termination of this Lease pursuant to ARTICLE 11 or ARTICLE
13 below, Tenant shall assign and deliver to Landlord (or to any party
designated by Landlord) all insurance proceeds payable to Tenant under Tenant's
insurance required under SECTION 10.3 of this Lease.
ARTICLE 11
DAMAGE AND DESTRUCTION
11.1 REPAIR OF DAMAGE TO PREMISES BY LANDLORD. Tenant shall promptly
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any common areas of the Building serving or
providing access to the Premises shall be damaged by fire or other casualty,
Landlord shall promptly and diligently, subject to reasonable delays for
insurance adjustment or other matters beyond Landlord's reasonable control, and
subject to all other terms of this ARTICLE 11, restore the base, shell, and core
of the Premises and such common areas. Such restoration shall be to
substantially the same condition of the base, shell, and core of the Premises
and common areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building or any other modifications to the common areas deemed desirable by
Landlord, provided access to the Premises and any common restrooms serving the
Premises shall not be materially impaired. Notwithstanding any other provision
of this Lease, upon the occurrence of any damage to the Premises, Tenant shall
assign to Landlord (or to any party designated by Landlord) all insurance
proceeds payable to Tenant under Tenant's insurance required under SECTION 10.3
of this Lease, and Landlord shall repair any injury or damage to the Tenant
Improvements installed in the Premises and shall return such Tenant Improvements
to their original condition; provided that if the cost of such repair by
Landlord exceeds the amount of insurance proceeds received by Landlord from
Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs
shall be paid by Tenant to Landlord prior to Landlord's repair of the damage. In
connection with such repairs and replacements, Tenant shall, prior to the
commencement of construction, submit to Landlord, for Landlord's review and
approval, all plans, specifications and working drawings relating thereto, and
Landlord shall select the contractors to perform such improvement work. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or its
visitors, or injury to Tenant's business resulting in any way from such damage
or the repair thereof; provided however, that if such fire or other casualty
shall have damaged the Premises or common areas necessary to Tenant's occupancy,
and if such damage is not the result of the negligence or wilful misconduct of
Tenant or Tenant's employees, contractors, licensees, or invitees, Landlord
shall allow Tenant a proportionate abatement of Rent, during the time and to the
extent the Premises are unfit for occupancy for the purposes permitted under
this Lease, and not occupied by Tenant as a result thereof; provided, further,
if the Premises is damaged such that the remaining portion thereof is not
sufficient to
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allow Tenant to conduct its business operations from such remaining portion and
Tenant does not conduct its business operations therefrom, and if such damage is
not the result of the negligence or wilful misconduct of Tenant or any of the
Tenant Parties, Landlord shall allow Tenant a total abatement of Rent during the
time and to the extent the Premises are unfit for occupancy for the purposes
permitted under this Lease, and not occupied by Tenant as a result of the
subject damage.
11.2 LANDLORD'S OPTION TO REPAIR. Notwithstanding the terms of SECTION
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing of such termination within sixty (60) days after the date of Landlord's
discovery of the damage, such notice to include a termination date giving Tenant
ninety (90) days to vacate the Premises, but Landlord may so elect only if the
Building shall be damaged by fire or other casualty or cause, whether or not the
Premises are affected, and one or more of the following conditions is present:
(i) repairs cannot reasonably be completed within ninety (90) days of the date
of Landlord's discovery of the damage (when such repairs are made without the
payment of overtime or other premiums); (ii) the holder of any mortgage on the
Building or ground lessor with respect to the Real Property shall require that
the insurance proceeds or any portion thereof be used to retire the mortgage
debt, or shall terminate the ground lease, as the case may be; or (iii) the
damage is not fully covered, except for deductible amounts, by Landlord's
insurance policies; provided, however, that if Landlord does not elect to
terminate this Lease pursuant to Landlord's termination right as provided above,
and the repairs cannot, in the reasonable opinion of Landlord, be completed
within one (1) year after being commenced, Tenant may elect, no earlier than
sixty (60) days after the date of Landlord's discovery of the damage and not
later than ninety (90) days after the date that Landlord advises Tenant in
writing that the repairs cannot be completed within such one (1) year period, to
terminate this Lease by written notice to Landlord effective as of the date
specified in the notice, which date shall not be less than thirty (30) days nor
more than sixty (60) days after the date such notice is given by Tenant.
Furthermore, if neither Landlord nor Tenant have terminated this Lease, and the
repairs are not actually completed within such one (1) year period, Tenant shall
have the right to terminate this Lease during the first five (5) business days
of each calendar month following the end of such period until such time as the
repairs are complete, by notice to Landlord (the "Damage Termination Notice"),
effective as of a date set forth in the Damage Termination Notice (the "Damage
Termination Date"), which Damage Termination Date shall not be less than ten
(10) business days following the end of each such month. Notwithstanding the
foregoing, if Tenant delivers a Damage Termination Notice to Landlord, then
Landlord shall have the right to suspend the occurrence of the Damage
Termination Date for a period ending thirty (30) days after the Damage
Termination Date set forth in the Damage Termination Notice by delivering to
Tenant, within five (5) business days of Landlord's receipt of the Damage
Termination Notice, a certificate of Landlord's contractor responsible for the
repair of the damage certifying that it is such contractor's good faith judgment
that the repairs shall be substantially completed within thirty (30) days after
the Damage Termination Date. If repairs shall be substantially completed prior
to the expiration of such thirty-day period, then the Damage Termination Notice
shall be of no force or effect, but if the repairs shall not be substantially
completed within such thirty-day period, then this Lease shall terminate upon
the expiration of such thirty-day period and any Rent paid with respect to the
period after the Damage Termination Date specified in Tenant's Damage
Termination Notice shall be refunded to Tenant. At any time, from time to time,
after the date occurring sixty (60) days after the date
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Landlord notifies Tenant of Landlord's discovery of the damage, Tenant may
request that Landlord inform Tenant of Landlord's reasonable opinion of the date
of completion of the repairs and Landlord shall respond to such request within
five (5) business days.
11.3 WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including this ARTICLE 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any
rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now
or hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises, the Building or any other
portion of the Real Property.
11.4 DAMAGE NEAR END OF TERM. In the event that Landlord discovers
that the Premises or the Building is destroyed or damaged to any substantial
extent during the last eighteen (18) months of the Lease Term and, in the
reasonable opinion of Landlord, the damage or destruction to the Premises or
Building cannot be repaired by the date which is six (6) months prior to the
Lease Expiration Date, then notwithstanding anything contained in this ARTICLE
11, either Landlord or Tenant shall have the option to terminate this Lease by
giving written notice to the other party of the exercise of such option, within
thirty (30) days after Landlord's discovery of such damage or destruction in the
case of an election by Landlord to terminate, or within thirty (30) days after
Landlord's notice to Tenant of such discovery in the case of an election by
Tenant to terminate, in which event this Lease shall cease and terminate as of
the date of such notice, Tenant shall pay the Base Rent and Additional Rent,
properly apportioned up to such date of damage, and both parties hereto shall
thereafter be freed and discharged of all further obligations hereunder, except
as provided for in provisions of this Lease which by their terms survive the
expiration or earlier termination of the Lease Term.
ARTICLE 12
NONWAIVER
No waiver of any provision of this Lease shall be implied by any
failure of Landlord to enforce any remedy on account of the violation of such
provision, even if such violation shall continue or be repeated subsequently,
any waiver by Landlord of any provision of this Lease may only be in writing,
and no express waiver shall affect any provision other than the one specified in
such waiver and that one only for the time and in the manner specifically
stated. No receipt of monies by Landlord from Tenant after the termination of
this Lease shall in any way alter the length of the Lease Term or of Tenant's
right of possession hereunder or after the giving of any notice shall reinstate,
continue or extend the Lease Term or affect any notice given Tenant prior to the
receipt of such monies, it being agreed that after the service of notice or the
commencement of a suit or after final judgment for possession of the Premises,
Landlord may receive and collect any Rent due, and the payment of said Rent
shall not waive or affect said notice, suit or judgment. No payment by Tenant or
receipt or acceptance by Landlord of a lesser amount than the correct Rent due
shall be deemed to be other than a payment on account, nor shall any endorsement
or statement on any check or any letter accompanying any check or
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payment be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance, treat
such partial payment as a default or pursue any other remedy provided in this
Lease or at law.
ARTICLE 13
CONDEMNATION
If ten percent (10%) or more of the Premises or Building shall be taken
by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if Landlord shall grant a deed or
other instrument in lieu of such taking by eminent domain or condemnation,
Landlord shall have the option to terminate this Lease upon ninety (90) days'
notice, provided such notice is given no later than one hundred eighty (180)
days after the date of such taking, condemnation, or deed. If more than
twenty-five percent (25%) of the rentable square feet of the Premises is taken,
or if access to the Premises is substantially impaired, Tenant shall have the
option to terminate this Lease upon ninety (90) days' notice, provided such
notice is given no later than one hundred eighty (180) days after the date of
such taking. Landlord shall be entitled to receive the entire award or payment
in connection therewith, except that Tenant shall have the right to file any
separate claim available to Tenant for any taking of Tenant's personal property
and fixtures belonging to Tenant and removable by Tenant upon expiration of the
Lease Term pursuant to the terms of this Lease, and for moving expenses, so long
as such claim does not diminish the award available to Landlord, its ground
lessor with respect to the Real Property or its mortgagee, and such claim is
payable separately to Tenant. All Rent shall be apportioned as of the date of
such termination, or the date of such taking, whichever shall first occur. If
any part of the Premises shall be taken, and this Lease shall not be so
terminated, the Rent shall be proportionately abated. Tenant hereby waives any
and all rights it might otherwise have pursuant to Section 1265.130 of the
California Code of Civil Procedure.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 TRANSFERS. Tenant shall not, without the prior written consent of
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment or other such foregoing transfer of this Lease or any interest
hereunder by operation of law, sublet the Premises or any part thereof, or
permit the use of the Premises by any persons other than Tenant and its
employees (all of the foregoing are hereinafter sometimes referred to
collectively as "Transfers" and any person to whom any Transfer is made or
sought to be made is hereinafter sometimes referred to as a "Transferee"). If
Tenant shall desire Landlord's consent to any Transfer, Tenant shall notify
Landlord in writing, which notice (the "Transfer Notice") shall include (i) the
proposed effective date of the Transfer, which shall not be less than forty-five
(45) days nor more than one hundred eighty (180) days after the date of delivery
of the Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "Subject Space"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including a calculation of the
"Transfer Premium," as that term is defined in SECTION 14.3, below, in
connection with such Transfer, the name and
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address of the proposed Transferee, and a copy of all existing and/or proposed
documentation pertaining to the proposed Transfer, including all existing
operative documents to be executed to evidence such Transfer or the agreements
incidental or related to such Transfer, (iv) current financial statements of the
proposed Transferee certified by an officer, partner or owner thereof, and any
other information required by Landlord, which will enable Landlord to determine
the financial responsibility, character, and reputation of the proposed
Transferee, nature of such Transferee's business and proposed use of the Subject
Space, (v) an executed estoppel certificate from Tenant in the form attached
hereto as EXHIBIT E, and (vi) such other information as Landlord may reasonably
require. Any Transfer made without Landlord's prior written consent shall, at
Landlord's option, be null, void and of no effect, and shall, at Landlord's
option, constitute a default by Tenant under SECTION 19.1.7 of this Lease.
Whether or not Landlord shall grant consent, Tenant shall pay Landlord's review
and processing fees, as well as any reasonable legal fees incurred by Landlord,
within thirty (30) days after written request by Landlord.
14.2 LANDLORD'S CONSENT. Landlord shall not unreasonably withhold its
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. The parties hereby agree that it shall
be deemed to be reasonable under this Lease and under any applicable law for
Landlord to withhold consent to any proposed Transfer where one or more of the
following apply, without limitation as to other reasonable grounds for
withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged
in a business which is not consistent with the quality of the Building;
14.2.2 The Transferee is either a governmental agency or
instrumentality thereof (i) which is that of a foreign country, (ii) which is of
a character or reputation, is engaged in a business, or is of, or is associated
with, a political orientation or faction, which is inconsistent with the quality
of the Building, or which would otherwise reasonably offend a landlord of a
comparable building located in the vicinity of the Building, (iii) which is
capable of exercising the power of eminent domain or condemnation, or (iv) which
would significantly increase the human traffic in the Premises or Building;
14.2.3 The Transferee's intended use of the Premises is
inconsistent with the Permitted Use;
14.2.4 The Transfer occurs during the period from the Lease
Commencement Date until the earlier of (i) the fourth anniversary of the Lease
Commencement Date or (ii) the date at least ninety-five percent (95%) of the
rentable square feet of the Building is leased, and the rent charged by Tenant
to such Transferee during the term of such Transfer (the "Transferee's Rent"),
calculated using a present value analysis, is less than ninety-five percent
(95%) of the rent being quoted by Landlord at the time of such Transfer for
comparable space in the Building for a comparable term (the "Quoted Rent"),
calculated using a present value analysis;
14.2.5 The Transferee is not a party of reasonable financial
worth and/or financial stability in light of the responsibilities involved under
the Lease on the date consent is requested;
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14.2.6 The proposed Transfer would cause Landlord to be in
violation of another lease or agreement to which Landlord is a party, or would
give an occupant of the Building a right to cancel its lease;
14.2.7 The terms of the proposed Transfer will allow the
Transferee to exercise a right of renewal, right of expansion, right of first
offer, or other similar right held by Tenant (or will allow the Transferee to
occupy space leased by Tenant pursuant to any such right); or
14.2.8 Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Building at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Building at such time, or (iii) has negotiated with Landlord during
the twelve (12) month period immediately preceding the Transfer Notice.
In the event Landlord withholds or conditions its consent and Tenant
believes that Landlord did so contrary to the terms of this Lease, Tenant may
prosecute an action for declaratory relief to determine if Landlord properly
withheld or conditioned its consent, but Tenant waives and discharges any claims
it may have against Landlord for damages arising from Landlord's withholding or
conditioning its consent. In any such action, each party shall bear its own
attorneys' fees. Tenant shall indemnify, defend and hold harmless Landlord from
any and all liability, losses, claims, damages, costs, expenses, causes of
action and proceedings brought by any third party or parties (including without
limitation Tenant's proposed subtenant or assignee) who claim they were damaged
by Landlord's wrongful withholding or conditioning of Landlord's consent. If
Landlord consents to any Transfer pursuant to the terms of this SECTION 14.2
(and does not exercise any recapture rights Landlord may have under SECTION 14.4
of this Lease), Tenant may within six (6) months after Landlord's consent, but
not later than the expiration of said six-month period, enter into such Transfer
of the Premises or portion thereof, upon substantially the same terms and
conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to SECTION 14.1 of this Lease, provided that if there are any
changes in the terms and conditions from those specified in the Transfer Notice
(i) such that Landlord would initially have been entitled to refuse its consent
to such Transfer under this SECTION 14.2, or (ii) which would cause the proposed
Transfer to be more favorable to the Transferee than the terms set forth in
Tenant's original Transfer Notice, Tenant shall again submit the Transfer to
Landlord for its approval and other action under this Article 14 (including
Landlord's right of recapture, if any, under SECTION 14.4 of this Lease).
Notwithstanding anything to the contrary in this Lease, if Tenant or any
proposed Transferee claims that Landlord has unreasonably withheld or delayed
its consent under SECTION 14.2 or otherwise has breached or acted unreasonably
under this ARTICLE 14, their sole remedies shall be a suit for contract damages
(other than damages for injury to, or interference with, Tenant's business
including, without limitation, loss of profits, however occurring) or
declaratory judgment and an injunction for the relief sought, and Tenant hereby
waives all other remedies, including, without limitation, any right at law or
equity to terminate this Lease, on its own behalf and, to the extent permitted
under all applicable laws, on behalf of the proposed Transferee.
14.3 TRANSFER PREMIUM. If Landlord consents to a Transfer, as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
to Landlord fifty percent (50%) of any "Transfer Premium," as that term is
defined in this SECTION 14.3, received by Tenant from
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such Transferee. "Transfer Premium" shall mean all rent, additional rent or
other consideration payable by such Transferee in excess of the Rent and
Additional Rent payable by Tenant under this Lease, on a per rentable square
foot basis if less than all of the Premises is transferred, after deducting the
reasonable expenses incurred by Tenant for (i) any changes, alterations and
improvements to the Premises in connection with the Transfer, (ii) any brokerage
commissions in connection with the Transfer, and (iii) any costs to buy-out or
takeover the previous lease of a Transferee. "Transfer Premium" shall also
include, but not be limited to, key money and bonus money paid by Transferee to
Tenant in connection with such Transfer, and any payment in excess of fair
market value for services rendered by Tenant to Transferee or for assets,
fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee
in connection with such Transfer. In the calculations of the Rent (as it relates
to the Transfer Premium calculated under this SECTION 14.3), and the
Transferee's Rent and Quoted Rent under SECTION 14.2 of this Lease, the Rent
paid during each annual period for the Subject Space, and the Transferee's Rent
and the Quoted Rent, shall be computed after adjusting such rent to the actual
effective rent to be paid, taking into consideration any and all leasehold
concessions granted in connection therewith, including, but not limited to, any
rent credit and tenant improvement allowance. For purposes of calculating any
such effective rent, all such concessions shall be amortized on a straight-line
basis over the relevant term.
14.4 LANDLORD'S OPTION AS TO SUBJECT SPACE. Notwithstanding anything
to the contrary contained in this ARTICLE 14, Landlord shall have the option, by
giving written notice to Tenant within thirty (30) days after receipt of any
Transfer Notice, to (i) recapture the Subject Space, or (ii) take an assignment
or sublease of the Subject Space from Tenant. Such recapture, or sublease or
assignment notice shall cancel and terminate this Lease, or create a sublease or
assignment, as the case may be, with respect to the Subject Space as of the date
stated in the Transfer Notice as the effective date of the proposed Transfer
until the last day of the term of the Transfer as set forth in the Transfer
Notice. In the event of a recapture by Landlord, if this Lease shall be canceled
with respect to less than the entire Premises, the Rent reserved herein shall be
prorated on the basis of the number of rentable square feet retained by Tenant
in proportion to the number of rentable square feet contained in the Premises,
and this Lease as so amended shall continue thereafter in full force and effect,
and upon request of either party, the parties shall execute written confirmation
of the same. If Landlord declines, or fails to elect in a timely manner to
recapture, sublease or take an assignment of the Subject Space under this
SECTION 14.4, then, provided Landlord has consented to the proposed Transfer,
Tenant shall be entitled to proceed to transfer the Subject Space to the
proposed Transferee, subject to provisions of the last paragraph of SECTION 14.2
of this Lease.
14.5 EFFECT OF TRANSFER. If Landlord consents to a Transfer, (i) the
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord's consent, shall relieve Tenant or any
guarantor of the Lease from liability
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under this Lease. Landlord or its authorized representatives shall have the
right at all reasonable times to audit the books, records and papers of Tenant
relating to any Transfer, and shall have the right to make copies thereof. If
the Transfer Premium respecting any Transfer shall be found understated, Tenant
shall, within thirty (30) days after demand, pay the deficiency and Landlord's
costs of such audit, and if understated by more than ten percent (10%), Landlord
shall have the right to cancel this Lease upon thirty (30) days' notice to
Tenant.
14.6 ADDITIONAL TRANSFERS. For purposes of this Lease, the term
"Transfer" shall also include (i) if Tenant is a partnership, the withdrawal or
change, voluntary, involuntary or by operation of law, of twenty-five percent
(25%) or more of the partners, or transfer of twenty-five percent or more of
partnership interests, within a twelve (12) month period, or the dissolution of
the partnership without immediate reconstitution thereof, and (ii) if Tenant is
a closely held corporation (i.e., whose stock is not publicly held and not
traded through an exchange or over the counter), (A) the dissolution, merger,
consolidation or other reorganization of Tenant, the sale or other transfer of
more than an aggregate of twenty-five percent (25%) of the voting shares of
Tenant (other than to immediate family members by reason of gift or death),
within a twelve (12) month period, or (C) the sale, mortgage, hypothecation or
pledge of more than an aggregate of twenty-five percent (25%) of the value of
the unencumbered assets of Tenant within a twelve (12) month period.
14.7 NON-TRANSFERS. Notwithstanding anything to the contrary contained
in this Lease, neither (i) an assignment to a transferee of all or substantially
all of the assets of Tenant, (ii) an assignment of the Premises to a transferee
which is the resulting entity of a merger or consolidation of Tenant with
another entity, nor (iii) an assignment or subletting of all or a portion of the
Premises to an affiliate of Tenant (an entity which is controlled by, controls,
or is under common control with, Tenant), shall be deemed a Transfer under
Article 14 of this Lease, provided that Tenant notifies Landlord of any such
assignment or sublease and promptly supplies Landlord with any documents or
information reasonably requested by Landlord regarding such transfer or
transferee as set forth in items (i) through (iii) above, that such assignment
or sublease is not a subterfuge by Tenant to avoid its obligations under this
Lease, and that such transferee or affiliate shall have a net worth (not
including goodwill as an asset) computed in accordance with generally accepted
accounting principles (the "Net Worth") at least equal to the greater of (A) the
Net Worth of Tenant immediately prior to such assignment or sublease, or (B) the
Net Worth on the date of this Lease of the original named Tenant. "Control," as
used in this SECTION 14.7, shall mean the ownership, directly or indirectly, of
at least fifty-one percent (51%) of the voting securities of, or possession of
the right to vote, in the ordinary direction of its affairs, of at least
fifty-one percent (51%) of the voting interest in, any person or entity.
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ARTICLE 15
SURRENDER OF PREMISES;
REMOVAL OF TRADE FIXTURES
15.1 SURRENDER OF PREMISES. No act or thing done by Landlord or any
agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Landlord. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been terminated. The voluntary or other surrender of this Lease by Tenant,
whether accepted by Landlord or not, or a mutual termination hereof, shall not
work a merger, and at the option of Landlord shall operate as an assignment to
Landlord of all subleases or subtenancies affecting the Premises.
15.2 REMOVAL OF TENANT PROPERTY BY TENANT. All articles of personal
property and all business and trade fixtures, machinery and equipment, furniture
and movable partitions owned by Tenant or installed by Tenant at its expense in
the Premises, which items are not a part of the tenant improvements installed in
the Premises, shall remain the property of Tenant, and may be removed by Tenant
at any time during the Lease Term as long as Tenant is not in default under this
Lease with any applicable cure period having expired. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this ARTICLE 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, free-standing cabinet work,
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term hereof,
with or without the express or implied consent of Landlord, such tenancy shall
be from month-to-month only, and shall not constitute a renewal hereof or an
extension for any further term, and in such case Rent shall be payable at a
monthly rate equal to 150%, with respect to the first two (2) months of such
holdover, and 200%, thereafter, of the Rent applicable during the last rental
period of the Lease Term under this Lease. Such month-to-month tenancy shall be
subject to every other term, covenant and agreement contained herein. Nothing
contained in this ARTICLE 16 shall be construed as consent by Landlord to any
holding over by Tenant, and Landlord expressly
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reserves the right to require Tenant to surrender possession of the Premises to
Landlord as provided in this Lease upon the expiration or other termination of
this Lease. The provisions of this ARTICLE 16 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. Tenant acknowledges that if Tenant holds over without Landlord's
consent, such holding over may compromise or otherwise affect Landlord's ability
to enter into new leases with prospective tenants regarding the Premises.
Therefore, if Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any losses suffered by Landlord, including
lost profits, resulting from such failure to surrender.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute and deliver to Landlord an estoppel certificate, which, as
submitted by Landlord, shall be substantially in the form of EXHIBIT E, attached
hereto, (or such other form as may be required by any prospective mortgagee or
purchaser of the Building, or any portion thereof), indicating therein any
exceptions thereto that may exist at that time, and shall also contain any other
information reasonably requested by Landlord or Landlord's mortgagee or
prospective mortgagee or purchasers. Tenant shall execute and deliver whatever
other instruments may be reasonably required for such purposes. At any time
during the Lease Term, Landlord may require Tenant to provide Landlord with a
current financial statement and financial statements of the two (2) years prior
to the current financial statement year. Such statements shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant. Failure of Tenant to timely execute and deliver such estoppel
certificate or other instruments shall constitute an acceptance of the Premises
and an acknowledgment by Tenant that statements included in the estoppel
certificate are true and correct, without exception.
ARTICLE 18
SUBORDINATION
This Lease is subject and subordinate to all present and future ground
or underlying leases of the Real Property and to the lien of any mortgages or
trust deeds, now or hereafter in force against the Real Property and the
Building, if any, and to all renewals, extensions, modifications, consolidations
and replacements thereof, and to all advances made or hereafter to be made upon
the security of such mortgages or trust deeds, unless the holders of such
mortgages or trust deeds, or the lessors under such ground lease or underlying
leases, require in writing that this Lease be superior thereto. In consideration
of, and as a condition precedent to, Tenant's agreement to permit its interest
pursuant to this Lease to be subordinated to any particular future ground or
underlying lease of the Building or the Real Property or to the lien of any
first mortgage or trust deed, hereafter enforced against the Building or the
Real Property and to any
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renewals, extensions, modifications, consolidations and replacements thereof,
Landlord shall deliver to Tenant a commercially reasonable non-disturbance
agreement executed by the landlord under such ground lease or underlying lease
or the holder of such mortgage or trust deed. Tenant covenants and agrees in the
event any proceedings are brought for the foreclosure of any such mortgage, to
attorn, without any deductions or set-offs whatsoever, to the purchaser upon any
such foreclosure sale if so requested to do so by such purchaser, and to
recognize such purchaser as the lessor under this Lease. Tenant shall, within
ten (10) days of request by Landlord, execute such further instruments or
assurances as Landlord may reasonably deem necessary to evidence or confirm the
subordination or superiority of this Lease to any such mortgages, trust deeds,
ground leases or underlying leases. Tenant waives the provisions of any current
or future statute, rule or law which may give or purport to give Tenant any
right or election to terminate or otherwise adversely affect this Lease and the
obligations of the Tenant hereunder in the event of any foreclosure proceeding
or sale.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 DEFAULTS. The occurrence of any of the following shall
constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, within five (5)
business days of notice that the same is due, which notice shall be in lieu of
any notice required under California Code of Civil Procedure Section 1161 or any
similar or successor law; or
19.1.2 Except with respect to the provisions of Articles 17 and
18 of this Lease, any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure SECTION 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within a thirty (30) day period, Tenant shall not be deemed
to be in default if it diligently commences such cure within such period and
thereafter diligently proceeds to rectify and cure said default, as soon as
possible; or
19.1.3 Any failure by Tenant to observe or perform any
provision, covenant or condition of ARTICLES 17 and 18 of this Lease to be
observed or performed by Tenant where such failure continues for three (3) days
after written notice thereof from Landlord to Tenant; provided however, that any
such notice shall be in lieu of, and not in addition to, any notice required
under California Code of Civil Procedure Section 1161 or any similar or
successor law; or
19.1.4 To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the filing
by or against Tenant or any guarantor of any proceeding under an insolvency or
bankruptcy law, unless in the case of a proceeding filed against Tenant or any
guarantor the same is dismissed within sixty (60) days, or
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the appointment of a trustee or receiver to take possession of all or
substantially all of the assets of Tenant or any guarantor, unless possession is
restored to Tenant or such guarantor within thirty (30) days, or any execution
or other judicially authorized seizure of all or substantially all of Tenant's
assets located upon the Premises or of Tenant's interest in this Lease, unless
such seizure is discharged within thirty (30) days.
19.2 REMEDIES UPON DEFAULT. Upon the occurrence of a default by
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(i) The worth at the time of award of any unpaid
rent which has been earned at the time of such termination; plus
(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 Tenant proves could
have been reasonably avoided; plus
(iii) The worth at the time of award of the amount
by which the unpaid rent for the balance of the Lease Term after the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, specifically including but not limited to,
brokerage commissions and advertising expenses incurred, expenses of remodeling
the Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
(v) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this SECTION 19.2 shall be deemed to be and
to mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. As used in PARAGRAPHS
19.2.1(i) AND (ii), above, the "worth at the time of award" shall be computed by
allowing interest at the rate set forth in ARTICLE 25 of this Lease, but in no
case greater than the maximum amount of such interest permitted by law. As used
in PARAGRAPH 19.2.1(iii) above, the "worth at the time of award" 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%).
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19.2.2 Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue 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). Accordingly,
if Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 SUBLEASES OF TENANT. Whether or not Landlord elects to terminate
this Lease on account of any default by Tenant, as set forth in this ARTICLE 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.4 FORM OF PAYMENT AFTER DEFAULT. Following the occurrence of a
default by Tenant, Landlord shall have the right to require that any or all
subsequent amounts paid by Tenant to Landlord hereunder, whether in the cure of
the default in question or otherwise, be paid in the form of cash, money order,
cashier's or certified check drawn on an institution acceptable to Landlord, or
by other means approved by Landlord, notwithstanding any prior practice of
accepting payments in any different form.
19.5 EFFORTS TO RELET. For the purposes of this ARTICLE 19, Tenant's
right to possession shall not be deemed to have been terminated by efforts of
Landlord to relet the Premises, by its acts of maintenance or preservation with
respect to the Premises, or by appointment of a receiver to protect Landlord's
interests hereunder. The foregoing enumeration is not exhaustive, but merely
illustrative of acts which may be performed by Landlord without terminating
Tenant's right to possession.
ARTICLE 20
ATTORNEYS' FEES
If either party commences litigation against the other for the specific
performance of this Lease, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties hereto agree to and hereby do
waive any right to a trial by jury and, in the event of any such commencement of
litigation, the prevailing party shall be entitled to recover from the other
party such costs and reasonable attorneys' fees as may have been incurred.
ARTICLE 21
SECURITY DEPOSIT
Concurrent with Tenant's execution of this Lease, Tenant shall deposit
with Landlord a security deposit (the "Security Deposit") in the amount set
forth in SECTION 10 of the Summary.
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The Security Deposit shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and conditions of this Lease
to be kept and performed by Tenant during the Lease Term. If Tenant defaults
with respect to any provisions of this Lease, including, but not limited to, the
provisions relating to the payment of Rent, Landlord may, but shall not be
required to, use, apply or retain all or any part of the Security Deposit for
the payment of any Rent or any other sum in default, or for the payment of any
amount that Landlord may spend or become obligated to spend by reason of
Tenant's default, or to compensate Landlord for any other loss or damage that
Landlord may suffer by reason of Tenant's default. If any portion of the
Security Deposit is so used or applied, Tenant shall, within five (5) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount, and Tenant's failure to do
so shall be a default under this Lease. If Tenant shall fully and faithfully
perform every provision of this Lease to be performed by it, the Security
Deposit, or any balance thereof, shall be returned to Tenant, or, at Landlord's
option, to the last assignee of Tenant's interest hereunder, within sixty (60)
days following the expiration of the Lease Term. Tenant shall not be entitled to
any interest on the Security Deposit. Tenant hereby waives the provisions of
Section 1950.7 of the California Civil Code, and all other provisions of law,
now or hereafter in force, which provide that Landlord may claim from a security
deposit only those sums reasonably necessary to remedy defaults in the payment
of rent, to repair damage caused by Tenant or to clean the Premises, it being
agreed that Landlord may, in addition, claim those sums reasonably necessary to
compensate Landlord for any other loss or damage, foreseeable or unforeseeable,
caused by the act or omission of Tenant or any officer, employee, agent or
invitee of Tenant.
ARTICLE 22
INTENTIONALLY OMITTED
ARTICLE 23
SIGNS
23.1 FULL FLOOR TENANTS. Subject to Landlord's prior written approval,
in its sole discretion, and provided all signs are in keeping with the quality,
design and style of the Building, Tenant, if the Premises comprise an entire
floor of the Building, at its sole cost and expense, may install identification
signage anywhere in the Premises including in the elevator lobby of the
Premises, provided that such signs must not be visible from the exterior of the
Building.
23.2 MULTI-TENANT FLOOR TENANTS. If Tenant occupies less than the
entire floor on which the Premises is located, Tenant's identifying signage
shall be provided by Landlord, at Tenant's cost, and such signage shall be
comparable to that used by Landlord for other similar floors in the Building and
shall comply with Landlord's Building standard signage program.
23.3 BUILDING DIRECTORIES. Tenant shall be entitled to signage on the
Building directory located in the main Building lobby in an amount equal to one
(1) line per 1,000 rentable square
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feet in the Premises. Tenant shall further be entitled to signage on the
Building directory located in the Real Property parking facility in an amount
equal to one (1) line. Tenant shall only be permitted to include its name and
the names of its principal employees upon the Building directory in the main
Building lobby, and shall only be permitted to include its name upon the
Building directory in the Real Property parking facility. Landlord shall install
on the Building directories, at Tenant's sole cost and expense, all such names
initially requested by Tenant and any modification to such names requested by
Tenant subsequent to the initial installation of the same.
23.4 PROHIBITED SIGNAGE AND OTHER ITEMS. Any signs, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may be removed without notice by Landlord at
the sole expense of Tenant. Tenant may not install any signs on the exterior or
roof of the Building or the common areas of the Building or the Real Property.
Any signs, window coverings, or blinds (even if the same are located behind the
Landlord approved window coverings for the Building), or other items visible
from the exterior of the Premises or Building are subject to the prior written
approval of Landlord, in its sole discretion.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about
the Premises which will in any way conflict with any law, statute, ordinance or
other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. Should any standard or regulation now or
hereafter be imposed on Landlord or Tenant by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational, health or safety standards for employers, employees, landlords or
tenants, then Tenant agrees, at its sole cost and expense, to comply promptly
with such standards or regulations. Tenant shall be responsible, at its sole
cost and expense, to make all alterations to the Premises as are required to
comply with the governmental rules, regulations, requirements or standards
described in this ARTICLE 24. The judgment of any court of competent
jurisdiction or the admission of Tenant in any judicial action, regardless of
whether Landlord is a party thereto, that Tenant has violated any of said
governmental measures, shall be conclusive of that fact as between Landlord and
Tenant.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not
be received by Landlord or Landlord's designee within five (5) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to five
percent (5%) of the overdue amount, plus any attorneys' fees incurred by
Landlord by reason of Tenant's failure to pay Rent and/or other charges when due
hereunder. The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any
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manner. In addition to the late charge described above, any Rent or other
amounts owing hereunder which are not paid on or before the date they are due
shall thereafter bear interest until paid at a rate per annum equal to eighteen
percent (18%) per annum (the "Interest Rate"), provided that in no case shall
such rate be higher than the highest rate permitted by applicable law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 LANDLORD'S CURE. All covenants and agreements to be kept or
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent. If Tenant shall fail to
perform any of its obligations under this Lease, within a reasonable time after
such performance is required by the terms of this Lease, Landlord may, but shall
not be obligated to, after reasonable prior notice to Tenant, make any such
payment or perform any such act on Tenant's part without waiving its right based
upon any default of Tenant and without releasing Tenant from any obligations
hereunder.
26.2 TENANT'S REIMBURSEMENT. Except as may be specifically provided to
the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15)
days after delivery by Landlord to Tenant of statements therefor: (i) sums equal
to expenditures reasonably made and obligations incurred by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of SECTION 26.1; (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in ARTICLE 10 of this Lease; and (iii) sums
equal to all expenditures made and obligations incurred by Landlord in
collecting or attempting to collect the Rent or in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all legal fees and other amounts so expended. Tenant's
obligations under this SECTION 26.2 shall survive the expiration or sooner
termination of the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to the Tenant to enter the Premises to (i) inspect them; (ii) show the
Premises to prospective purchasers, mortgagees or ground or underlying lessors,
or, during the last twelve (12) months of the Lease Term, prospective tenants;
(iii) post notices of nonresponsibility; or (iv) alter, improve or repair the
Premises or the Building if necessary to comply with current building codes or
other applicable laws, or for structural alterations, repairs or improvements to
the Building. Notwithstanding anything to the contrary contained in this ARTICLE
27, Landlord may enter the Premises at any time to (A) perform services required
of Landlord; (B) take possession due to any breach of this Lease in the manner
provided herein; and (C) perform any covenants of Tenant which Tenant fails to
perform. Landlord may make any such entries without the abatement of Rent and
may take such steps as required to accomplish the stated purposes; provided,
however, that any such entry shall be accomplished as expeditiously as
reasonably possible and in a manner so as to cause as little interference to
Tenant as reasonably possible. Tenant hereby waives any claims for damages or
for any injuries or inconvenience to or
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interference with Tenant's business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby. For each
of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises, excluding Tenant's vaults, safes and
special security areas designated in advance by Tenant. In an emergency,
Landlord shall have the right to use any means that Landlord may deem proper to
open the doors in and to the Premises. Any entry into the Premises by Landlord
in the manner hereinbefore described shall not be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.
ARTICLE 28
TENANT PARKING
Subject to the following terms, Tenant shall have the right to rent
from Landlord parking passes on a monthly basis throughout the Lease Term in the
amount set forth in SECTION 11 of the Summary. The number of parking passes set
forth in SECTION 11 of the Summary shall be allocated as follows: three (3) VIP
valet passes and ten (10) unreserved passes, provided that one (1) of the
unreserved passes may be used for a reserved pass. Notwithstanding anything to
the contrary in the foregoing, Tenant may change the number of parking passes
rented pursuant to this Article 28 upon at least thirty (30) days prior written
notice to Landlord, provided that (i) in no event shall Tenant be entitled to
rent more than the number of parking passes set forth in SECTION 11 of the
Summary; (ii) Tenant shall obligated, throughout the Lease Term, to rent a
minimum of seven (7) parking passes (at least three (3) of which shall be VIP
valet passes and the remainder of which shall be unreserved passes (subject to
Tenant's right to rent one (1) unreserved pass as a reserved pass)); and (iii)
in the event that Tenant does not elect, prior to the Lease Commencement Date,
to rent one (1) reserved parking pass, or does so elect prior to the Lease
Commencement Date and thereafter elects not to continue to rent such reserved
parking pass, as hereinabove provided, Tenant shall not have the right
thereafter to rent any reserved parking passes. Tenant shall pay to Landlord for
automobile parking passes on a monthly basis the prevailing rate charged for
parking passes at the location of such passes. In addition, Tenant shall be
responsible for any taxes imposed by any governmental authority in connection
with the renting of such parking passes by Tenant or the use of the parking
facility by Tenant. Tenant's continued right to use the parking passes is
conditioned upon Tenant abiding by all rules and regulations which are
prescribed from time to time for the orderly operation and use of the parking
facility where the passes are located and upon Tenant's cooperation in seeing
that Tenant's employees and visitors also comply with such rules and
regulations. Landlord specifically reserves the right to change the location,
size, configuration, design, layout and all other aspects of the parking
facility in question, including the discontinuance of the valet parking system,
at any time and Tenant acknowledges and agrees that Landlord may, without
incurring any liability to Tenant and without any abatement of Rent under this
Lease, from time to time, close-off or restrict access to the parking facility
in question for purposes of permitting or facilitating any such construction,
alteration or improvements. Landlord may totally or partially delegate its
responsibilities hereunder to a parking operator in which case such parking
operator shall have all the rights of control delegated by Landlord. The parking
passes rented by Tenant pursuant to this ARTICLE 28 are provided to Tenant
solely for use by Tenant's own personnel (not including Tenant's invitees and
guests) and such passes may not be transferred, assigned, subleased or otherwise
alienated by Tenant without Landlord's prior approval.
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ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 BINDING EFFECT. Each of the provisions of this Lease shall extend
to and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of ARTICLE 14 of this Lease.
29.2 NO AIR RIGHTS. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are temporarily
darkened or the light or view therefrom is obstructed by reason of any repairs,
improvements, maintenance or cleaning in or about the Building, the same shall
be without liability to Landlord and without any reduction or diminution of
Tenant's obligations under this Lease.
29.3 MODIFICATION OF LEASE. Should any current or prospective
mortgagee or ground lessor for the Building require a modification or
modifications of this Lease, which modification or modifications will not cause
an increased cost or expense to Tenant or in any other way materially and
adversely change the rights and obligations of Tenant hereunder, then and in
such event, Tenant agrees that this Lease may be so modified and agrees to
execute whatever documents are required therefor and deliver the same to
Landlord within ten (10) days following the request therefor. Should Landlord or
any such prospective mortgagee or ground lessor require execution of a short
form of Lease for recording, containing, among other customary provisions, the
names of the parties, a description of the Premises and the Lease Term, Tenant
agrees to execute such short form of Lease and to deliver the same to Landlord
within ten (10) days following the request therefor.
29.4 TRANSFER OF LANDLORD'S INTEREST. Tenant acknowledges that
Landlord has the right to transfer all or any portion of its interest in the
Real Property and Building and in this Lease, and Tenant agrees that in the
event of any such transfer and a transfer of the Security Deposit, Landlord
shall automatically be released from all liability under this Lease and Tenant
agrees to look solely to such transferee for the performance of Landlord's
obligations hereunder after the date of transfer. Tenant further acknowledges
that Landlord may assign its interest in this Lease to a mortgage lender as
additional security and agrees that such an assignment shall not release
Landlord from its obligations hereunder and that Tenant shall continue to look
to Landlord for the performance of its obligations hereunder.
29.5 PROHIBITION AGAINST RECORDING. Except as provided in SECTION 29.3
of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in violation of
this provision shall make this Lease null and void at Landlord's election.
29.6 CAPTIONS. The captions of Articles and Sections are for
convenience only and shall not be deemed to limit, construe, affect or alter the
meaning of such Articles and Sections.
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29.7 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
29.8 TIME OF ESSENCE. Time is of the essence of this Lease and each
of its provisions.
29.9 PARTIAL INVALIDITY. If any term, provision or condition contained
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.10 LANDLORD EXCULPATION. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord Parties hereunder
(including any successor landlord) and any recourse by Tenant against Landlord
shall be limited solely and exclusively to the lesser of (a) the interest of
Landlord in the Real Property and the Building or (b) the equity interest
Landlord would have in and to the Real Property and Building if the Real
Property and the Building were encumbered by debt in an amount equal to eighty
percent (80%) of the value of the Real Property and the Building, and neither
Landlord, nor any of its constituent partners, shall have any personal liability
therefor, and Tenant hereby expressly waives and releases such personal
liability on behalf of itself and all persons claiming by, through or under
Tenant.
29.11 ENTIRE AGREEMENT. It is understood and acknowledged that there
are no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease. This Lease, the
exhibits and schedules attached hereto, and any side letter or separate
agreement executed by Landlord and Tenant in connection with this Lease and
dated of even date herewith contain all of the terms, covenants, conditions,
warranties and agreements of the parties relating in any manner to the rental,
use and occupancy of the Premises, shall be considered to be the only agreement
between the parties hereto and their representatives and agents, and none of the
terms, covenants, conditions or provisions of this Lease can be modified,
deleted or added to except in writing signed by the parties hereto.
29.12 RIGHT TO LEASE. Landlord reserves the absolute right to effect
such other tenancies in the Building as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the Building.
Tenant does not rely on the fact, nor does Landlord represent, that any specific
tenant or type or number of tenants shall, during the Lease Term, occupy any
space in the Building.
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29.13 FORCE MAJEURE. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain services, labor, or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform (collectively, the "Force Majeure"),
except with respect to the obligations imposed with regard to Rent and other
charges to be paid by Tenant pursuant to this Lease, and except as to Tenant's
obligations under ARTICLES 5 AND 24 of this Lease notwithstanding anything to
the contrary contained in this Lease, shall excuse the performance of such party
for a period equal to any such prevention, delay or stoppage and, therefore, if
this Lease specifies a time period for performance of an obligation of either
party, that time period shall be extended by the period of any delay in such
party's performance caused by a Force Majeure.
29.14 NOTICES. All notices, demands, statements, approvals or
communications (collectively, "Notices") given or required to be given by either
party to the other hereunder shall be in writing, shall be sent by United States
certified or registered mail, postage prepaid, return receipt requested, or
delivered personally (i) to Tenant at the appropriate address set forth in
SECTION 5 of the Summary, or to such other place as Tenant may from time to time
designate in a Notice to Landlord; or (ii) to Landlord at the addresses set
forth in SECTION 3 of the Summary, or to such other firm or to such other place
as Landlord may from time to time designate in a Notice to Tenant. Any Notice
will be deemed given on the date it is mailed as provided in this SECTION 29.14
or upon the date personal delivery is made or attempted to be made. If Tenant is
notified of the identity and address of Landlord's mortgagee or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or underlying
lessor written notice of any default by Landlord under the terms of this Lease
by registered or certified mail, and such mortgagee or ground or underlying
lessor shall be given a reasonable opportunity to cure such default prior to
Tenant's exercising any remedy available to Tenant.
29.15 JOINT AND SEVERAL. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
29.16 AUTHORITY. If Tenant is a corporation or partnership, Tenant
hereby represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in California, that Tenant has full right and authority
to execute and deliver this Lease, and that each person signing on behalf of
Tenant is authorized to do so.
29.17 GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
29.18 SUBMISSION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or an
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
29.19 BROKERS. Landlord and Tenant hereby warrant to each other that
they have had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, excepting only the real estate brokers or
agents specified in SECTION 12 of the Summary (the "Brokers"), and that they
know of no other real estate broker or agent who is entitled to a commission in
connection with this Lease. Landlord shall pay the brokerage commissions owing
39
<PAGE>
to the Brokers in connection with the transaction contemplated by this Lease
pursuant to the terms of a separate written agreement between Landlord and the
Brokers. Each party agrees to indemnify and defend the other party against and
hold the other party harmless from any and all claims, demands, losses,
liabilities, lawsuits, judgments, and costs and expenses (including without
limitation reasonable attorneys' fees) with respect to any leasing commission or
equivalent compensation alleged to be owing on account of the indemnifying
party's dealings with any real estate broker or agent other than the Brokers.
The terms of this SECTION 29.19 shall survive the expiration or earlier
termination of the Lease Term.
29.20 INDEPENDENT COVENANTS. This Lease shall be construed as though
the covenants herein between Landlord and Tenant are independent and not
dependent and Tenant hereby expressly waives the benefit of any statute to the
contrary and agrees that if Landlord fails to perform its obligations set forth
herein, Tenant shall not be entitled to make any repairs or perform any acts
hereunder at Landlord's expense or to any setoff of the Rent or other amounts
owing hereunder against Landlord; provided, however, that the foregoing shall in
no way impair the right of Tenant to commence a separate action against Landlord
for any violation by Landlord of the provisions hereof so long as notice is
first given to Landlord and any holder of a mortgage or deed of trust covering
the Building, Real Property or any portion thereof, of whose address Tenant has
theretofore been notified, and an opportunity is granted to Landlord and such
holder to correct such violations as provided above.
29.21 BUILDING NAME AND SIGNAGE. Landlord shall have the right at any
time to change the name of the Building and to install, affix and maintain any
and all signs on the exterior and on the interior of the Building as Landlord
may, in Landlord's sole discretion, desire. Tenant shall not use the name of the
Building or use pictures or illustrations of the Building in advertising or
other publicity, without the prior written consent of Landlord.
29.22 TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all
present or future programs intended to manage parking, transportation or traffic
in and around the Building, and in connection therewith, Tenant shall take
responsible action for the transportation planning and management of all
employees located at the Premises by working directly with Landlord, any
governmental transportation management organization or any other
transportation-related committees or entities.
29.23 SUCCESSORS. Except as otherwise expressly provided herein, the
obligations of this Lease shall bind and benefit the successors and assigns of
the parties hereto; provided, however, that no assignment, sublease or other
transfer in violation of the provisions, of ARTICLE 14 shall operate to vest any
rights in any putative assignee, subtenant or transferee of Tenant.
29.24 LANDLORD RENOVATIONS. It is specifically understood and agreed
that Landlord has no obligation and has made no promises to alter, remodel,
improve, renovate, repair or decorate the Premises, Building, or any part
thereof and that no representations respecting the condition of the Premises or
the Building have been made by Landlord to Tenant except as specifically set
forth herein. However, Tenant acknowledges that Landlord may during the Lease
Term renovate, improve, alter, or modify (collectively, the "Renovations") the
Building, Premises, and/or Real Property, including without limitation the
parking structure, common areas, systems and equipment, roof, and structural
portions of the same; provided, however, that such
40
<PAGE>
Renovations shall not substantially interfere with Tenant's ability to access
the Premises. Tenant hereby agrees that such Renovations and Landlord's actions
in connection with such Renovations shall in no way constitute a constructive
eviction of Tenant nor entitle Tenant to any abatement of Rent. Landlord shall
have no responsibility or for any reason be liable to Tenant for any direct or
indirect injury to or interference with Tenant's business arising from the
Renovations, nor shall Tenant be entitled to any compensation or damages from
Landlord for loss of the use of the whole or any part of the Premises or of
Tenant's personal property or improvements resulting from the Renovations or
Landlord's actions in connection with such Renovations, or for any inconvenience
or annoyance occasioned by such Renovations or Landlord's actions in connection
with such Renovations.
29.25 GOOD FAITH. Except for (i) matters for which there is a standard
of consent or discretion specifically set forth in this Lease, (ii) matters
which could have an adverse effect on the Building's heating, ventilation and
air-conditioning system, plumbing system, electrical system, or life safety
systems, or which could affect the exterior appearance of the Building, or (iii)
matters covered by ARTICLES 3, 4, 10 OR 19 of this Lease (collectively, the
"Excepted Matters"), any time the consent of Landlord or Tenant is required
under this Lease, such consent shall not be unreasonably withheld or delayed,
and, except with regard to the Excepted Matters, whenever this Lease grants
Landlord or Tenant the right to take action, exercise discretion, establish
rules and regulations or make an allocation or other determination, Landlord and
Tenant shall act reasonably and in good faith.
29.26 NO DISCRIMINATION. Tenant covenants by and for itself, its heirs,
executors, administrators and assigns, and all persons claiming under or through
Tenant, and this Lease is made and accepted upon and subject to the conditions
that there shall be no discrimination against or segregation of any person or
group of persons, on account of race, color, creed, sex, religion, marital
status, ancestry or national origin in the leasing, subleasing, transferring,
use, or enjoyment of the Premises, nor shall Tenant itself, or any person
claiming under or through Tenant, establish or permit such practice or practices
of discrimination or segregation with reference to the selection, location,
number, use or occupancy, of tenants, lessees, sublessees, subtenants or vendees
in the Premises.
41
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused their duly
authorized representatives to execute this Lease as of the day and date first
above written.
"Landlord" 10900 WILSHIRE, LLC,
a California limited liability company
By: SLR Investments, Inc., a Delaware corporation
Its: Managing Member
By:___________________________________________
Its:____________________________________
"Tenant" MAGNETEK, INC.,
a Delaware corporation
By: ______________________________________________
Its:____________________________________
By:___________________________________________
Its:____________________________________
42
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.61
<SEQUENCE>7
<FILENAME>a2025491zex-10_61.txt
<DESCRIPTION>EXHIBIT 10.61
<TEXT>
<PAGE>
EXHIBIT 10.61
CONTRATTO DI LOCAZIONE
TRA
MAGNETEK Villamosberendezest Gyarto es Kereskedelmi Korlatolt
Felelossegu Tarsasag con sede legeale in Ungheria, 2013 Pomaz, Cehmester u.
3., rappresentata dai Sig.ri Roberto Pecchioli e Mauro Cini (qi di seguito
indicata come conduttrice)
E
UNILUX INGATLAN KFT., societa con sede legale in Ungheria, 2013
Pomaz, Cehmester u. 3., rappresentata dal Signor Ferdinando Attramini (qui di
seguito indicata come locatrice).
PREMESSO CHE
a) la locatrice e proprietaria di un immobile piu sotto
dettagliatamente descritto, sito in 2013 Pomaz, Cehmester u. 2., in Ungheria;
b) la locatrice e nella piena proprieta e libera disponibilita
del summenzionato immobile, il quale e libero da qualsiasi onere, vincolo,
gravame preguidizievole o diritto di terzi che possa in alcun modo ostacolare
il godimento dell'immobile stesso ed e stato construito nel rispetto dei
diritti di terzi, delle norme edilizie ed urbanistiche applicabili, nonche in
conformita alle necessarie autorizzazioni amministrative;
c) la conduttrice esercitera in loco un'attivita industriale ed
immagazzinaggio; cio premesso e ritenuto come parte integrante del presente
accordo,
SI CONVIENE QUANTO SEGUE
<PAGE>
1. OGGETTO
1.1 La locatrice si impegna a concedere in locazione alla conducttrice
secondo i termini e le condizioni qui di seguito stabilite, immobile cosi
descritto: -mq. 800 di magazzino industriale nello stato in cui si trova: il
tutto sito in Ungheria, 2013 Pomaz, Cehmester u. 2. ed insistente sull'area
di proprieta della locatrice.
1.2 La conduttrice si impegna a condurre in locazione l'immobile
descritto al punto 1.1 che precede, secondo i termini e le condizioni qui di
seguito stabilite.
2. CANONE E GARANZIE
2.1 Il canone d'affitto e stabilito sin d'ora in complessive Lire
32.000.000 + Afa (trentaduemilioni+Afa) per anno.
2.2 Suddetto canone dovra essere corrisposto al domicilio della locatrice
in quattro rate anticipate di uguale importo, a scadere rispettivamente ';1
luglio, l'1 ottobre, l'1 gennaio e l'1 aprile, in fiorini ungheresi
corrispondenti al cambio alla data di scadenza di ciascuna rata.
2.3 Il canone potra essere aggiornato ogni anno su richiesta del
locatore, in misura pari al 75% dell'indice ISTAT relativo al potere
d'acquisto della lira italiana rispetto ai prezzi al consumo per le famiglie
di operai ed impiegati.
2.4 Nel caso in cui il conduttore, entro 8 giorni dalla scadenza della
rata, non adempia all'obbligo di pagamento del canone, sulle somme non
corrisposte decorreranno interessi di mora, che per legge sono fissati al
doppio degli interessi applicati dalla MNB.
2.5 Alla firma del presente contratto di locazione, la conduttrice
versera alla locatrice a titolo di cauzione la somma di Lire 64.000.000 + Afa
(sessantaquattromilioni+Afa) pari a due anni del canone di locazione, al
cambio della di sottoscrizione del presente contratto. La locatrice si
impegna sin d'ora a restituire questa cauzione deducendo da ogni rata del
canone di locazione, per la durata del contratto, la somma di Lire 1.600.000
+ Afa (unmilioneseicentomila+Afa). La
<PAGE>
locatrice si impegna sin d'ora a corrispondere sulla somma trattenuta a
titolo di cauzione interesse a scalare pari al tasso di sconto ufficiale
praticato dalla Banca d'Italia + 2%.
3. DURATA
3.1 La durata del contratto di locazione sara di anni 10 a decorrere da
01.11.1998.
3.2 Il contratto sara rinnovabile per ulteriori periodi di anni 10, salvo
disdetta comunicata da una parte all'altra con lettera raccomandata a.r. da
spedirsi almeno 12 mesi prima della scadenza del contratto.
4. ULTERIORI PATTUIZIONI
4.1 E inteso che la conduttrice avra la facolta, in qualsiasi momento, di
sublocare a terzi, in tutto od in parte, l'immobile locato.
4.2 Per quanto sara necessario la locatrice si impegna, a dare tutte le
autorizzazioni per gli allacciamenti diretti alle utenze pubbliche (energia
elettrica, gas ed acqua), che la conduttrice si impegna a richiedere nel piu
breve tempo possibile, a far eseguire tutti i lavori per gli allacciamenti
alle utenze che la conduttrice riterra necessari alla propria attivita.
Resta inteso che le spese per quanto sopra saranno a carico della conduttrice.
4.3 Con la firma del presente contratto la conduttrice, dopo
l'ottenimento delle regolari autorizzazioni, e autorizzata a far eseguire, a
proprie spese, i lavori per la recinzione dell'area di pertinenza
dell'immobile affittato al fine di essere totalmente indipendente accedendo
all'immobile stesso direttamente dalla strada comunale, resta inteso che la
locatrice dovra essere informata al fine di concordance la modalita e la
tipologia.
4.4 Resta a carico della locatrice la manutenzione straordinaria
dell'immobile locato, mentre la manutenzione ordinaria e a carico della
conduttrice.
<PAGE>
4.5 La locatrice dichiara sin d'ora che l'immobile oggetto del contratto
e assicurato contro danni per responsabilita civile in forza della polizza di
assicurazione qui allegata sub All. 2, che si impegna a mantenere in essere a
proprie spese per tutta la durata del rapporto di locazione, parimenti la
conduttrice si impegna a stipulare una polizza di assicurazione contro i
danni che potrebbero essere causati agli immobli dalla propria attivita.
4.6 Resteranno a carico della conduttrice le spese relative a acqua, gas,
energia elettrica, pulizia e vigilanza dell'immobile.
4.7 I presente contratto e redatto in dupplice originale in Italiano ed
in Ungherhese.
4.8 Il presente contratto e regolata dalla legge ungherese.
5. RISCHI AMBIENTALI
5.1 La locatrice dichiara che nell'immobile oggetto del presente
contratto sono state sin ora svolte esclusivamente attivita di
immagazzinaggio.
5.2 La conduttrice dichiara di svolgere attivita a basso impatto
ambientale.
5.3 La locatrice si impegna a tenere manlevata ed indenne la conduttrice
per ogni intervento di bonifica le fosse richiesto per inquinamenti
pregressi, siano essi imputabili all'attuale proprietario dell'immobile od a
soggetti terzi.
6. PROPRIETA DELL'IMMOBILE LOCATO
La Uniluz Ingatla Kft. da atto del fatto che innanzi alla corte di Pest
Megyei Birosag e pendente in contradditorio con la Unilux Uvegipari Kft. un
procedimento avente per oggetto l'accertamento del diritto di proprieta delle
aree su cui insistono vari immobili di cui quattro oltre a quello oggetto del
presente contratto sono attualmente concessi in affitto alaa Magnetek Kft.
In attesa della definizione di tale contraversia, la Unilux Uvegipari Kft.
sottoscrive il presente accordo impegnandosi nel caso in cui le venga
attribuita la proprieta degli immobili di cui sopra:
<PAGE>
(i) a convertire tutti i contratti di locazione stipulati tra la
Unilux Ingatlan Kft. e la Magnetek Kft. con contratti di
locazione aventi per oggetto gli immobili in questione, ai
medesimi termini e condizioni - nessuno esclusio -
(ii) a consentire alla Magnetek Kft. di compensare i propri crediti nei
confronti della Unilux Ingatlan Kft. a qualunque titolo maturati -
ivi incluso il credito per la restituzione delle somme di cui agli
art. 2.5 e 2.6 che precedono - con gli importi doviti dalla Magnetek
Kft. a titolo di canone di locazione sugli eventuali contratti di
locazione degli immobili di cui sopra, fino a totale estinzione dei
crediti della Magnetek Kft.
7. SPESE
Tutte le spese del presente contratto sono a carico delle parti nella
proporzione del 50%.
Pomaz 01.11.1998
MAGNETEK KFT. UNILUX INGATLAN KFT.
- ---------------------------- ------------------------------
UNILUX UVEGIPARI KFT.
------------------------------
<PAGE>
SCRITTURA PRIVATA
Tra:
MAGNETEK Villamosberendezest Gyarto es Kereskedelmi Korlatolt Felelossegu
Tarsasag, con sede in Ungheria, 2013 Pomaz, Cehmester u. 3., rappresentata
dai sigg.ri Mauro Cni e Roberto Pecchioli, qui di seguito come Magnetek Kft.,
e
UNILUX Ingatlan Kft. societa con sede in Ungheria, 2013 Pomaz, Cehmester u.
3., rapprasentata dal sig. Ferdinando Attramini,
PREMESSO CHE
- - in data 01.11.1998 e stato sottoscritto dalle parti il contratto di
locazione di cui all'allegato sub. 1.
- - che questo contratto e stato redatto in duplice originale, in Italiano
ed in Ungherese.
TUTTO CIO PREMESSO
Le parti concordano che, in caso di difformita tra i due originali, il testo
redatto in lingua Italiana sara prevalente.
Addi 01.11.1998
L.C.S.
MAGNETEK KFT. UNILUX INGATLAN KFT.
- ---------------------------- ------------------------------
<PAGE>
VERBALE DI CONSEGNA IMMOBILI
Sono presenti
per la UNILUX Ingatlan Kft. il sig. Attramini Ferdinando
per la Magnetek Kft. il sig. Poli Leonardo
che dopo aver verificato fanno le seguenti dichiarazioni:
1) il capannone sito sull'area num. catastale 2988/2 e da ritenersi
consegnato secondo gli accordi
2) il capannone attigua a quelli attualmente in uso dalla Magnetek Kft. e
pronto per lesecuzione degli impianti da parte della conduttrice,
manca la posa dei vetri e l'installazione dei portoni ad apertura
elettrica, che saranno ultimati entrambe entro il 22/11/98 e la
fornitura dei termoventilatori che sara effettuata entro il 23/11/1998
3) la construzione della pensilina e in corso e verra ultimata entro il. . . .
Pomaz, 13.11.1998.
Magnetek Kft. Unilux Ingatlan Kft.
- ---------------------------- ------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>8
<FILENAME>a2025491zex-13.txt
<DESCRIPTION>EXHIBIT 13
<TEXT>
<PAGE>
DEAR FELLOW STOCKHOLDER:
Shortly after the close of our fiscal year 2000, MagneTek's directors voted
to divest all of the company's remaining electrical equipment product lines,
which include lighting ballasts, magnet wire, capacitors and small
transformers. These product lines, which generated 59 percent of the
company's total revenue in 1999, are accounted for as discontinued operations
in this report.
Why such a sweeping decision? The answer is focus.
As a diversified electrical equipment manufacturer, we addressed many markets
through different channels. In many of these we were considered a component
supplier, which limited our margins and profits. At the same time (since
1991, in fact), we have been developing technical competence in digital power
products that are necessary subsystems in fast-growing, high-value-added
markets such as telecommunications.
Digital power products* provide precise control of electric power in systems
ranging from the utility grid to the internet. MagneTek today ranks among the
world's leading independent manufacturers of digital power products++, and we
are convinced that our strategy, well executed, will enable us to achieve the
following basic goals:
- DOUBLE-DIGIT REVENUE GROWTH;
- DOUBLE-DIGIT OPERATING PROFIT MARGINS;
- DOUBLE-DIGIT CASH FLOW RETURN ON INVESTED CAPITAL.
MagneTek has been gravitating toward this electronic core since 1994, when we
began selling off electrical equipment product lines. In August 1999 we
completed the sale of our motor and generator businesses, and in December
1999 we disposed of our unprofitable European magnetic lighting ballast
operations.
We will use the proceeds from the completion of the sale of our remaining
electrical equipment operations to:
- FINISH BUYING BACK THE 10-MILLION SHARES (30%) OF MAGNETEK STOCK
AUTHORIZED BY THE BOARD IN 1999;
- PAY OFF ALL DEBT OUTSTANDING UNDER OUR EXISTING BANK LINES;
- INCREASE OUR LEVEL OF INVESTMENT IN DIGITAL POWER R&D;
- MAKE ACQUISITIONS THAT ARE CONSISTENT WITH OUR NEW FOCUS.
Before elaborating on our digital power strategy, let's examine MagneTek's
fiscal 2000 results.
Despite the disposal of our unprofitable European ballast business in the second
fiscal quarter, the profitability of the lighting products group deteriorated.
This was mostly due to channel mix issues and price
* THE MAGNETEK FAMILY OF STANDARD, MODIFIED-STANDARD AND
CUSTOM-DESIGNED DIGITAL POWER-PRODUCTS PROVIDE DIGITALLY PROCESSED
ELECTRIC POWER AND CONTROL FUNCTIONS IN SYSTEMS RANGING FROM COMPUTERS
AND TELECOM NETWORKS TO HOME APPLIANCES AND INDUSTRIAL EQUIPMENT:
<TABLE>
<S> <C>
AC-DC SWITCHING POWER SUPPLIES DC-AC POWER INVESTORS
AC-DC RECTIFIERS/BATTERY CHARGERS PERIPHERAL COMPONENT INTERCONNECTS (PCIs)
DC-DC POWER CONVERTERS PROGRAMMABLE POWER SUPPLIES
ENERGY MANAGEMENT SYSTEMS SMART APPLIANCE MODULES (TM)
</TABLE>
3
<PAGE>
erosion, compounded by higher material and freight costs. We increased
lighting's profitability through streamlining operations and initiating the
first industry price increase in four years. But with all of our efforts we
could not figure out a way to achieve the growth, profits and return on
investment we wanted for our stockholders.
Our continuing operations, on the other hand, grew at a double-digit rate
throughout fiscal 2000. Total revenues were up 27% ($294 million vs. $231
million) from 1999. This was due in part to the acquisition during the year
of the EMS Group of companies and Mondel Engineering, which complemented our
digital motion control products.
Profits of these continuing operations also improved against the prior year.
Gross profit was up 54% ($63 million vs. $41 million), and our gross profit
margin increased 380 basis points to 21.5%. Operating income was $6.8 million
and net income was $1.3 million or $.05 per diluted share after including the
company's entire corporate overhead, even though these overhead expenditures
also supported the discontinued operations.
With gains on the disposal of discontinued operations, MagneTek's total net
income in fiscal 2000 amounted to $42.5 million or $1.70 per diluted share
versus $38.5 million or $1.25 per diluted share in fiscal 1999.
We constantly strive to improve the operating performance of our technically
talented company. Our immediate objectives are to:
- Complete the divestiture process by calendar year-end at prices in
excess of net book value.
- Continue to cut operating expenses, and especially corporate overhead.
- Increase R&D investment in innovative, proprietary products that
command greater margins.
- Expand our customer base and channels of distribution.
- Complete a major B2B initiative to enhance our marketing and information
systems.
- Make acquisitions that will augment our growth and profitability in
digital power electronics.
The power and motion control "marketplaces" in which our continuing
operations presently participate are:
- COMMUNICATION/INFORMATION TECHNOLOGY, including telecommunications,
computer and office equipment, and networking equipment.
- INDUSTRIAL/INSTRUMENTATION TECHNOLOGY, including motion controls,
alternative energy interfaces, energy-saving controls for home
appliances and laser applications.
We are continually assessing the growth, profitability and cash-flow
prospects for digital power products in each of these broad markets.
Worldwide consumption of digital power products, which already exceeds $30
billion a year, is projected to top $40 billion by 2004 and expand
exponentially thereafter. Communication/Information Technology (CIT)
applications currently account for about 83% of the total, and
Industrial/Instrumentation Technology (IIT) applications account for another
12%++.
4
<PAGE>
The CIT marketplace for digital power products is now growing 11% annually++,
but "broadband" infrastructure alone (telecom, data-com and networking
equipment) is forecasted to undergo a $10 trillion global buildout over the
next decade.(1)
The average industry operating profit margin on digital power products sold
into this burgeoning marketplace is approximately 10%.++ We intend to exceed
this by focusing on products, such as DC-DC converters and
rectifier/battery-chargers that command above-average margins, and by moving
up the "value chain" into "smart" power supplies, integrated subsystems and
services.
MagneTek's Communication/Information Technology customers include such
industry leaders as AT&T Wireless, Alcatel, Bosch, Bull, Compaq, Comverse,
Ericsson, IBM, Italtel, Kodak, Lucent, MCI, Marconi, Motorola, NBase, Nokia,
Network Appliance, Qwest, Radisys, Redback, Siemens, Teledata, Unisys and
Xerox.
The Industrial/Instrumentation (IIT) marketplace also offers significant
profit potential. Digital power products sold into this sector command
operating profit margins in the 20% range on average for the industry. This
marketplace is growing about 7% annually++ and the growth rate is expected to
accelerate. Further, we plan to assure double-digit growth in IIT through
acquisitions like those we made in fiscal 2000 and early entry into emerging
markets such as fuel cell power conversion where we have a larger installed
base than all of our competitors combined.
Our Industrial/Instrumentation customers include Baxter, Beckman,
Caterpillar, Credence, Electrolux, GE, InFocus, Lam Research, Merloni,
Nixdorf, Siemens (Medical Systems), United Technologies (International Fuel
Cells), Universal Laser Systems, most of the crane and hoist manufacturers in
North America, and all of the world's leading elevator builders.
To repeat what I said before, our three basic goals are:
- DOUBLE-DIGIT REVENUE GROWTH;
- DOUBLE-DIGIT OPERATING PROFIT MARGINS;
- DOUBLE-DIGIT CASH FLOW RETURN ON INVESTED CAPITAL.
What are the chances of our achieving these goals? In terms of things we can
control, it depends on technology, acquisitions and execution.
We certainly are well positioned in technology. Our 200-plus power
electronics engineers and scientists, 38 percent of whom hold Ph.D. or
Masters degrees, excel in:
- MIXED-SIGNAL (ANALOG TO DIGITAL) DESIGN, enabling us to provide total
power solutions to our customers, who specialize in digital design;
- HEAT REDUCTION TECHNOLOGY, resulting in the most compact, reliable,
highest power-density products on the market;
- APPLICATION OF MICROPROCESSORS AND DIGITAL SIGNAL PROCESSORS, allowing
us to create "smart" power products that are programmable and
self-diagnostic.
5
<PAGE>
Regarding external growth, the digital power industry is consolidating, and
we will participate by making acquisitions that:
- LEVERAGE OUR TECHNOLOGY;
- ADD TO OUR PRODUCT LINES;
- STRENGTHEN OUR CHANNELS TO MARKET;
- DEEPEN OUR TALENT POOL.
There are over 250 digital power product manufacturers in North America and
more than 1,000 worldwide. MagneTek currently ranks 13th++ in the industry;
and since we expect to be debt-free following the sale of our remaining
electrical component businesses, this places us in an excellent position to
accelerate growth through acquisitions.
We are taking the steps necessary to assure proper and timely implementation
of our digital power strategy.
- We are adding world-class marketing talent at the corporate level.
- We are structuring the organization into "expertise distinct" marketing
units to optimize our business model.
- We have formed a mergers and acquisitions team to drive the acquisition
process from due diligence through integration.
- We are reviewing and re-qualifying our industry alliances to assure
their effectiveness.
- We are re-energizing our intellectual property portfolio through
aggressive strategic patenting.
- We are structuring an incentive system to reward internal
entrepreneurship, and exploring more effective ways of rewarding valued
employees at all levels.
The potential clearly exists for us to achieve our goals of double-digit
revenue growth, double-digit operating profits and double-digit cash flow
return on invested capital. These goals are not inconsistent with the
performance of other digital power product companies.
I am confident that, with our new strategic focus, we will emerge a much
stronger company with a bright future.
MagneTek's 2000 annual meeting will be held in New York City on November 1st.
At that time, we will present a more comprehensive picture of our digital
power strategy and prospects. I hope you will be able to attend the meeting
in person or access the Webcast on the internet.*
/s/ ANDREW G. GALEF
-----------------------------------------------
Andrew G. Galef
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SOURCES: ++ MICRO-TECH CONSULTANTS
1. GLOBAL BUSINESS NETWORK
2. HOLT VALUE ASSOCIATES
* MAGNETEK'S FISCAL 2000 STOCKHOLDERS' MEETING WILL BE HELD ON WEDNESDAY,
NOVEMBER 1ST AT 10:00 A.M. EASTERN STANDARD TIME AT THE PENINSULA HOTEL, 700
FIFTH AVENUE AT 55TH STREET, NEW YORK CITY. MEETING AUDIO AND VISUALS WILL BE
WEBCAST SIMULTANEOUSLY ON STREETFUSION (HTTP://WWW.STREETFUSION.COM); THOSE
WITHOUT ACCESS TO INTERNET AUDIO CAN LISTEN TO THE PROCEEDINGS BY PHONING
303/224-6999.
6
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
STATEMENT OF INCOME DATA
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $293,575 $231,339 $244,040 $240,205 $239,588
Income (loss):
Continuing operations 1,282 (24,318) 344 (6,602) (25,275)
Discontinued operations 41,170 62,791 37,532 35,353 (68,889)
Extraordinary item - - - (4,676) -
Net income (loss) 42,452 38,473 37,876 24,075 (94,164)
Per common share--basic:
Income (loss) from continuing
operations before extraordinary
item $ 0.05 $ (0.79) $ 0.01 $ (0.26) $ (1.02)
Net income (loss) $ 1.71 $ 1.25 $ 1.25 $ 0.94 $ (3.81)
Per common share--diluted:
Income (loss) from continuing
operations before extraordinary
item $ 0.05 $ (0.79) $ 0.01 $ (0.26) $ (1.02)
Net income (loss) $ 1.70 $ 1.25 $ 1.25 $ 0.94 $ (3.81)
======================================================================================================================
</TABLE>
IN FISCAL YEARS 1996 THROUGH 1999, THE EFFECT OF CONVERTIBLE SECURITIES AND
EMPLOYEE STOCK OPTIONS ARE ANTI-DILUTIVE AS TO EARNINGS PER SHARE AND ARE
IGNORED IN THE COMPUTATION OF DILUTED EARNINGS PER SHARE IN THOSE PERIODS.
NET INCOME FOR THE YEAR ENDED JUNE 30, 2000 INCLUDES A $35,125 AFTER-TAX
GAIN ON THE SALE OF THE COMPANY'S MOTOR AND EUROPEAN LIGHTING BUSINESS
INCLUDED IN DISCONTINUED OPERATIONS.
NET INCOME FOR THE YEAR ENDED JUNE 30, 1999 INCLUDES A $50,988 AFTER-TAX
GAIN ON THE SALE OF THE COMPANY'S GENERATOR BUSINESS INCLUDED IN
DISCONTINUED OPERATIONS. CONTINUING AND DISCONTINUED OPERATIONS RESULTS IN
FISCAL 1999 INCLUDE CHARGES AGGREGATING $21,564 AND $12,836 RESPECTIVELY,
RELATING TO DOWNSIZING, INVENTORY ADJUSTMENTS, SEVERANCE COSTS AND OTHER
ASSET-WRITEDOWNS.
LOSSES FROM CONTINUING AND DISCONTINUED OPERATIONS FOR THE YEAR ENDED JUNE
30, 1996 INCLUDE PRE-TAX CHARGES AGGREGATING $6,326 AND $73,391
RESPECTIVELY. CHARGES IN FISCAL 1996 REFLECT COSTS ASSOCIATED WITH
REPOSITIONING OPERATIONS PRIMARILY FOR SEVERANCE, TERMINATION BENEFITS,
WARRANTY AND ASSET WRITE-DOWNS RELATED TO FACILITY CLOSURES. ALSO, IN
REVIEW OF THE COMPANY'S DEFERRED TAX ASSET IN ACCORDANCE WITH FASB NO.109,
A $14,700 CHARGE WAS INCURRED IN FISCAL YEAR 1996.
<TABLE>
<CAPTION>
BALANCE SHEET DATA
AS OF JUNE 30,
(AMOUNTS IN THOUSANDS) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $400,673 $576,220 $595,534 $498,544 $515,800
Long-term debt,
including current portion 64,040 179,181 244,714 236,127 313,729
Common stockholders' equity 184,206 204,885 189,558 102,274 42,116
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
During fiscal year 2000, the Company continued to review its strategic
direction for the express purpose of maximizing shareholder value. These
reviews led us to the conclusion that increased value to shareholders could
be best achieved by focusing all efforts towards "Digital Power Products."
This area includes the Company's power control and motion control product
offerings. The potential for both above average revenue growth and operating
margin performance in this area is far more expansive than any of our other
products and services. Profitable market niches exist, and are growing
rapidly, where competitive advantages are based on technology, reliability
and dependability and not significantly dependent upon economies of scale or
low-cost manufacturing as in electrical products. These niches are clearly
opportunities for our Company due to our current platform of technology and
portfolio of products. While there remain "gaps" in both, these can be
quickly filled and allow us to be a significant market force in targeted
areas. To accelerate this process, the Company will divest its Lighting
Products and Transformer businesses. These divestitures will provide cash for
continued investment in power electronics and focus all of our resources on
our core strengths. In the previous fiscal year, similar decisions were made
to exit the Company's Generator and Motor businesses due to industry
consolidation and other factors that limited our long-term ability to
successfully compete in these markets. The Generator and Motor businesses
were successfully sold for $115 million and $253 million respectively.
Proceeds from these sales were used to repay debt, continue the stock
repurchase program authorized by the Board of Directors in May, 1999, and
selectively acquire businesses to complement the Company's strengths.
MagneTek now operates in a single business segment, Digital Power Products.
Digital Power Products includes electronic converters and rectifiers
generally known as power controls primarily for telecommunications equipment,
data processing, data storage, networking, imaging, power quality, medical
electronics markets and power generation. Digital Power Products also
includes motion control devices that regulate speed for electric motors as
well as communicating to related hardware and software equipment.
YEAR 2000 ISSUE
In fiscal years 1998 and 1999 the Company conveyed its plans and progress in
ensuring that all systems were Year 2000 compliant. As scheduled, the Company
completed remediation and testing for all systems in the last half of fiscal
year 1999. Due to efforts expended, the Company has experienced no
significant disruptions in either critical information or non-information
technology systems. The Company is not aware of any material problems
resulting from Year 2000 issues with products, internal systems or third
party products or services. For the remainder of Year 2000, the Company will
continue to monitor both internal computer applications and those of third
party suppliers and vendors. While the Company does not expect any problems
to occur, should any latent Year 2000 issues arise, they will be addressed
promptly.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales for the Company increased to $293.6 million in fiscal 2000 from
$231.3 million in fiscal 1999 and $244.0 million in fiscal 1998. The 27%
increase in revenue levels was primarily due to the effect of the
acquisitions of the EMS Group and Mondel ULC and increased domestic sales for
power control products. The decline in sales from fiscal 1999 versus 1998 of
5% was caused by reduced sales of motion control products and lower reported
revenues from international operations. Gross profits increased to $63.2
million(21.5% of net sales) in fiscal 2000 from $40.9 million (17.7% of net
sales)in fiscal 1999. Increased gross profit levels were primarily a function
of higher revenues. Results in fiscal 1999 include $7.5 million of
repositioning costs (primarily inventory write-downs) which adversely
impacted gross profits. Gross profits were $58.7 million (24.0% of net sales)
in fiscal 1998.
8
<PAGE>
OPERATING EXPENSES
Selling, general and administrative expense (including research and
development expenditures) was $56.4 million (19.2% of net sales) in fiscal
2000 compared to $72.7 million (31.4% of net sales) in fiscal 1999. Fiscal
1999 results included approximately $13 million of fourth quarter charges
related primarily to severance expense, costs associated with vacating
facilities, provisions for accounts receivable and write-offs associated with
software assets. Fiscal 1998 expenses were $54.1 million (22.2% of net sales).
INTEREST AND OTHER EXPENSES
Interest expense was $2.9 million in fiscal 2000 compared to $1.6 million in
fiscal 1999 and $1.9 million in fiscal 1998. Interest expense for the Company
is recorded in conformance with accounting principles that allow the
allocation of interest expense between continuing and discontinued operations
in accordance with EITF 87-24, "Allocation of Interest to Discontinued
Operations." Other expense was $1.9 million in fiscal 2000 compared to $2.6
million in fiscal 1999 and $2.1 million in fiscal 1998.
NET INCOME (LOSS)
In fiscal 2000, the Company recorded net income of $42.5 million or $1.71 per
share (basic) and $1.70 on a diluted basis. Results reflect net income of
$1.3 million from continuing operations, $6.1 million from discontinued
operations and a $35.1 million gain on sale of discontinued businesses (the
Motor and European Lighting businesses of which the Motor business accounted
for all of the gain on sale). Comparable net income for the Company for
fiscal 1999 was $38.5 million, $1.25 per share (basic) and $1.25 on a diluted
basis. Net income in fiscal 1999 reflects a loss of $24.3 million from
continuing operations, net income of $11.8 million from discontinued
operations and a gain on the sale of discontinued businesses (the Generator
business in April of 1999) of $51 million. Fiscal 1998 net income of $37.9
million was $1.25 per share (basic) and $1.25 per share on a diluted basis.
Continuing operations in fiscal 1998 contributed $.3 million of net income
with discontinued operations generating $37.6 million of net income in the
period.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, long term borrowings (including the current portion)
were $64 million, compared to $179 million as of June 30, 1999 and $245
million as of June 30, 1998. The decrease in long term borrowings in fiscal
2000 resulted primarily from repayment with proceeds received from the sale
of the Motor business aggregating $253 million. In fiscal 2000, the Company
also completed the acquisitions of the EMS Group and Mondel ULC for an
aggregate cash payment of $48 million. In fiscal 2000, the Company continued
open market purchases of its common stock, purchasing 7.1 million shares at a
cost of $62 million. The decrease in long term borrowings in fiscal 1999 from
fiscal 1998 resulted primarily from the sale of the Generator business, which
totaled $115 million. In fiscal 1998 the Company made open-market purchases
of approximately 1.6 million shares of its common stock for $17 million.
At June 30, 2000, the Company had an agreement with a group of banks to
borrow up to $200 million under a revolving loan facility through June of
2002. As of June 30, 2000, the Company had approximately $134 million in
available capacity under this agreement. The Company had amended its Bank
Loan Agreement on July 30, 1999 reducing the lending commitment from $350
million to $200 million. The reduced lending commitment occurred as a result
of the $253 million sale of the Company's Motor business in August of 1999 at
which point the Company repaid all outstanding borrowings under its Bank Loan
Agreement.
We believe that internally generated cash flows, along with the Company's
Bank Loan Agreement and access to external capital resources, will be
sufficient to fund near-term commitments and plans.
Cash outflow in connection with repositioning reserves established in fiscal
1999 approximated $7 million in fiscal 2000. The Company may be subject to
certain potential environmental and legal liabilities (see Note 11).
9
<PAGE>
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks in the areas of commodity prices,
foreign exchange and interest rates. To mitigate the effect of such risks,
the Company selectively utilizes specific financial instruments. Hedging
transactions are entered into under Company policies and procedures and
monitored monthly. Company policy clearly prohibits the use of such financial
instruments for trading or speculative purposes. A discussion of the
Company's accounting policies for derivative financial instruments is
included in the Summary of Significant Accounting Policies in the Notes to
the Consolidated Financial Statements.
COMMODITY PRICES
The Company uses within its discontinued operations a significant amount of
copper wire in the production of its products. The price of copper is subject
to fluctuations based upon general economic conditions, labor issues at the
producing mines, the capacity of smelting operations and the availability of
scrap copper. Due to the relatively large content of copper cost in the
Company's product, the Company enters into forward copper futures positions
to act as a hedge against its material purchases. The fair value of the
Company's position in copper is calculated by valuing its futures position at
quoted market prices. Market risk is estimated as the potential loss in fair
value resulting from a hypothetical 10% adverse change in such prices. The
potential loss in fair value of the Company's copper futures position from a
hypothetical 10% decrease in copper prices was $1.3 million at June 30, 2000
and $1.6 million at June 30, 1999.
INTEREST RATES
The fair value of the Company's debt was $64 million and $179 million at June
30, 2000 and June 30, 1999 respectively. The fair value of the Company's debt
is equal to the borrowings outstanding from domestic and foreign banks and
small amounts owed under capital lease arrangements. Prospectively, the
Company does not consider there to be material risk due to changes in the
interest rate structure of borrowing rates applicable to such debt. For the
variable rate debt outstanding at June 30, 2000 and 1999, a hypothetical 10%
adverse change in interest rates would have an unfavorable impact of $.5
million and $1.0 million respectively, on the Company's pre-tax earnings and
cash flows.
FOREIGN CURRENCY EXCHANGE RATES
The Company enters into foreign exchange contracts to hedge certain balance
sheet exposures in Europe and operating cost exposures related to
manufacturing facilities in Mexico. The Company had foreign currency
contracts outstanding of approximately $30.7 million at June 30, 2000 and $39
million at June 30, 1999. Assuming a hypothetical 10% adverse change in
foreign exchange rates, the potential loss in value of the Company's forward
contracts would have been $3.1 million at June 30, 2000 and $3.9 million at
June 30, 1999.
FORWARD-LOOKING INFORMATION
The foregoing risk management discussion and amounts projected, generated
from adverse changes that could occur are forward-looking statements of
market risks assuming that certain adverse market conditions do occur. Actual
results in the future are beyond the control of the Company and may differ
materially from those estimated. The analytical methods used to assess and
mitigate risks in areas discussed should not be considered projections of
future events or losses.
10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $293,575 $231,339 $244,040
Cost of sales 230,366 190,451 185,387
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 63,209 40,888 58,653
Research, sales, general and administrative 56,369 72,679 54,147
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 6,840 (31,791) 4,506
Interest expense 2,907 1,571 1,908
Other expense, net 1,851 2,556 2,054
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
provision (benefit) for income taxes 2,082 (35,918) 544
Provision (benefit) for income taxes 800 (11,600) 200
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 1,282 (24,318) 344
Discontinued operations -
Income from operations (net of taxes) 6,045 11,803 37,532
Gain on disposal (net of taxes) 35,125 50,988 -
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 42,452 $ 38,473 $ 37,876
===========================================================================================================================
Per common share basic:
Income (loss) from continuing operations $ 0.05 $ (0.79) $ 0.01
Income from discontinued operations 1.66 2.04 1.24
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1.71 $ 1.25 $ 1.25
===========================================================================================================================
Per common share diluted:
Income (loss) from continuing operations $ 0.05 $ (0.79) $ 0.01
Income from discontinued operations $ 1.65 2.04 1.24
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 1.70 $ 1.25 $ 1.25
===========================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 343 $ 5,890
Accounts receivable, less allowance for doubtful accounts of $3,299 in 2000
and $1,564 in 1999 59,468 48,226
Inventories 42,069 40,480
Deferred income taxes 15,644 30,401
Prepaids and other assets 2,243 2,982
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 119,767 127,979
- ---------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 1,132 1,240
Buildings and improvements 13,125 13,650
Machinery and equipment 73,705 84,264
- ---------------------------------------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization 47,825 51,678
- ---------------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 40,137 47,476
- ---------------------------------------------------------------------------------------------------------------------------
Net assets of discontinued operations 115,827 308,169
Goodwill, less accumulated amortization of $7,537 in 2000 and $5,769 in 1999 69,458 37,983
Deferred financing costs, intangible and other assets
less accumulated amortization of $24,426 in 2000 and $23,844 in 1999 55,484 54,613
- ---------------------------------------------------------------------------------------------------------------------------
$ 400,673 $ 576,220
===========================================================================================================================
</TABLE>
12
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 47,973 $ 47,164
Accrued liabilities 30,011 50,813
Current portion of long-term debt 1,732 1,900
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 79,716 99,877
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 62,308 177,281
Other long-term obligations 41,539 51,038
Deferred income taxes 32,904 43,139
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 100,000,000 shares authorized
23,073,000 and 29,986,000 shares issued and outstanding in 2000 and 1999 231 300
Additional paid-in capital 100,399 160,574
Retained earnings 108,662 66,210
Accumulated other comprehensive loss (25,086) (22,199)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 184,206 204,885
- ---------------------------------------------------------------------------------------------------------------------------
$400,673 $576,220
===========================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
13
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common stock Additional Retained Other
-------------------------------- paid-in Earnings Comprehensive
Shares Amount capital (Deficit) Loss Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997 28,259,000 $282 $129,151 $(10,139) $(17,020) $102,274
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 513,000 5 4,630 - - 4,635
Restricted stock grants 40,000 1 1,215 - - 1,216
Debt conversion 2,472,000 25 38,944 - - 38,969
Share value trust 200,000 2 3,055 - - 3,057
Unearned employee compensation - - (2,960) - - (2,960)
Tax benefit for options exercised - - 2,427 - - 2,427
Net income - - - 37,876 - 37,876
Translation adjustments - - - - 2,064 2,064
Comprehensive income - 1998 - - - - - 39,940
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998 31,484,000 $315 $176,462 $ 27,737 $(14,956) $189,558
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 108,000 1 985 - - 986
Share value trust - - (1,006) - - (1,006)
Unearned employee compensation - - 911 - - 911
Share repurchase/retirement (1,606,000) (16) (16,916) - - (16,932)
Tax benefit for options exercised - - 138 - - 138
Net income - - - 38,473 - 38,473
Translation adjustments - - - - (7,243) (7,243)
Comprehensive income - 1999 - - - - - 31,230
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 29,986,000 $300 $160,574 $ 66,210 $(22,199) $204,885
- ----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 195,000 2 1,730 - - 1,732
Share value trust - - (303) - - (303)
Unearned employee compensation - - 303 - - 303
Share repurchase/retirement (7,108,000) (71) (62,320) - - (62,391)
Tax benefit for options exercised - - 415 - - 415
Net income - - - 42,452 - 42,452
Translation adjustments - - - - (2,887) (2,887)
Comprehensive income - 2000 - - - - - 39,565
- ----------------------------------------------------------------------------------------------------------------------------------
23,073,000 $231 $100,399 $108,662 $(25,086) $184,206
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 1,282 $ (24,318) $ 344
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities:
Depreciation and amortization 13,338 14,245 11,425
Changes in operating assets and liabilities of continuing operations (21,844) (10,328) (14,876)
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments (8,506) 3,917 (3,451)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (7,224) (20,401) (3,107)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase and investment in companies, net of cash acquired (48,245) - (29,001)
Proceeds from sale of businesses and other assets 255,445 117,177 111
Capital expenditures (8,375) (13,903) (17,162)
Other investments - (499) 3,792
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 198,825 102,775 (42,260)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under bank and other long-term obligations - - 48,177
Proceeds from issuance of common stock 1,732 986 4,635
Repurchase of common stock (62,391) (16,932) -
Repayment of bank and other long-term obligations (115,141) (65,533) -
Increase in deferred financing costs (746) - (102)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (176,546) (81,479) 52,710
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 15,055 895 7,343
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from discontinued operations:
Income from discontinued operations 6,045 11,803 37,532
Adjustments to reconcile income to net cash used in
discontinued operations:
Depreciation and amortization 11,208 22,996 26,980
Changes in operating assets and liabilities of discontinued operations (28,750) (8,139) (37,735)
Capital expenditures (9,105) (26,929) (33,804)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in discontinued operations $ (20,602) $ (269) $ (7,027)
==================================================================================================================================
Net increase (decrease) in cash (5,547) 626 316
Cash at the beginning of the year 5,890 5,264 4,948
- ----------------------------------------------------------------------------------------------------------------------------------
Cash at the end of the year $ 343 $ 5,890 $ 5,264
==================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE EXPRESSED IN
THOUSANDS, EXCEPT SHARE AND PER SHARE DATA.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MagneTek, Inc. and
its subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's policy is to record and recognize sales only upon shipment.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Additions and improvements are capitalized at cost, whereas expenditures for
maintenance and repairs are charged to expense as incurred. Depreciation is
provided over the estimated useful lives of the respective assets principally on
the straight-line method (equipment normally five to ten years, buildings
normally ten to forty years).
ACCOUNTING FOR STOCK OPTIONS
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" (APB 25), and related interpretations, in accounting for stock
based awards to employees. Under APB 25, the Company recognizes no compensation
expense with respect to such awards when the exercise price is equal to or
greater than the market price at the date of grant. The Company has adopted the
disclosure-only option under SFAS No. 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued, and as amended, is required to be adopted in years
beginning after June 15, 2000. This Statement requires all derivatives to be
recorded on the balance sheet at fair value. This results in the offsetting
changes in fair values or cash flows of both the hedge and the hedged item being
recognized in earnings in the same period. Changes in fair value of derivatives
not meeting the Statement's hedge criteria are included in income. The Company
does not expect the adoption of this Statement to have a significant effect on
its results of operations or financial position.
16
<PAGE>
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to expense as incurred and
aggregated $8,125, $10,959 and $12,982 for the years ended June 30, 2000, 1999,
and 1998, respectively. Research and development costs are classified in the
accompanying Consolidated Statements of Income as operating expenses (after
Gross profit) for all periods presented.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce commodity and
financial market risks. These instruments are used to hedge copper material
purchases, foreign currency and interest rate market exposures.The Company does
not use derivative financial instruments for speculative or trading purposes.
The accounting policies for these instruments are based on the Company's
designation of such instruments as hedging transactions.The criteria the Company
uses for designating an instrument as a hedge include the instrument's
effectiveness in risk reduction and the matching of the derivative to the
underlying transaction. The resulting gains or losses are accounted for as part
of the transactions being hedged, except that losses not expected to be
recovered upon the completion of the hedge transaction are expensed.
DEFERRED FINANCING COSTS, INTANGIBLE AND OTHER ASSETS
Costs incurred to obtain financing are deferred and amortized over the term of
the financing. Amortization expense relating to deferred financing costs was
$582, $708 and $741 for the years ended June 30, 2000, 1999 and 1998,
respectively. Goodwill is being amortized using the straight-line method over a
forty-year period. The Company assesses the recoverability of goodwill based
upon several factors, including management's intention with respect to the
operations to which the goodwill relates and those operations' projected future
income and undiscounted cash flows. Write-downs of goodwill are recognized when
it is determined that the value of such asset has been impaired. Amortization
expense relating to goodwill was $1,768, $874, and $533 for the years ended June
30, 2000, 1999, and 1998, respectively.
INCOME TAXES
Income taxes are provided based upon the results of operations for financial
reporting purposes and include deferred income taxes applicable to timing
differences between financial and taxable income.
Federal income taxes are not provided currently on undistributed earnings of
foreign subsidiaries since the Company presently intends to reinvest any
earnings overseas indefinitely.
EARNINGS PER SHARE
The consolidated financial statements are presented in accordance with SFAS No.
128, "Earnings Per Share." Basic earnings per share are computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share incorporate the incremental shares issuable upon the
assumed exercise of stock options and upon the assumed conversion of the
Company's Convertible Notes in fiscal 1998 as if conversion to common shares had
occurred at the beginning of the fiscal year. Earnings have also been adjusted
for interest expense on the Convertible Notes in fiscal 1998.
FISCAL YEAR
The Company uses a fifty-two, fifty-three week fiscal year which ends on Sunday
nearest June 30. For clarity of presentation, all periods are presented as if
the year ended on June 30. Fiscal year 2000 contained 53 weeks, fiscal years
1999 and 1998 contained 52 weeks each.
17
<PAGE>
2. ACQUISITIONS
On July 23, 1999, the Company purchased the assets of Electric Motor Systems,
Inc., Electromotive Systems, Inc., and EMS/Rosa Automation Engineering, Inc.,
(The EMS Group) for cash of approximately $38.3 million. The Company acquired
assets of approximately $19.8 million and assumed liabilities of $8.1 million.
Costs in excess of net assets acquired approximated $26.6 million and are being
amortized over forty years. The EMS Group manufactures and purchases for
re-sale, adjustable speed drives. On December 16, 1999 the Company purchased the
shares of Mondel ULC, a Nova Scotia unlimited liability company for
approximately $10 million. The Company acquired assets of approximately $2.5
million and assumed liabilities of $.3 million. Costs in excess of net assets
acquired approximated $7.8 million and are also being amortized over forty
years. Mondel ULC manufactures a variety of industrial brakes for the crane and
hoist market. Both acquisitions have been accounted for under the purchase
method of accounting and, accordingly the purchase price has been allocated to
the net assets acquired based upon their estimated fair market values. Both
acquisitions were financed from the Company's revolving credit facility.
Operating results of the EMS Group and Mondel ULC were included in the Company's
consolidated results effective as of the acquisition dates. The following pro
forma information includes the operations of the acquired entities for fiscal
years 2000 and 1999 as if the respective transactions had occurred on the first
day of each of the respective fiscal years.
<TABLE>
<CAPTION>
(pro forma) (pro forma)
2000 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 296,814 $ 287,448
Income (loss) from continuing operations 1,576 (25,324)
Net income $ 42,746 $ 37,467
Continuing operations
Basic EPS $ 0.06 $ (0.82)
Diluted EPS $ 0.06 $ (0.82)
Net income
Basic EPS $ 1.72 $ 1.22
Diluted EPS $ 1.71 $ 1.22
</TABLE>
The pro forma results of operations do not purport to represent what the
Company's results would have been had such transactions occurred at the
beginning of the periods presented or to project the Company's results of
operations in any future period.
3. DISCONTINUED OPERATIONS
The accompanying financial statements have been re-stated to conform to
discontinued operations treatment for all historical periods. The results of the
Company's electrical products businesses (Generators, Motors, Lighting Products
and Transformers) are included within discontinued operations.
In April, 1999 the Company sold its Generator business to Emerson Electric, and
in August, 1999 the Company sold its Motor business to A. O. Smith. Pre-tax
proceeds received from the sale of the Generator and Motor businesses were $115
million and $253 million respectively. Proceeds from the sales were used to
repay borrowings under the Bank loan agreement, repurchase shares of its common
stock and fund acquisitions made in fiscal year 2000.
On December 23, 1999, the Company sold its European Magnetic Lighting business
to a group including former and current management. Net assets of the Company's
German operations and certain inventory and fixed assets located in Milan, Italy
were included in the transaction. Net proceeds, including the assumption of debt
by the buyers, approximated $2.5 million. In addition, the buyers agreed to
indemnify MagneTek for substantially all past, present and future obligations in
connection with the business' operations in Germany. In connection with the
sale, the Company also announced the closure of its Milan factory.
18
<PAGE>
The Company will divest its Lighting Products and Transformer businesses and
expects to complete the divestitures within one year.
The operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Year ended June 30 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 452,274 $ 891,341 $ 953,149
Income before provision for income taxes 9,745 17,403 58,632
Provision for income taxes 3,700 5,600 21,100
- -----------------------------------------------------------------------------------------------------
Income from discontinued operations $ 6,045 $ 11,803 $ 37,532
- -----------------------------------------------------------------------------------------------------
</TABLE>
A portion of the Company's interest expense has been allocated to discontinued
operations in accordance with EITF 87-24, "Allocation of Interest to
Discontinued Operations." (interest expense allocated to discontinued operations
was $3.3 million in fiscal 2000, $17.3 million in fiscal 1999 and $14.7 million
in fiscal 1998). Taxes have been allocated using the same overall rate incurred
by the Company in each of the fiscal years presented.
Net income for the year ended June 30, 2000 includes a $35,125 (including a tax
benefit of $3,000) gain on the sale of the Company's Motor and European Lighting
business included in discontinued operations. Net income for the year ended June
30, 1999 includes a $50,988 (net of taxes of $24,000) gain on the sale of the
Company's Generator business included in discontinued operations.
4. REPOSITIONING COSTS
During the year ended June 30, 1999, the Company established repositioning
reserves of $34,400 (continuing operations of $21,600 and discontinued
operations of $12,800) associated with downsizing, inventory adjustments,
severance costs and other asset write-downs. In fiscal 2000, the Company had
approximately $7,000 in cash outflows associated with these reserves and $26,400
in non-cash charges. Fiscal year 2000 non-cash activity included the elimination
of $1,800 in reserves established for liabilities associated with certain leases
included in fiscal 1999 repositioning reserves. The Company has eliminated this
liability through the acquisition of a sub-tenant. Remaining repositioning
reserves at June 30, 2000 were approximately $1,000. The Company believes the
remaining reserves are adequate to cover the outstanding liabilities.
5. INVENTORIES
Inventories at June 30, consist of the following:
<TABLE>
<CAPTION>
2000 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and stock parts $23,729 $18,111
Work-in-process 8,057 10,890
Finished goods 10,283 11,479
- -------------------------------------------------------------------------------------------------
$42,069 $40,480
- -------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
6. LONG-TERM DEBT AND BANK BORROWING ARRANGEMENTS
Long-term debt at June 30, consists of the following:
<TABLE>
<CAPTION>
2000 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving bank loans $ 58,466 $173,284
Miscellaneous installment notes, capital leases and other obligations at rates
ranging from 4.00 percent to 9.50 percent, due through 2005 5,574 5,897
- ------------------------------------------------------------------------------------------------------------------
$ 64,040 $179,181
Less current portion 1,732 1,900
- ------------------------------------------------------------------------------------------------------------------
$ 62,308 $177,281
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
BANK BORROWING ARRANGEMENTS
At June 30, 2000, the Company had an agreement with a group of banks to lend up
to $200,000 under a revolving loan facility through June, 2002. Borrowings under
the agreement (the "Bank Loan Agreement") bear interest at the bank's prime
lending rate or, at the Company's option, the London Interbank Offered Rate plus
one and one-half percent. These rates may be reduced or increased based on the
level of certain debt-to-cash flow ratios. At June 30, 2000, borrowings under
the Bank Loan Agreement bore interest at a weighted average rate of
approximately 8.4%. The Company is required to pay a commitment fee of .35
percent on unused commitments.
Effective July 30, 1999, the Company amended its Bank Loan Agreement to reduce
the lending commitment from $350,000 to $200,000 to reflect lower borrowing
requirements as a result of proceeds received from the sale of the motor and
generator operations. The Company further amended its Bank Loan Agreement to
adjust covenants to reflect the reclassification of the motor and generator
businesses as discontinued operations and the impact of charges associated with
the Company's downsizing program. All other terms and conditions remain
substantially the same. Borrowings under the Bank Loan Agreement are secured by
domestic accounts receivable and inventories and by stock of certain of the
Company's subsidiaries. The Bank Loan Agreement contains certain provisions and
covenants which, among other things, restrict the payment of cash dividends on
common stock, limit the amount of future indebtedness and require the Company to
maintain specified levels of net worth and cash flow.
The Company's European subsidiary has certain limited local borrowing
arrangements to finance working capital needs. The borrowings under these
arrangements are secured by accounts receivable and inventories of the
subsidiary. The Company has provided parent guarantees to the local banks which
provide the related financing.
Aggregate principal maturities on long-term debt outstanding at June 30, 2000
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
- -------------------------------------------------------------------------------
<S> <C>
2001 $ 1,732
2002 58,385
2003 1,117
2004 805
2005 644
Thereafter 1,357
- -------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share.
<TABLE>
<CAPTION>
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income (loss) from continuing operations $ 1,282 $ (24,318) $ 344
Income from discontinued operations 6,045 11,803 37,532
Gain on sale of discontinued businesses (net of taxes) 35,125 50,988 -
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 42,452 $ 38,473 $ 37,876
Weighted average shares for basic earnings per share 24,862 30,774 30,417
Basic earnings per share:
Income (loss) from continuing operations $ 0.05 $ (0.79) $ 0.01
Income from discontinued operations 0.25 0.38 1.24
Gain on sale of discontinued businesses (net of taxes) 1.41 1.66 -
- -------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.71 $ 1.25 $ 1.25
Diluted earnings per share:
Income (loss) from continuing operations $ 1,282 $ (24,318) $ 344
Income from discontinued operations 6,045 11,803 37,532
Gain on sale of discontinued businesses (net of taxes) 35,125 50,988 -
Interest savings on convertible debt to equity - - *
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 42,452 $ 38,473 $ 37,876
Weighted average shares for basic earnings per share 24,862 30,774 30,417
Effect of dilutive stock options 85 * *
Effect of convertible debt to equity - - *
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average shares for diluted earnings per share 24,947 30,774 30,417
Diluted earnings per share:
Income (loss) from continuing operations $ 0.05 $ (0.79) $ 0.01
Income from discontinued operations 0.24 0.38 1.24
Gain on sale of discontinued businesses (net of taxes) 1.41 1.66 -
- -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 1.70 $ 1.25 $ 1.25
</TABLE>
*IN FISCAL YEARS 1999 AND 1998, THE EFFECT OF CONVERTIBLE SECURITIES AND
EMPLOYEE STOCK OPTIONS ARE ANTI-DILUTIVE AS TO EARNINGS PER SHARE AND ARE
IGNORED IN THE COMPUTATION OF THE DILUTIVE EARNING PER SHARE IN THOSE
PERIODS.
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments such as cash, annuity
contracts and borrowings under revolving credit agreements approximate their
fair values. At June 30, 2000, the Company had foreign exchange forward
contracts, which if liquidated would result in an approximate gain of $286.
21
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into futures contracts to provide an economic hedge against
fluctuations in copper prices. Gains and losses are recorded in cost of sales as
the related materials are purchased. The Company also uses certain foreign
exchange contracts to minimize its risk of loss from fluctuations in exchange
rates. These contracts relate to hedging peso fluctuations as the Company has
significant Mexican manufacturing operations and lira contracts to hedge against
positions of significant foreign currency receivables. Gains and losses from
these transactions are recorded in cost of sales as the contracts are
liquidated. Due to significantly lower debt levels, the Company liquidated all
interest rate swaps in fiscal year 2000. The Company does not use derivative
financial instruments for speculative or trading purposes.
Outstanding notional amounts for derivative financial instruments at fiscal
year-ends were as follows:
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate swaps $ - $100,000
Currency forward contracts 30,739 38,508
Copper forward contracts 12,887 15,988
Aluminum forward contracts 978 -
- ----------------------------------------------------------------------------------------
</TABLE>
As of June 30, 2000 the Company had approximately 16 million pounds of copper
under futures contracts with an average cost per pound of $0.83. Copper under
contract represents 74% of the Company's fiscal 2001 estimated requirements and
no contract extends beyond the end of fiscal year 2001. At the end of fiscal
2000, the Company had approximately one million pounds of aluminum under futures
contracts at an average cost per pound of $0.74. Aluminum under contract
represents approximately 62% of the Company's fiscal 2001 requirements and no
contract extends beyond fiscal 2001. The Company has purchased forward contracts
equal to 53% of its peso requirements for fiscal 2001 at an average rate of 10.3
pesos to the dollar. No contracts extend beyond the end of fiscal 2001.
Unrealized gains as of June 30, 2000 on copper, pesos, and lira were not
material to the Company. Hedging activities related to copper and peso contracts
are specific to discontinued operations and activity will cease in this area
when these operations are divested.
10. INCOME TAXES
Income tax expense (benefit) is allocated in the financial statements as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) attributable to continuing operations $ 800 $(11,600) $ 200
Discontinued operations 700 29,600 21,100
- --------------------------------------------------------------------------------------------------------------------------
Total $ 1,500 $ 18,000 $21,300
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The expense for income taxes applicable to continuing operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(7,167) $(18,766) $ 85
State 855 1,001 19
Foreign 2,590 (758) 119
Deferred:
Federal 4,765 4,168 (28)
State and Foreign (243) 2,755 5
- --------------------------------------------------------------------------------------------------------------------------
$ 800 $(11,600) $ 200
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
A reconciliation of the Company's effective tax rate to the statutory Federal
tax rate for income from continuing operations is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) computed at the statutory rate $ 729 35.0 $(12,621) 35.0 $190 35.0
State income taxes, net of federal benefit 556 26.4 (16) - 21 3.8
Foreign tax rates in excess of federal statutory rate (1,607) (76.4) 3,197 (8.9) 61 11.2
Decrease in valuation allowance for
deferred tax assets - - (18,176) 50.4 (92) (16.8)
Provision for additional taxes 1,056 50.2 15,680 (43.6) 12 2.3
Other--net 66 2.8 336 (0.9) 8 1.5
- ------------------------------------------------------------------------------------------------------------------------------
$ 800 38.0 $(11,600) 32.0 $200 37.0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income (loss) before provision for income taxes of the Company's foreign
subsidiaries was approximately $9,812, $(1,239) and $6,847 for the years
ended June 30, 2000, 1999 and 1998.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets for continuing operations as
of June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization (including differences in the basis of acquired assets) $33,057 $46,524
Prepaid pension asset 13,732 12,644
- ----------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 46,789 59,168
- ----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement medical benefit obligation 13,885 17,329
Warranty reserves 4,072 12,598
Inventory and other reserves (including restructuring) 11,572 16,503
- ----------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 29,529 46,430
- ----------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $17,260 $12,738
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has determined that as of June 30, 2000 it is more likely than not,
that the deferred tax asset will be realized. Therefore, no valuation allowance
is necessary.
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and machinery and equipment primarily
under operating lease arrangements. Future minimum rental payments under
noncancelable operating leases as of June 30, 2000 total $29,429 and are payable
in future fiscal years as follows: $5,710 in 2001; $4,856 in 2002; $3,362 in
2003; $2,424 in 2004; $2,404 in 2005 and $10,673 thereafter.
Rent expense for the years ended June 30, 2000, 1999 and 1998, was $3,861,
$3,915 and $2,588, respectively.
23
<PAGE>
LITIGATION--PRODUCT LIABILITY
The Company is a party to a number of product liability lawsuits, many of which
involve fires allegedly caused by defective ballasts. All of these cases are
being defended by the Company, and management believes that its insurers will
bear all liability, except for applicable deductibles, and that none of these
proceedings individually or in the aggregate will have a material effect on the
Company.
LITIGATION--PATENT
In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court for the
Northern District of Illinois alleging the Company is infringing seven of his
patents pertaining to electronic ballast technology. The plaintiff seeks an
unspecified amount of damages and an injunction to preclude the Company from
making, using or selling those products allegedly infringing his patents. The
Company denies that it has infringed, or is infringing, any of the plaintiff's
patents, and has asserted several affirmative defenses. The Company also filed a
counterclaim seeking judicial declaration that it is not infringing (and has not
infringed) the patents asserted by the plaintiff, and that such asserted patents
are invalid. The Company intends to defend this matter vigorously. At this stage
of the litigation, it is difficult to predict the outcome of the foregoing legal
proceeding. However, management of the Company does not believe that the
financial impact of such litigation will be material.
ENVIRONMENTAL MATTERS--GENERAL
The Company has from time to time discovered contamination by hazardous
substances at certain of its facilities. In response to such a discovery, the
Company conducts remediation activities to bring the facility into compliance
with applicable laws and regulations. The Company's remediation activities for
fiscal 2000 did not entail material expenditures, and its remediation activities
for fiscal 2001 are not expected to entail material expenditures. Future
remediation of contaminated areas could entail material expenditures, depending
upon the extent and nature of the contamination, the cleanup measures employed
and the concurrence of governmental authorities.
ENVIRONMENTAL MATTERS--MCMINNVILLE, TENNESSEE
Prior to its purchase by the Company in 1986, Century Electric, Inc. ("Century
Electric") acquired a business from Gould Inc. ("Gould") in May 1983 which
included a leasehold interest in a fractional horsepower electric motor
manufacturing facility located in McMinnville, Tennessee. In connection with
this acquisition, Gould agreed to indemnify Century Electric from and against
liabilities and expenses arising out of the handling and cleanup of certain
waste materials, including but not limited to cleaning up any PCBs at the
McMinnville facility (the "1983 Indemnity"). Investigation has revealed the
presence of PCBs and other substances, including solvents, in portions of the
soil and in the groundwater underlying the facility and in certain offsite soil,
sediment and biota samples. Century Electric has kept the Tennessee Department
of Environment and Conservation, Division of Superfund, apprised of test results
from the investigation. The McMinnville plant has been listed as a Tennessee
Inactive Hazardous Substance Site, a report on that site has been presented to
the Tennessee legislature, and community officials and plant employees have been
notified of the presence of contaminants as above described. In 1995, Gould
completed an interim remedial measure of excavating and disposing onsite soil
containing PCBs. Gould also conducted preliminary investigation and cleanup of
certain onsite and offsite contamination. The cost of any further investigation
and cleanup of onsite and offsite contamination cannot presently be determined.
The Company recently sold its leasehold interest in the McMinnville plant and
believes that the costs for further onsite and offsite cleanup (including
ancillary costs) are covered by the 1983 Indemnity. While the Company believes
that Gould will continue to perform substantially under its indemnity
obligations, Gould's substantial failure to perform such obligations could have
a material adverse effect on the Company.
24
<PAGE>
ENVIRONMENTAL MATTERS -- EFFECT OF FRUIT OF THE LOOM BANKRUPTCY
A company obligated to indemnify MagneTek against certain environmental
liabilities, Fruit of the Loom, Inc. ("FOL"), has filed a petition for
Reorganization under Chapter 11 of the Bankruptcy Code. MagneTek acquired the
stock of Universal Manufacturing Company ("Universal") from a predecessor of
FOL. In connection with that acquisition, the predecessor of FOL indemnified
MagneTek against certain environmental liabilities arising from Universal's
pre-acquisition activities. Environmental liabilities covered by the FOL
indemnity include completion of additional cleanup activities (if any) at
MagneTek's Bridgeport, Connecticut facility, and defense and indemnity of
MagneTek concerning offsite disposal locations where MagneTek may have a share
of potential response costs. MagneTek has filed a proof of claim in FOL's
bankruptcy proceeding for matters governed by the FOL environmental indemnity.
ENVIRONMENTAL MATTERS--OFFSITE LOCATIONS
The Company has been identified by the United States Environmental Protection
Agency and certain state agencies as a potentially responsible party for cleanup
costs associated with alleged past waste disposal practices at several offsite
locations. Based on the nature of its alleged connections to those sites, the
volume and the nature of the alleged contaminants, anticipated cleanup costs,
the number of parties participating, any available indemnification rights and
the ability of other liable parties to pay their shares, the Company's estimated
share in liability (if any) at the offsite facilities is not expected to be
material. It is possible that the Company's actual expenditures at those sites
may be less or greater than currently anticipated, and that the Company will be
named as a potentially responsible party in the future with respect to other
sites.
ENVIRONMENTAL MATTERS--INDEMNIFICATION OBLIGATIONS FROM DIVESTITURES
In selling certain business operations, the Company from time to time has
agreed, subject to various conditions and limitations, to indemnify buyers with
respect to environmental liabilities associated with the divested operations.
The Company's indemnification obligations pursuant to such agreements did not
entail material expenditures for fiscal 2000, and its indemnification
obligations for fiscal 2001 are not expected to entail material expenditures.
Future expenditures pursuant to such agreements could be material, depending
upon the nature of any future asserted claims subject to indemnification.
LETTERS OF CREDIT
The Company had approximately $11,816 of outstanding letters of credit as of
June 30, 2000. The Company may issue up to $40,000 of letters of credit under
the Bank Loan Agreement.
12. STOCK OPTION AGREEMENTS
The Company has three stock option plans (the "Plans"), two of which provide for
the issuance of both incentive stock options (under Section 422A of the Internal
Revenue Code of 1986) and non-qualified stock options at exercise prices not
less than the fair market value at the date of grant, and one of which only
provides for the issuance of non-qualified stock options at exercise prices not
less than the fair market value at the date of grant. One of the Plans also
provides for the issuance of stock appreciation rights, restricted stock,
unrestricted stock, restricted stock rights and performance units and one of the
Plans also provides for the issuance of incentive bonuses and incentive stock.
The total number of shares of the Company's common stock authorized to be issued
upon exercise of the stock options and other stock rights under the Plans is
4,000,000. Options granted under two of the Plans vest in three or four equal
annual installments, and options under the third Plan vest in two equal annual
installments.
25
<PAGE>
A summary of certain information with respect to options under the Plans
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 2000 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 4,729,325 4,346,621 3,650,485
Options granted 1,958,568 1,065,773 1,605,424
Options exercised (195,528) (108,129) (512,534)
Weighted average exercise price $ 8.86 $ 9.06 $ 9.95
- ---------------------------------------------------------------------------------------------------
Options cancelled (1,853,456) (574,940) (396,754)
- ---------------------------------------------------------------------------------------------------
Options outstanding, end of year 4,638,909 4,729,325 4,346,621
Weighted average price $ 12.29 $ 14.19 $ 14.08
- ---------------------------------------------------------------------------------------------------
Exercisable options 2,456,295 3,037,261 1,964,593
- ---------------------------------------------------------------------------------------------------
</TABLE>
The following table provides information regarding exercisable and outstanding
options as of June 30, 2000.
<TABLE>
<CAPTION>
Exercisable Outstanding
---------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise remaining
Options price Options price contractual
RANGE OF EXERCISE PRICE PER SHARE exercisable per share outstanding per share life (years)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Under $10.00 488,702 $ 8.76 2,145,702 $ 8.83 8.22
$10.00-$12.50 185,785 10.19 185,785 10.19 4.99
$12.51-$15.00 639,965 13.52 957,563 13.43 5.90
Over $15.00 1,141,843 17.36 1,349,859 17.27 5.67
- -------------------------------------------------------------------------------------------------------------------
Total 2,456,295 $14.10 4,638,909 $12.29 6.87
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) in accounting for stock-based awards to employees. Under
APB 25, the Company generally recognizes no compensation expense with respect to
such awards.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123 for awards granted in fiscal years after December
31, 1994 as if the Company had accounted for its stock-based awards to employees
under the fair value method of SFAS 123. The fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes option
pricing model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes model requires the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair
26
<PAGE>
value of its stock-based awards to employees. The fair value of the Company's
stock-based awards to employees was estimated assuming no expected dividends
and the following assumptions:
<TABLE>
<CAPTION>
Options
--------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 5.6 5.3 5.1
Expected stock price volatility 39.1% 38.0% 37.0%
Risk-free interest rate 6.1% 5.4% 6.0%
- -----------------------------------------------------------------------------
</TABLE>
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
(THOUSANDS EXCEPT PER SHARE AMOUNTS) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income--as reported $ 42,452 $ 38,473 $ 37,876
Net income--pro forma $ 41,750 $ 34,644 $ 34,597
Basic net income per share--as reported $ 1.71 $ 1.25 $ 1.25
Basic net income per share--pro forma $ 1.68 $ 1.18 $ 1.17
Diluted net income per share--as reported $ 1.70 $ 1.25 $ 1.25
Diluted net income per share--pro forma $ 1.67 $ 1.15 $ 1.12
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to fiscal years
beginning after December 31, 1994, its pro forma effect has not been fully
reflected until approximately 1999. In fiscal year 1998 a total of 1,605,424
options were granted with exercise prices equal to the market price of the stock
on the grant date. The weighted average exercise price and weighted average fair
value of these options were $17.56 and $7.49, respectively. In fiscal year 1999
a total of 1,605,773 options were granted with exercise prices equal to the
market price of the stock on the grant date. The weighted average exercise price
was $14.07 and the average fair value of these options were $6.06. In fiscal
year 2000, a total of 1,958,568 options were granted with exercise prices equal
to the market price of the stock in the grant date. The weighted average
exercise price was $9.07 and the average fair value of these options were $4.02.
The Company has granted stock appreciation rights (SARs) to certain of its
directors under director incentive compensation plans. As of June 30, 2000 SARs
with respect to 4,000 shares, with a weighted average exercise price of $14.92
were outstanding under these plans.
27
<PAGE>
13. EMPLOYEE BENEFIT PLANS
Benefit obligations, at year-end, fair value of plan assets and prepaid
(accrued) benefit costs for the years ended June 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- ---------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $169,243 $175,776 $ 24,147 $ 23,748
Service cost 2,024 5,125 9 98
Interest cost 10,388 11,873 1,157 1,769
Plan participants' contributions 110 107 1,029 896
Amendments 1,490 - (5,752) -
Actuarial (gain)/loss (5,894) (15,563) (3,779) 2,447
Curtailment (gain)/loss (84) - - (1,105)
Settlement (gain)/loss (29,118) - (1,447) -
Benefits paid (8,971) (8,075) (2,660) (3,706)
- ---------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $139,188 $169,243 $ 12,704 $ 24,147
Change in Plan Assets
Fair value of plan assets at beginning of year $189,010 $189,604 - -
Actual return on plan assets (3,533) 1,374 - -
Employer contributions 1,865 6,000 1,631 2,810
Plan participants' contributions 110 107 1,029 896
Benefits paid (8,971) (8,075) (2,660) (3,706)
Settlements (30,061) - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $148,420 $189,010 - -
Funded status $ 9,232 $ 19,767 $ (12,704) $ (24,147)
Unrecognized transition amount (525) (968) - -
Unrecognized net actuarial (gain)/loss 24,955 13,628 (16,949) (15,797)
Unrecognized prior service cost 1,638 78 (6,041) (4,604)
- ---------------------------------------------------------------------------------------------------------------------------------
Prepaid/(accrued) benefit cost $ 35,300 $ 32,505 $ (35,694) $ (44,548)
Weighted-Average Assumptions as of June 30
Discount rate 8.00% 7.50% 8.00% 7.50%
Expected return on plan assets 9.50% 9.50% N/A N/A
Rate of compensation increase 5.75% 5.50% N/A N/A
</TABLE>
For measurement purposes, a 6.75% annual rate of increase in the per capita
cost of covered health benefits was assumed for the first eight years and
5.0% thereafter.
Pension plan assets include $6,000 in company stock.
28
<PAGE>
Net periodic postretirement benefit costs (income) for pension and other
benefits for the years ended June 30, 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
- --------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of Net
Periodic Benefit Cost (Income)
Service cost $ 2,024 $ 5,125 $ 4,542 $ 9 $ 98 $ 143
Interest cost 10,388 11,873 11,179 1,157 1,769 1,682
Expected return on plan assets (14,544) (18,182) (15,927) - - -
Amortization of transition amount (268) (322) (322) - - -
Amortization of prior service cost (28) (315) (335) (408) (917) (1,024)
Recognized net actuarial (gain)/loss 208 - - (1,275) (1,140) (1,719)
- --------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ (2,220) $ (1,821) $ (863) $ (517) $ (190) $ (918)
Curtailment/settlement (gain)/loss 1,290 (40) (24) (6,705) (3,882) (1,337)
- --------------------------------------------------------------------------------------------------------------------------------
Net benefit cost $ (930) $ (1,861) $ (887) $ (7,222) $ (4,072) $ (2,255)
</TABLE>
MagneTek recognized a curtailment/settlement gain or loss in each of the
fiscal years resulting from the following:
2000 Fiscal Year: The sale of the Motor Division.
1999 Fiscal Year: The sale of the Generator Division.
1998 Fiscal Year: The closing of the Mendenhall and Huntington facilities.
The health care plans are contributory, with participants' contributions
adjusted annually. The life insurance plans are noncontributory. The accounting
for the health care plans anticipates future cost-sharing changes.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects for Fiscal Year
2001:
<TABLE>
<CAPTION>
1-Percentage Point 1-Percentage Point
Increase Decrease
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect of total service and interest cost components
-based on 7.5% discount rate $ 70 $ (80)
Effect on postretirement benefit obligation
-based on 8.0% discount rate $ 0 $ (265)
</TABLE>
The Company has implemented a contribution policy for retiree health coverage
effective January 1, 2000 that essentially removes any incremental cost to the
Company in the event health insurance trend rates exceed five percent.
In addition to the defined benefit retirement plans and health care plans, the
Company contributes to a defined contribution savings plan. Company
contributions were $531, $992 and $1,083 during the plan years ending March
2000, 1999 and 1998, respectively.
<PAGE>
14. RELATED PARTY TRANSACTIONS
The Company has an agreement with the Spectrum Group, Inc. whereby Spectrum will
provide management services to the company through fiscal 2002 at an annual fee
plus certain allocated and out of pocket expenses. The Company's chairman is
also the chairman of Spectrum. The services provided include consultation and
direct management assistance with respect to operations, strategic planning and
other aspects of the business of the Company. Fees and expenses paid to Spectrum
for these services under the agreement amounted to $904, $805 and $772 for the
years ended June 30, 2000, 1999 and 1998, respectively.
During the years ended June 30, 2000, 1999 and 1998, the Company paid
approximately $36, $120 and $270, respectively in fees to charter an aircraft
owned by a company in which the chairman is the principal shareholder.
The Company has retained ING Barings to act as its agent in connection with the
purchase of stock under its 10 million share repurchase program. Commissions
paid to ING Barings during fiscal 2000 amounted to $283. The Company also
engaged ING Barings to evaluate strategic alternatives for its lighting
operation in the fourth quarter of fiscal 2000, pursuant to which ING Barings
was paid a retainer of $100. During the engagement, ING Barings will be
reimbursed for all reasonable expenses and if the lighting business is sold, it
will receive a percentage of the transaction value based on a sliding scale. One
of the Company's directors is a Principal of ING Barings LLC.
15. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
<TABLE>
<CAPTION>
2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries, wages and related items $ 9,513 $ 14,615
General insurance 4,898 5,407
Income taxes 668 14,141
Other 14,932 16,650
- ---------------------------------------------------------------------------------------------------------------------------
$ 30,011 $ 50,813
===========================================================================================================================
</TABLE>
16. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities of continuing operations follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $ 1,382 $ 6,828 $ (5,025)
(Increase) decrease in inventories 7,244 (3,953) 2,346
(Increase) decrease in prepaids and other current assets 847 187 (315)
(Increase) decrease in other operating assets (1,364) 3,177 (19,819)
Increase (decrease) in accounts payable (5,783) (1,550) 6,690
Increase (decrease) in accrued liabilities (29,033) 4,689 7,902
Increase (decrease) in deferred income taxes 7,658 (16,104) (2,411)
Increase (decrease) in other operating liabilities (2,795) (3,602) (4,244)
- ---------------------------------------------------------------------------------------------------------------------------
$(21,844) $ (10,328) $(14,876)
===========================================================================================================================
Cash paid for interest and income taxes follows:
Interest $ 6,171 $ 18,241 $ 15,938
Income taxes $ 6,967 $ 5,931 $ 8,134
===========================================================================================================================
</TABLE>
30
<PAGE>
17. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company currently operates within a single business segment termed Digital
Power Products. Within the segment there exist two product lines, power control
products and motion control products. The Company sells its products primarily
to large original equipment manufacturers and distributors. The Company performs
ongoing credit evaluations of its customers' financial conditions and generally
requires no collateral. The Company has a single customer whose revenues
represented 16%, 18% and 16% of the Company's total revenues in fiscal years
2000, 1999 and 1998. Outstanding receivables with the Company's largest customer
were 12%, 18% and 12% of the total receivables of the Company as of the year-end
in fiscal years 2000, 1999 and 1998. Beyond the Company's single largest
customer there is no significant concentration of credit risk.
During the year ended June 30, 2000, sales of power control products were
$158,950 and sales of motion control products were $134,625 as compared to power
control products of $150,727 and motion and control products of $80,612 for the
year ended June 30, 1999. Sales of motion control products increased $54,013 in
fiscal 2000 due the acquisition of the EMS Group and Mondel ULC. During the year
ended June 30, 1998, sales of power control products were $150,625 and sales of
motion control products were $93,415.
Information with respect to the Company's foreign subsidiaries follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 75,685 $ 81,349 $ 85,243
Operating income 5,727 4,433 7,241
Identifiable assets 90,322 113,029 115,410
Capital expenditures 5,644 9,734 14,355
Depreciation and amortization 7,731 8,732 7,296
===========================================================================================================================
</TABLE>
Operating income for the foreign subsidiaries does not include any allocation of
corporate costs incurred in the United States. Sales by foreign subsidiaries
inclu