Document:

Exhibit 10.40

 

SINGLE-TENANT NET LEASE AGREEMENT

(15175 Innovation Drive, San Diego)

 

This
Single-Tenant Net Lease Agreement (this “Lease”) is entered into as of
September 16, 2002, between Carmel Mountain #8 Associates, L.P., a California
limited partnership, and Carmel Mountain Environmental, LLC, a California
limited liability company, as tenants-in-common (collectively, “Landlord”), and
Quantum Magnetics, Inc., a California corporation (“Tenant”), who agree as
follows:

 

1.  Agreement to Let.  Landlord leases to Tenant, and Tenant leases
from Landlord, on the terms, provisions, and conditions contained in this
Lease, the premises described in the attached
Exhibit A commonly known as 15175 Innovation Drive, San Diego,
California (the “Premises”), on which is located an existing vacant building of
approximately 58,438 square-feet as of the date of this Lease (the “Building”)
and parking lot, subject to the access and parking rights of others under the
existing reciprocal easement agreement recorded against the Premises.

 

2.  Principal Lease Provisions and
Definitions.  The following are the
“Principal Lease Provisions” of this Lease. 
Other portions of this Lease explain and define the Principal Lease
Provisions in more detail and should be read in conjunction with this Article.

 

2.1.    “Basic Monthly Rent” means, on a fully net
basis, the product of $1.33 multiplied by the number of Rentable Square Feet of
the Building.  Basic Monthly Rent
automatically is increased on the first day of the calendar month which is two
years after the Rent Commencement Date, and every two years after such date of
rent increase (an “Adjustment Date”), to an amount equal to 107% of the Basic
Monthly Rent payable on account of the calendar month immediately preceding the
Adjustment Date.

 

2.2.    “Brokers” means:  The Staubach Company – West, Inc., as Tenant’s representative and
Franklin Croft, Inc., as Landlord’s representative.

 

2.3.    “Rentable Square Feet”  means the total number of rentable square
feet of the Building (excluding the Expansion Improvements) as determined by
the Architect in accordance with the current standards of the American
Industrial Real Estate Association (AIREA) for measuring rentable square feet
of single-tenant industrial buildings. 
Once established, the Rentable Square Feet will not be modified for
purposes of this Lease.

 

2.4.    “Expansion Improvements” means a portion of
Tenant’s Work consisting of a structure on the parking lot of the Premises of
up to 5,000 Rentable Square Feet, to the extent permitted by applicable laws
and CC&R’s, and more particularly described on the attached Exhibits B and C.  The Rentable
Square Feet (and the Basic Monthly Rent) will not increase based on the
Expansion Improvements.  Before the
Expiration Date or earlier termination of this Lease, Tenant shall cause the
Expansion Improvements to be demolished and removed, and shall return the
parking lot of the Premises to the condition existing as if the date of this
Lease, all in accordance with Article 12 below.

 

2.5.    “Expiration Date”:  December 31, 2012, subject to Tenant’s one-time right to extend
the Expiration Date in accordance with the attached Addendum No. 1.

 

2.6.    Notice Addresses:

 

For
Tenant:  After the Rent Commencement
Date, at the Premises; before the Rent Commencement Date, to Quantum Magnetics,
Inc.,  ATTN:  Lowell Burnett, 7740 Kenamar Court, San Diego, CA 92121;
Facsimile:  (858) 566-9388

 

For
Landlord:  c/o Franklin Croft
Management, Inc., ATTN:  President, 7855
Fay Avenue, Suite 300, La Jolla, California, 92037-4265; Facsimile:  (858) 454-2216.

 

2.7.    “Permitted Use” means Tenant’s use of the
Premises for general office, research, development, warehouse, and distribution
purposes in accordance with applicable laws and regulations and all covenants,
conditions and restrictions governing the Premises, and in compliance with all
insurance contemplated by this Lease. 
The foregoing includes Tenant’s use of explosive materials in qualities
and quantities that do not interfere with Landlord’s ability to receive the
insurance coverage contemplated by this Lease (whether procured by Tenant or by
Landlord subject to reimbursement under this Lease).

 

2.8     “Rent Commencement Date” means January 1,
2003.

 

2.9.    “Security Deposit” means $120,000.00.

 

2.10.  Tenant’s Work:  At its sole cost (subject to reimbursement from the TI
Allowance), Tenant shall improve the Premises with the tenant improvements
reasonably necessary for Tenant to conduct its business on the Premises
(“Tenant’s Work”).  Tenant’s Work must
substantially conform to the plans described in the attached Exhibit C and must be constructed in
accordance with plans and specifications prepared by Herkes Design Associates
(“Architect”), an architect selected by Tenant, or another architect mutually
acceptable to Landlord and Tenant. 
Tenant’s Work may include walls, HVAC systems, flooring, wiring and
plumbing, utility connection and “tap-in” charges.  Tenant’s Work must be made in compliance with Article 12 below
and Tenant is solely responsible for construction of Tenant’s Work, including
timing and quality.  Tenant must
complete Tenant’s Work before September 1, 2003.  Landlord may not unreasonably withhold or delay its approval to
Tenant’s proposed plans or modifications to plans for Tenant’s Work; Landlord’s
failure to disapprove of Tenant’s proposed plans or modifications to plans for
Tenant’s Work within ten business days after Landlord’s receipt of Tenant’s
request is deemed Landlord’s approval. 
Landlord will have no liability for any delays or defects in Tenant’s
Work.

 

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2.11.  “TI Allowance” means $1,000,000.00.  Landlord shall reimburse Tenant up to the TI
Allowance for the cost of Tenant’s Work in accordance with the attached Addendum No. 1.  No more than 30% of the TI Allowance may be allocated towards
soft costs (such as, without limitation, architectural, space planning, permit
fees, material testing, or contractor fees/profit) and no portion of the TI
Allowance may be allocable towards fees paid to Tenant or any of its owners,
employees or affiliates.  Tenant is not
entitled to any rent credit or discount based on any unused portion of the TI
Allowance.

 

3.  Term.   The term of this Lease (the “Term”) commences on the date of
this Lease and expires on the Expiration Date, subject to earlier termination
in accordance with this Lease.

 

4.  Possession.   Tenant is entitled to immediate possession of the Premises.  Tenant has thoroughly inspected the Premises
and accepts the Premises in its as-is condition; provided, however, Landlord
shall, at its sole cost (without any right of reimbursement under Article 7
below) cause the following work to be completed before Tenant completes
Tenant’s Work:  (a) replace one of the
HVAC units and ensure that all of the other HVAC units are in good working
order as of such date; (b) install a site back-flow preventer, and, if needed,
a domestic back-flow preventer inside the Building, in accordance with
applicable code requirements; and provided further, Landlord warrants that as
of the date of this Lease, there are no leaks in the roof of the Building.  Any claims on account of any roof leaks must
be made by Tenant before Tenant first begins construction or installation work
at the Premises.

 

5.  Use of Premises.

 

5.1.  Permitted Use of Premises.  Tenant may use the Premises for the
Permitted Use and for no other use.  Any
change in the Permitted Use requires Landlord’s prior written consent, which
consent may be granted or withheld in Landlord’s reasonable discretion.

 

5.2.  Compliance with Laws.  Tenant shall comply with all laws concerning
the Premises or Tenant’s use of the Premises, including the obligation at
Tenant’s sole cost to alter, maintain, and restore the Premises in compliance
with all applicable laws, even if the laws are enacted after the date of this
Lease, even if compliance entails costs to Tenant of  a substantial nature, and even if compliance requires structural
alterations.  Such obligation to comply
with laws includes compliance with the Americans With Disabilities Act of 1990
(42 U.S.C. 12181 et seq.)   (the “ADA”).  If  Tenant’s particular use of the Premises
results in the need for modifications or alterations, then Tenant shall promptly
cause the completion of such modifications and alterations, at Tenant’s sole cost,
in accordance with Article 12 below. 
Notwithstanding the foregoing, Tenant is not responsible for violations
of the Premises existing on or before possession of the applicable portion of
the Premises is first delivered to Tenant.

 

5.3.  General Covenants and Limitations on Use.  Tenant may not do, bring, or keep anything
in or about the Premises that will cause a cancellation of any insurance
covering the Premises.  If the rate of
any insurance carried by Landlord is increased as a result of Tenant’s use,
Tenant shall pay to Landlord, within 10 
days after Landlord delivers to Tenant a notice of such increase, the
amount of such increase.  Neither Tenant
nor Tenant’s Invitees may do anything that will cause damage or waste.  No machinery, apparatus, or other appliance
may be used or operated in or on the Premises that will in any manner injure,
vibrate, or shake all or any part of the Premises.

 

5.4.  Signs.   Tenant is entitled to 100% of the signage rights associated with
the Premises.  Tenant shall, at Tenant’s
sole cost, make any changes to any sign on the Premises as required by any new
or revised applicable laws, ordinances, rules, regulations or covenants
governing the Premises .  Tenant shall
maintain, repair, and replace all of Tenant’s signs in first class condition.

 

6.  Monthly Rent.  Tenant shall pay to Landlord as minimum
monthly rent, without deduction, setoff, prior notice, or demand, the Basic
Monthly Rent in advance, on or before the first day of each calendar month
throughout the Term commencing on the Rent Commencement Date.  Concurrent with execution of this Lease,
Tenant shall deposit with Landlord $73,047.50 as estimated first month’s Basic
Monthly Rent.  THIS LEASE IS INTENDED TO BE A COMPLETELY “NET LEASE”
AND EXCEPT AS SPECIFICALLY STATED TO THE CONTRARY IN THIS LEASE, TENANT IS
SOLELY RESPONSIBLE FOR THE CARE, MAINTENANCE, TAXES, INSURANCE, UTILITIES,
REPAIR AND OPERATING EXPENSES OF THE 
PREMISES.  All
monetary obligations of Tenant under this Lease constitute “rent” under this Lease.

 

7.  Operating Expenses.  

 

7.1.  Definition of Operating Expenses.  Tenant is responsible for payment of all
Operating Expenses of the Premises beginning on the Rent Commencement
Date.  As used in this Lease, the term
“Operating Expenses” means all costs and expenses paid or incurred by Landlord
or Tenant relative to the operation, repair, restoration, replacement,
maintenance, and management of the Premises, including:  (i) water, sewage disposal, drainage, refuse
collection and disposal, gas, electricity, and other utility services, and the
maintenance of all components, systems, and apparatus by which such utilities
and services are provided, (ii) general maintenance and repair of the
landscaping, and structural components of the improvements located on the
Premises (except to the extent the cost is solely Landlord’s responsibility
under Article 9 below), janitorial, and security services (if any), (iii)
expenses payable by Landlord pursuant to the provisions of any recorded
Covenants, Conditions, and Restrictions, Reciprocal Basement Agreements, and
any other existing recorded documents affecting the Premises as of the date of
this Lease, (iv) all real property or real estate taxes, assessments,
association dues, and other impositions, whether general, special, ordinary, or
extraordinary, and of every kind and nature, which may be levied, assessed,
imposed on the Premises on account of the period of this Lease, (“Real Estate
Taxes”), subject to the limitation described below, (v) any personal property taxes,
assessments, or other impositions levied, assessed, or imposed upon any
personal property of Landlord used in connection with the Premises, (vi)
Insurance Expenses (as defined below) imposed on the Premises on account of the
period of this Lease, (vii) inspection fees and (viii) a property management
fee in the amount of 3% of Basic Monthly Rent, and (ix) capital improvements or
structural modifications required by any change in laws, ordinances, rules, or
regulations governing the Premises, or other capital improvements or structural
modifications deemed reasonably necessary by Landlord for health

 

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or safety purposes; provided, however, (a) Operating Expenses
do not include any capital costs required to repair or replace the structural
portions of the foundation, exterior walls, interior load bearing walls, roof,
or slab, and (b) any costs of such capital improvements or structural
modifications (except to the extent the cost is solely Landlord’s responsibility
under Article 9 below) shall be amortized (including an interest factor
reasonably determined by Landlord) over the anticipated useful life of such
capital improvements or structural modifications.  Notwithstanding the foregoing,
if Landlord sells the Premises during the initial 10-year period of this Lease,
Operating Expenses will not include (and Tenant will not be responsible for)
the portion of any increase in Real Estate Taxes arising from the sale to the
extent based on the difference between the fair market value of the Premises on
the date Tenant’s Work is completed (as increased by 2% per year thereafter)
and the sales price of the Premises.

 

7.2.  Payment of Operating Expenses.  Landlord shall deliver to Tenant an annual
statement setting forth the estimated Operating Expenses to be incurred by
Landlord for the ensuing year (“Expense Statement”).  Landlord may, from time to time, modify the Expense Statement
based on reasonable changes to Landlord’s estimate of Operating Expenses
incurred by it.  Tenant shall pay
Landlord one-twelfth of the amount set forth in each Expense Statement, in
advance, concurrent with each payment of Basic Monthly Rent.  Tenant’s payment obligations under this
paragraph constitute additional rent under this Lease.  Within 45 days after the end of each
calendar year, Landlord shall provide Tenant a statement of Landlord’s actual
Operating Expenses for the calendar year (a “Reconciliation Statement”).  If the sum of Tenant’s payments on account
of Operating Expenses during any calendar year exceeds the actual Operating
Expenses for the calendar year, then the excess will be credited against future
Operating Expenses due from Tenant, or paid directly to Tenant.  If the sum of Tenant’s Operating Expense
payments for any calendar year is less than the actual Operating Expenses for
the calendar year, then Tenant shall pay Landlord the amount of the deficiency
within 10 days after delivery of Landlord’s statement reconciling the year’s
Operating Expenses.  Landlord’s delay in
delivering any Expense Statement or Reconciliation Statement will not release
Tenant of its obligation to pay any portion of the Operating Expenses.

 

Notwithstanding
the foregoing, Operating Expenses do not include (i) interest and principal
payments and all other debt service (including but not limited to brokerage
fees and points) on all loans or indebtedness, whether or not secured by the
Premises; (ii) costs for which Landlord is reimbursed by insurance proceeds or
third parties; (iii) leasing commissions; (iv) depreciation; (v) costs, fines,
penalties or interest incurred due to Landlord’s failure to make timely
payments of any obligations under this Lease; (vi) repairs made under
guaranties or warranties (i.e., at no cost to Landlord); (vii) any ground
rents; (viii) sale and refinancing costs, including attorneys’ fees, brokerage
commissions and other marketing costs relating thereto; (ix) any amounts
received by Landlord or paid by Tenant pursuant to another provision of this
Lease; (x) costs to correct design or construction defects in the original
construction of the Building; and (xi) costs resulting from the failure of the
Building to comply with all laws and permits when originally constructed.

 

7.3.  Audit.  If Tenant disputes the amount set forth in any Reconciliation
Statement, then Tenant’s employees or an independent certified public
accountant designated by Tenant, may, after reasonable notice to Landlord and
at reasonable times, inspect Landlord’s records at Landlord’s offices pertaining
to Landlord’s calculation of Operating Expenses.  If, after such inspection, Tenant notifies Landlord in writing
that Tenant still disputes such amounts, a certification as to the proper
amount shall be made, at Tenant’s expense, by an independent certified public
accountant selected by Tenant and reasonably approved by Landlord and who is a
member of a nationally or regionally recognized accounting firm.  If such certification by the accountant
proves that the Operating Expenses set forth in the Reconciliation Statement
were overstated by more than 5.0%, then Tenant’s audit costs, including the
cost of such certification, shall be promptly paid for by Landlord.  Promptly following the parties receipt of
such certification, the parties shall make such appropriate payments or
reimbursements, as the case may be, to each other, as are determined to be
owing pursuant to such certification. 
Tenant’s failure to dispute the amount of any Operating Expense or
Reconciliation Statement within 120 days after Tenant’s receipt of a
Reconciliation Statement for the applicable calendar year, is deemed Tenant’s
waiver to ever make a claim based on Operating Expenses for that applicable
year.

 

8.  Utilities and Services.  Tenant shall arrange for and pay the cost of
all utilities and services (including any connection charges and taxes thereon)
furnished to the Premises beginning on the date of this Lease, including
electricity, water, heating, ventilating, air-conditioning, oil, sewer, gas,
telephone, communication services, trash collection, janitorial, cleaning, and
window washing.  Landlord has absolutely
no responsibility with respect to such utilities and other services.

 

9.  Maintenance.

 

9.1 Landlord’s
Duties.  Landlord shall maintain and
repair the following aspects of the Premises (the costs of which constitute
Operating Expenses):  landscaping and
exterior pest-control, parking lot, exterior of the Building (including the
facade, exterior lighting, the roof, and window washing), exterior fire
protection components, the HVAC and other mechanical systems, and the
elevator.  Landlord shall timely and
directly pay the Insurance Expenses, Real Estate Taxes and exterior utilities
associated with the Premises, subject to reimbursement in accordance with
Article 7 above.  Notwithstanding
anything to the contrary in this Lease, Landlord is solely responsible (at its
own cost without any right of reimbursement under Article 7) for repairing
damage to or defects in the foundation, slab, load bearing walls (but not the
fascia of walls), and structural elements of the roof, except to the extent the
damage was caused by Tenant or its Invitees. 
Throughout the term of this Lease, Tenant may specifically enforce all
construction warranties with respect to the Premises against the applicable
contractors and material providers.

 

9.2 Tenant’s
Duties.  Beginning on the Rent
Commencement Date, Tenant shall at its sole cost (i) maintain and repair, all
in good condition, all aspects and portions of the Premises, other than those
aspects subject to Landlord’s duties described in Section 9.1; (ii) arrange for
janitorial services and the removal of trash from the Premises, and (iii)
maintain a pest and termite control service agreement with respect to the
Premises, reasonably acceptable to Landlord. 
Tenant shall provide Landlord with current copies of its maintenance,
service and cleaning contracts throughout the Term.  Tenant is additionally liable for any damage to the Premises
resulting from the acts or omissions of Tenant or Tenant’s Invitees.  If Tenant fails to maintain or repair, any
portion of the Premises as provided above, then Landlord

 

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may maintain or repair, any
such portion of the Premises and Tenant shall promptly reimburse Landlord for
Landlord’s costs thereof, which sums constitute additional rent under this
Lease; provided, however, if Tenant’s failure to maintain or repair has not
resulted in an urgent need for repair or maintenance, Landlord shall first give
Tenant notice of its failure to maintain or repair and a period of 10 days
after such notice within to cure the failure; and provided further, if Tenant’s
failure to maintain or repair has not resulted in an urgent need for repair or
maintenance and if Landlord has not previously taken action under this sentence
in the prior 18 months, then Landlord shall first give Tenant notice of its
failure to maintain or repair and a period of 30 days after such notice within
to cure the failure (or such additional time, not to exceed 90 days from the
date of Landlord’s notice, as is reasonably necessary to cure the failure if
Tenant begins cure within 10 days after Landlord’s notice and diligently
prosecutes such cure to completion). 
Landlord may require Tenant to use specific contractors for the purpose
of maintaining warranties or the integrity of the Premises.  Tenant waives the provisions of California
Civil Code Section 1942 (or any successor statute), and any similar principals
of law with respect to Landlord’s obligations for tenantability of the Premises
and Tenant’s right to make repairs and deduct the expense of such repairs from
rent.

 

10.  Insurance.

 

10.1.  Public Liability and Property Damage
Insurance.  Tenant shall maintain
public liability and property damage insurance (i) with a single combined
liability limit and property damage limit of not less than $2,000,000.00, (ii)
insuring (a) against all liability of Tenant and Tenant’s Invitees arising out
of or in connection with Tenant’s use or occupancy of the Premises, including
products liability coverage, and (b) performance by Tenant of the indemnity
provisions set forth in this Lease, and (iii) naming Landlord, its agents, and
any lender holding a security interest in the Premises or any ground lessor of
the Premises (“Lender”) as additional named insured, and (c) with umbrella
coverage of $10 million.  Not more
frequently than once every year, if, in the reasonable opinion of Landlord or
at the request of any Lender, the amount of such insurance at that time is not
adequate, then Tenant shall increase such insurance as reasonably required by
Landlord.

 

10.2.  Fire and Extended Coverage Insurance.  Tenant shall maintain on Tenant’s
Alterations and Tenant’s Personal Property (as defined below) a policy of
standard fire and extended coverage insurance, with vandalism and malicious
mischief endorsements, coverage with respect to increased costs due to building
ordinances, demolition coverage, boiler and machinery insurance, and sprinkler
leakage coverage, in each case to the extent of at least 100 percent of full
replacement value, and business interruption insurance, issued in the names of
Landlord, Tenant, and any Lenders, as their interests may appear.  Such “full replacement value” shall be
determined by the company issuing such policy at the time the policy is
initially obtained.  Not more frequently
than once every two years, either Landlord or Tenant may notify the other that
it elects to have the replacement value re-determined by an insurance
company.  Such re-determination shall be
made promptly and in accordance with the rules and practices of the Board of
Fire Underwriters, or a like board recognized and generally accepted by the
insurance company, and Landlord and Tenant shall be promptly notified of the
results by the company.  Such policy
shall be promptly adjusted according to such re-determination.  Tenant shall additionally maintain full
coverage plate-glass insurance on the Premises, in which Landlord and any
Lender be named as additional insureds.

 

10.3.  Intentionally Omitted.

 

10.4.  Tenant’s Insurance Generally.  Insurance required to be maintained by
Tenant under this Lease:  (i) shall be
issued as a primary policy (not contributed with, and in excess of coverage
Landlord may carry) by insurance companies authorized to do business in
California with a Best’s Rating of at least “A-” and a Best’s Financial Size
Category rating of at least “X,” as set forth in the most current edition of
“Best’s Insurance Reports” (or such greater ratings as are required by any Lender);
(ii) shall name Landlord and any Lender as additional named insureds, but the
policy must provide that notwithstanding the fact that Landlord is an
additional insured, it is entitled to recover under the policy for any loss
suffered by Landlord by reason of Tenant’s negligence; (iii) shall consist of
“occurrence” based coverage, without provision for subsequent conversion to
“claims” based coverage; (iv) may not be cancelable or subject to reduction of
coverage or other modification except after 30-days’ prior written notice to
Landlord and any Lender; and (v) may not provide for a deductible or
co-insurance provision in excess of $25,000.00.  Tenant shall, at least 30 days before the expiration of each such
policy, furnish Landlord with a renewal of or “binder” extending the
policy.  Tenant shall promptly upon
request deliver to Landlord copies of such policy or policies or certificates
evidencing the existence and amounts of such insurance together with evidence
of payment of premiums.

 

10.5.  Landlord’s Insurance.  Landlord may maintain any of the following
insurance, in such amounts and with such limits as Landlord determines in its
reasonable discretion:  (i) public
liability and property damage insurance and products liability insurance; (ii)
fire and extended coverage insurance, with vandalism and malicious mischief
endorsements, coverage with respect to increased costs due to building
ordinances, demolition coverage, and sprinkler leakage coverage; (iii) boiler
and machinery insurance; (iv) fidelity insurance; (v) earthquake insurance;
(vi) plate-glass insurance; and (vii) rental interruption or business
interruption insurance.  The premiums,
costs, expenses, and deductibles (or similar costs or charges) of or with
respect to any such insurance (all of the preceding, collectively, “Insurance
Expenses”) are included in Operating Expenses; provided, however, Operating
Expenses will not include fidelity insurance or earthquake insurance unless the
insurance is either required by a Lender or otherwise becomes commonly carried
by owners of projects similar to the Premises.

 

10.6.  Waiver of Subrogation.  Landlord and Tenant release each other,
Tenant’s Invitees , and Landlord’s guests, invitees, customers and licensees
(collectively, “Landlord’s Invitees”) from all claims for damage, loss, or
injury to the Premises, to Tenant’s Personal Property, and to the fixtures and
Alterations of either Landlord or Tenant in or on the Premises to the extent
the damage, loss or injury is covered by any insurance policies carried by
Landlord and Tenant and in force at the time of such damage.  Landlord and Tenant shall each use its best
efforts to cause all insurance policies obtained by it pursuant to this Lease
to provide that the insurance company waives all right of recovery by way of
subrogation against Landlord and Tenant in connection with any damage, loss, or
injury covered by such policy.

 

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11.  Taxes.   Tenant shall pay before delinquency all taxes, assessments,
license fees, and other charges that are levied or assessed against, or based
on the value of, Tenant’s personal property installed or located in or on the
Premises including trade fixtures, furnishings, equipment, and inventory
(collectively, “Tenant’s Personal Property”). 
On demand by Landlord, Tenant shall furnish Landlord with satisfactory
evidence of such payments.  If any such
taxes, assessments, license fees, or other charges are levied against Landlord
or Landlord’s property, or if the assessed value of the Premises is increased
by the inclusion of a value placed on Tenant’s Personal Property, then Tenant,
on demand, shall immediately reimburse Landlord for the sum of such taxes,
assessments, license fees, and other charges so levied against Landlord, or the
proportion of taxes resulting from such increase in Landlord’s assessment,
which amounts constitute additional rent under this Lease.  Landlord may pay such taxes, assessments,
license fees, or other charges or such proportion, and receive such
reimbursement, regardless of the validity of the levy.

 

12.  Alterations.  Tenant may make alterations, improvements,
additions, installations, or changes to the Premises (any of the preceding,
“Alterations”) only if:  (i) Tenant
first obtains Landlord’s written consent after submitting to Landlord, in
written form, proposed detailed plans of such Alterations, (ii) Tenant complies
with all conditions which may be reasonably imposed by Landlord, including but
not limited to Landlord’s selection of specific contractors or construction
techniques (and Tenant shall retain, under a fixed fee or guaranteed-maximum
price construction contract an experienced and licensed contractor reasonably
acceptable to Landlord to perform the Alterations), and (iii) Tenant pays to
Landlord the reasonable costs and expenses of Landlord for architectural,
engineering, or other consultants which reasonably may be incurred by Landlord
in determining whether to approve any such Alterations.  To compensate Landlord for its review of and
involvement in the Alterations (including Tenant’s Work), Tenant shall pay
Landlord an administrative fee in the amount of one percent of all costs of the
Alterations (payable pro-rata over the course of construction of the
Alterations).  The TI Allowance may be
applied to the administrative fee relating to Tenant’s Work.  Tenant shall, before commencing any
Alterations, at Tenant’s sole cost, (i) acquire (and deliver to Landlord a copy
of) a permit from appropriate governmental agencies to make such Alterations
(any conditions of which permit Tenant shall comply with, at Tenant’s sole
cost, in a prompt and expeditious manner), (ii) obtain and deliver to Landlord
(unless this condition is waived in writing by Landlord) a lien and completion
bond for the proposed Alterations, to insure Landlord against any liability for
mechanics’ liens and to insure completion of the work, or other security or
reasonable evidence and assurance of payment reasonably acceptable to Landlord,
(iii) provide Landlord with 10 days’ prior written notice of the date the
installation of the Alterations is to commence to expressly remind Landlord to
post and record an appropriate notice of non-responsibility, and (iv) obtain
(and deliver to Landlord proof of) reasonably adequate workers compensation
insurance with respect to any of Tenant’s employees installing or involved with
such Alterations (which insurance Tenant shall maintain in force until
completion of the Alterations).  All
Alterations shall upon installation become the property of Landlord and shall
remain on and be surrendered with the Premises on termination of this Lease,
except that Landlord may, at its election, require Tenant to remove any or all
of the Alterations, by so notifying Tenant in writing on or before the Expiration
Date or earlier termination of this Lease, in which event, Tenant shall, at its
sole cost, on or before the Expiration Date or earlier termination of this
Lease, repair and restore the Premises to the condition of the Premises prior
to the installation of the Alterations which are to be removed.  Tenant shall pay all costs for Alterations
and other construction done or caused to be done by Tenant and Tenant shall
keep the Premises free and clear of all mechanics’ and materialmen’s lien’s
resulting from or relating to any Alterations or other construction.  “Alterations” do not include trade fixtures,
furniture or equipment.

 

13.  Surrender of Premises and Holding Over.  On the Expiration Date or earlier
termination of this Lease, Tenant shall (i) surrender to Landlord the Premises
in good and clean condition (subject to reasonable wear and tear), along with
all keys to the Premises (including any keys to any exterior or interior
doors), and (ii) remove all of Tenant’s Personal Property and perform all
repairs and restoration required by the removal of any Alterations or Tenant’s
Personal Property.  Landlord may elect
to retain or dispose of in any manner any Alterations or Tenant’s Personal
Property that Tenant does not remove from the Premises on the Expiration Date
or earlier termination of this Lease (but only after Tenant has ceased regular
operations of its business from the Premises) as required by this Lease by
giving written notice to Tenant.  Any
such Alterations or Tenant’s Personal Property that Landlord elects to retain
or dispose of will vest in Landlord immediately on notice to Tenant.  If Tenant fails to remove its Alterations or
Personal Property as required above, Tenant waives all claims against Landlord
for any damage to Tenant resulting from Landlord’s retention or disposition of
any such Alterations or Tenant’s Personal Property and Tenant is liable to
Landlord for Landlord’s costs for storing, removing or disposing of any such
Alterations or Tenant’s Personal Property. 
If Tenant fails to surrender the Premises to Landlord on the Expiration
Date or earlier termination of this Lease, Tenant shall indemnify Landlord
against all liabilities, damages, losses, costs, expenses, attorneys’ fees and
claims resulting from such failure, including any claim for damages made by a
succeeding tenant.  If Tenant, with
Landlord’s consent, remains in possession of the Premises after the Expiration
Date or earlier termination of this Lease, such possession by Tenant shall be
deemed to be a month-to-month tenancy terminable on 30-days’ written notice
given at any time by Landlord or Tenant. 
During any such month-to-month tenancy, Tenant shall pay, as Basic
Monthly Rent, 125 percent of the Basic Monthly Rent in effect immediately
before the Expiration Date or earlier termination of this Lease, as the case
may be, unless Landlord and Tenant mutually agree otherwise in writing.  All provisions of this Lease other than
those pertaining to Term apply to such month-to-month tenancy.

 

14.  Default.  The occurrence of any of the following constitutes a material
default and breach of this Lease by Tenant.

 

14.1.  Tenant’s failure to make any payment of rent
within three days after Landlord gives notice to Tenant of the payment
due.  No grace period before the imposition
of a late charge extends the date when such rent is due and payable, and Tenant
is in default under this Lease if such payment is not timely made.

 

14.2.  Tenant’s failure to observe or perform any
other provision of this Lease for a period of ten days after written notice of
such failure from Landlord to Tenant; provided, however, such notice is in lieu
of, and not in addition to, any notice required under applicable unlawful
detainer statute; and provided further, however, that if the nature of Tenant’s
default is such that more than ten days are required for its cure, then Tenant
is not deemed to be in default if

 

5

 

Tenant commences such cure
within the ten-day period and thereafter diligently prosecutes such cure to
completion within 90 days after Landlord’s written notice.

 

15.  Landlord’s Remedies.  Landlord is entitled to the following
remedies if Tenant commits a default or breach under this Lease; these remedies
are not exclusive, but are cumulative and in addition to any remedies provided
elsewhere in this Lease, or now or later allowed by law.

 

15.1.  Continuation of Lease.  No act by Landlord (including the acts set
forth in the next sentence) terminates Tenant’s right to possession unless Landlord
notifies Tenant in writing that Landlord elects to terminate Tenant’s right to
possession.  As long as Landlord does
not terminate Tenant’s right to possession, Landlord may (i) continue this
Lease in effect, (ii) continue to collect rent when due and enforce all the
other provisions of this Lease, (iii) enter the Premises and relet them, or any
part of them, to third parties for Tenant’s account, for a period shorter or
longer than the remaining term of this Lease, and (iv) have a receiver appointed
to collect rent and conduct Tenant’s business. 
Tenant shall immediately pay to Landlord all costs Landlord incurs in
such reletting, including brokers’ commissions, attorneys’ fees, advertising
costs, and expenses of remodeling the Premises to a vanilla shell condition for
such reletting.  If Landlord elects to
relet all or any portion of the Premises as permitted above, rent that Landlord
receives from such reletting will be applied to the payment of, in the following
order and priority, (i) any indebtedness from Tenant to Landlord other than
Basic Monthly Rent due from Tenant, (ii) all costs incurred by Landlord in the
reletting in accordance with this paragraph, and (iii) Basic Monthly Rent (and,
if applicable, percentage rent) due and unpaid under this Lease.  After applying the payments as referred to
above, any sum remaining from the rent Landlord receives from the reletting
will be held by Landlord and applied in payment of future rent as it becomes
due under this Lease.  Tenant will not
be entitled to any excess rent received by Landlord unless and until all
obligations of Tenant under this Lease, including all future obligations, are
satisfied in full.

 

15.2.  Termination of Tenant’s Right to Possession.  In the event of such breach or default by Tenant,
Landlord may terminate Tenant’s right to possession of the Premises at any
time, by notifying Tenant in writing that Landlord elects to terminate Tenant’s
right to possession.  On termination of
this Lease, Landlord has the right to recover from Tenant (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of such
termination, (ii) the worth at the time of the award of the amount by which the
unpaid rent which would have been earned after such termination until the time
of award exceeds the amount of such loss of rent that Tenant proves could have
been reasonably avoided, (iii) the worth at the time of the award of the amount
by which the unpaid rent for the balance of the Term after the time of award
(had there been no such termination) exceeds the amount of such loss of rent
that Tenant proves could be reasonably avoided, and (iv) any other amount
necessary to compensate Landlord for all detriment proximately caused by
Tenant’s failure to perform Tenant’s obligations under this Lease or in the
ordinary course of things would be likely to result therefrom.  The “worth at the time of the award” of the
amounts referred to in Clauses (i) and (ii) above is to be computed by allowing
interest at the Default Rate, as set forth below.  The “worth at the time of the award” of the amount referred to in
Clause (iii) above is to be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award.

 

15.3.  Landlord’s Right to Cure Default.  Landlord, at any time after Tenant commits a
default or breach under this Lease, may cure such default or breach at Tenant’s
sole cost.  If Landlord at any time, by
reason of Tenant’s default or breach, pays any sum or does any act that requires
the payment of any sum, such sum shall be due immediately from Tenant to
Landlord at the time such sum is paid, and constitutes additional rent under
this Lease.

 

15.4.  Enforcement Costs.  On demand, Tenant shall pay Landlord all
costs and expenses incurred by Landlord in connection with collecting any
amounts and damages owing by Tenant under this Lease, or to enforce any
provision of this Lease, including reasonable attorneys’ fees, whether or not
any action is commenced by Landlord.

 

16.  Interest and Late Charges.  Late payment by Tenant to Landlord of rent
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which would be impracticable or extremely difficult to fix.  Costs include processing, collection and accounting
charges, and late charges that may be imposed on Landlord by the terms of any
deeds of trust covering the Premises. 
Therefore, if any rent or other payment is not received by Landlord
within five days after its due date, then, without any requirement for notice
to Tenant, Tenant shall pay to Landlord an additional sum of five percent of
such overdue amount as a late charge. 
Such late charge represents a fair and reasonable estimate of the costs
that Landlord will incur by reason of any late payment by Tenant, and therefore
this paragraph is reasonable under the circumstances existing at the time this
Lease is made.  Acceptance of such late
charge by Landlord does not constitute a waiver of Tenant’s default with
respect to such overdue amount, nor prevent Landlord from exercising any of the
other rights and remedies available to Landlord under this Lease.  In addition to the late charge payable by
Tenant, if any rent is not paid within 30 days of the date such rent is due,
then Tenant shall pay to Landlord interest on the overdue rent at the rate
equal to the “reference rate” announced from time to time by Bank of America,
NT&SA (if such reference rate ceases to be announced, then a reasonably
comparable “prime rate” shall be utilized, selected by Landlord), plus five
percent per annum, or the maximum rate permitted by law, whichever is less (the
“Default Rate”).  Such interest shall
additionally accrue and be payable by Tenant relative to any other amounts payable
by Tenant to Landlord under the provisions of this Lease which are not paid
when due.  All late charges and interest
under this paragraph constitute additional rent under this Lease.

 

17.  Habitual Defaults.  If a late charge is payable under this
Lease, whether or not collected, for three installments of Basic Monthly Rent,
Operating Expense, or other rent due under this Lease during any 18-month
period, Tenant’s monthly payments will automatically become due and payable
quarterly in advance, rather than monthly. 
All monies paid to Landlord under this paragraph may be commingled with
other monies of Landlord and will not bear interest.  If Tenant breaches any provision of this Lease, then any balance
remaining from funds paid to Landlord under the provisions of this paragraph
may, at Landlord’s election, be applied to the payment of any monetary default
of Tenant.

 

18.  Security Deposit.  Tenant shall immediately deposit with
Landlord cash in the amount of the Security Deposit to secure the performance
by Tenant of its obligations under this Lease, including Tenant’s obligations
(i) to pay rent,

 

6

 

(ii) to repair damages caused
by Tenant or Tenant’s agents, employees, contractors, licensees, or invitees
(collectively, “Tenant’s Invitees”), (iii) to clean the Premises on the
termination of this Lease, and (iv) to remedy any other defaults by Tenant in
the performance of any of its obligations under this Lease, If Tenant commits
any default under this Lease, Landlord may use the Security Deposit to cure
such defaults, and to compensate Landlord for damage suffered by Landlord from
such defaults, including attorneys’ fees and costs incurred by Landlord.  Tenant shall promptly pay to Landlord the
amount necessary to replenish any portion of the Security Deposit so used by
Landlord.  Following the Expiration Date
or earlier termination of this Lease, and within the time frame required by
applicable law, Landlord shall deliver to Tenant, at Tenant’s last known address,
any portion of the Security Deposit not used by Landlord in accordance with
this paragraph.  Landlord may commingle
the Security Deposit with Landlord’s other funds and Landlord will not pay
interest on such Security Deposit to Tenant.

 

19.  Destruction.  If the Premises is totally or partially
destroyed during the Term, rendering the Premises totally or partially
inaccessible or unusable, then (i) Landlord shall restore the Premises to
substantially the same condition as it was in immediately before such
destruction, (ii) Landlord will not be required to restore Tenant’s Alterations
or Tenant’s Personal Property unless they are an integral part of the Premises
and specifically covered by insurance proceeds received by Landlord, such
excluded items being the sole responsibility of Tenant to restore, (iii) the
destruction will not terminate this Lease, and (iv) all obligations of Tenant
under this Lease will remain in effect, except that the Basic Monthly Rent will
be abated or reduced, between the date of the destruction and the date of completion
of restoration, by the ratio of (a) the area of the Premises rendered unusable
or inaccessible by the destruction to (b) the area of the Premises before the
destruction.  Notwithstanding anything
to the contrary in this Lease, Landlord or Tenant may terminate this Lease by
so notifying the other in writing on or before the 30th day after
the destruction, if (A) then-existing laws do not permit restoration of the
Premises to substantially similar premises, (B) the destruction occurs during
the last year of the Term, (C) restoration will require more than nine months
after the destruction.  Additionally,
Landlord may terminate this Lease by so notifying Tenant in writing on or
before the 60th day after Landlord’s receipt of the proceeds from
insurance maintained by Landlord, if (x) the destruction exceeds 25 percent of
the then replacement value of the Premises, or (y) Landlord determines that the
cost of the restoration exceeds the amount of insurance proceeds relating to
the destruction actually received by Landlord from insurance maintained by
Landlord (unless Tenant funds the shortfall without any right or reimbursement
or offset).   If Landlord or Tenant so
terminates this Lease, then (1) Landlord has no obligation to restore the
Premises, (2) Landlord retains all insurance proceeds relating to such
destruction (except for proceeds on account of Tenant’s Personal Property or
proceeds allocated by the applicable insurance policy specifically and solely
for Tenant relocation costs or proceeds of Tenant’s own business interruption
insurance), and (3) this Lease terminates as of 30 days after the notice of
termination from Landlord or Tenant to the other.  If Landlord restores the Premises as provided above, then Tenant
waives the provisions of California Civil Code Sections 1932(2) and 1933(4) or
any successor statute with respect to any destruction of the Premises.

 

20.  Condemnation.  If during the Term there is any taking of
all or any part of the Premises or any interest in this Lease by the exercise
of any governmental power, whether by legal proceedings or otherwise, by any
entity or individual having the power of condemnation (any of the preceding a
“Condemnor”), or a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending (any of the preceding, a “Condemnation”), then this paragraph
applies.  A temporary Condemnation of
all or any part of the Premises for less than 180 days does not constitute a
Condemnation under this paragraph, but the Basic Monthly Rent is abated as to
the portion of the Premises affected during the temporary Condemnation.  If the Condemnation is of the entire
Premises, then this Lease terminates on the date the Condemnor takes possession
of the Premises (the “Date of Condemnation”). 
If the Condemnation is of some, but not all, of the Premises, then this
Lease remains in effect, except that, if the remaining portion of the Premises
is rendered unsuitable for Tenant’s continued use of the Premises, as
reasonably determined by both Landlord and Tenant, then Tenant may elect to
terminate this Lease by so notifying Landlord in writing (the “Termination
Notice”) within 30 days after the date that the nature and extent of the
Condemnation have been determined.  Such
termination becomes effective on the earlier of (i) the date that is 30 days
after the Termination Notice, and (ii) the Date of Condemnation.  If Tenant does not give Landlord the
Termination Notice within the 30-day period, then all obligations of Tenant
under this Lease remain in effect, except that (unless the Premises are
restored as set forth below) Basic Monthly Rent will prospectively be reduced
by the ratio of (a) the area of the Building taken to (b) the area of the
Building immediately before the Date of Condemnation.  Notwithstanding anything to the contrary in this paragraph, if
within 20 days after Landlord’s receipt of the Termination Notice Landlord
notifies Tenant that Landlord at its cost will add to the remaining Premises so
that the area of the Premises will be substantially the same after the
Condemnation as they were before the Condemnation, and Landlord commences the
restoration promptly and completes it within 180 days after Landlord so
notifies Tenant, then all obligations of Tenant under this Lease remain in
effect, except that Basic Monthly Rent shall be abated or reduced during the
period from the Date of Condemnation until the completion of such restoration
by the ratio of (A) the area of the Building taken to (B) the area of the
Building immediately before the Date of Condemnation.  Unless Landlord restores the Premises pursuant to the preceding
sentence, or unless Tenant gives Landlord the Termination Notice within the relevant
30-day period, Tenant at its sole cost shall accomplish any restoration
required by Tenant to use the Premises. 
All compensation, sums, or anything of value awarded, paid, or received
on a total or partial Condemnation (the “Award”) belongs to and must be paid to
Landlord, except that Tenant may receive from the Award any sum paid expressly
to Tenant from the Condemnor for Tenant’s loss of Tenant’s Personal Property
and relocation costs.  Tenant has no
right to any part of the Award, and Tenant hereby assigns to Landlord all of
Tenant’s right, title, and interest in and to any part of the Award, except
that Tenant may receive from the Award any sum paid expressly to Tenant from
the Condemnor for Tenant’s loss of Tenant’s Personal Property and relocation
costs.  Landlord and Tenant waive the provisions
of any statute (including California Code of Civil Procedure Section 1265.130
or any successor statute) that allows Landlord or Tenant to petition the
superior court (or any other local court) to terminate this Lease in the event
of a partial taking of the Premises.

 

21.  Assignment and Other Transfers.  Without Landlord’s prior written consent,
which may not unreasonably be withheld, none of the following may occur (or be
permitted by Tenant to occur), voluntarily, involuntarily, by operation of law,
or otherwise (any of the following, a “Transfer”):  (i) any assignment, sublease, disposition, sale, concession,

 

7

 

license, mortgage, encumbrance,
hypothecation, pledge, collateral assignment, or other transfer, by Tenant of
this Lease, any interest in this Lease, or all or any portion of the Premises;
or (ii) any assignment, disposition, sale, transfer, acquisition, or issuance
of equitable interests (whether stock, partnership or otherwise) in Tenant, to
or by any person, entity, or group of related persons or affiliated entities,
whether in a single transaction or in a series of related or unrelated
transactions, which results in such person, entity, or group holding (or
assigning, transferring, disposing of, or selling) fifty percent (50%) or more
of the aggregate legal or beneficial interests in Tenant.  Landlord will not be liable in damages to
Tenant or to any proposed subtenant, assignee or other transferee (any of the
preceding a “Proposed Transferee”) if such consent is adjudicated to have been
unreasonably withheld, in which case Tenant’s sole remedy is to have the
proposed Transfer declared valid as if Landlord’s consent had been given
(although Tenant will be entitled to reasonable attorney’s fees if Tenant is
the prevailing party in such litigation). 
No Transfer releases or discharges Tenant from any liability, whether
past, present, or future, under this Lease and Tenant continues to remain
primarily liable under this Lease. 
Tenant irrevocably assigns to Landlord, as security for Tenant’s
obligations under this Lease, all rent and other amounts from any Transfer, and
Landlord, as assignee and as special attorney-in-fact for Tenant, or a receiver
for Tenant appointed on Landlord’s application, may collect such rent and other
amounts and apply them toward Tenant’s obligations under this Lease; except
that, unless Tenant defaults under this Lease and fails to cure the default
within the applicable cure period, Tenant may collect such rent and other
amounts.  Tenant shall promptly
reimburse Landlord for Landlord’s reasonable costs (less any payment made by
Tenant with Landlord as set forth above) of reviewing, consenting to, rejecting
or consummating any proposed Transfer, including reasonable attorneys’
fees.  Tenant shall promptly pay to
Landlord 50% of all rents and other consideration, of whatever nature, payable
by the Proposed Transferee (or receivable by Tenant) pursuant to any Transfer,
which exceeds the sum of all leasing commissions paid and tenant improvement
allowances funded by Tenant to the extent reasonably incurred in direct
conjunction with the Transfer, plus: 
(1) if a sublease of a portion of the Premises, the portion of the Basic
Monthly Rent that is allocable to the portion of the Premises subleased (such
allocation based on the area of the portion subleased), or (2) if any other
Transfer, the Basic Monthly Rent. 
Landlord additionally may, by giving written notice (the “Recapture
Notice”) to Tenant within 15 days after receipt of Tenant’s request for a
Consent to Transfer which would result in cumulative Transfers of more than 50%
of the Rentable Square Feet of the Premises, recapture the Premises and
terminate this Lease.  If Landlord elects
to exercise such right and delivers a Recapture Notice to Tenant, this Lease is
automatically terminated as of the commencement or effective date stated in
Tenant’s request for a Consent to Transfer, and Tenant shall surrender
possession of the Premises as of such date, unless within two business days
after Landlord’s Recapture Notice Tenant rescinds its request for a Consent to
Transfer.  Notwithstanding anything to
the contrary in this paragraph, with prior written notice to Landlord, but
without the requirement for Landlord’s consent, Tenant may assign this Lease to
an entity which is controlled by Tenant or which is under common control with
Tenant, so long as the Transferee assumes Tenant’s obligations under this Lease
in writing for the benefit of Landlord and Tenant concurrently executes a
guaranty of this Lease (and Guarantor executes a reaffirmation of its Guaranty
of Lease) for the benefit of Landlord in form and substance reasonably
acceptable to Landlord.

 

22.  Access by Landlord.  Landlord and any of Landlord’s agents or
employees may enter the Premises at all reasonable times, during normal
business hours if feasible under the circumstances, and after reasonable
notice, if feasible under the circumstances, (i) to determine whether the
Premises are in good condition and whether Tenant is complying with its
obligations under this Lease, (ii) to do any necessary maintenance or make any
restoration to the Premises that Landlord has the right or obligation to
perform, (iii) to serve, post, or keep posted any notices required or allowed under
this Lease, (v) to post “for sale” or “for rent” or “for lease” signs, (vi) to
show the Premises to brokers, agents, prospective buyers, prospective tenants,
or other persons interested in a listing of, financing, purchasing, or
occupying the Premises, and (vii) to shore the foundations, footings, and walls
of the Premises, and to erect scaffolding and protective barricades around and
about the Premises, but not so as to prevent entry to the Premises, and to do
any other act or thing necessary for the safety or preservation of the Premises
if any excavation or other construction is undertaken or is about to be
undertaken on any adjacent property or nearby street (which work must be
performed in as unobtrusive manner as is reasonably practicable).  In the event of an emergency Landlord may
enter the Premises at any time, without prior notice to Tenant.  Landlord’s rights under this paragraph
extend, with Landlord’s consent, to the owner of adjacent property on which
excavation or construction is to take place and the adjacent property owner’s
agents, employees, officers, and contractors. 
Landlord will not be liable for any inconvenience, disturbance, loss of
business, nuisance, or other damage arising out of any entry on the Premises as
provided in this paragraph except damage resulting directly from the grossly
negligent acts of Landlord or Landlord’s Invitees.  Tenant will not be entitled to any abatement or reduction of rent
because of the exercise by Landlord of any rights under this paragraph.

 

23.  Indemnity and Exemption of Landlord from
Liability.  Tenant shall defend,
indemnify, and hold harmless Landlord against all Claims (as defined below) and
all costs, expenses, and attorneys’ fees incurred in the defense or handling of
any such Claims or any action or proceeding brought on any of such Claims.  For purposes of this Lease, “Claims” means
all liabilities, damages, losses, costs, expenses, attorneys’ fees, and claims
(except to the extent they result from Landlord’s grossly negligent acts or
willful misconduct) arising from or which seek to impose liability under or
because of (i) Tenant’s or Tenant’s Invitees’ use of the Premises, (ii) the
conduct of Tenant’s business, (iii) any activity, work, or things done,
permitted, or suffered by Tenant or any of Tenant’s Invitees in or about the
Premises or elsewhere, (iv) any breach or default in the performance of any
obligation to be performed by Tenant under this Lease, (v) any negligence of
Tenant or any of Tenant’s Invitees, or (vi) any event, act or omission arising
on, out of or around the Premises during the Term, except to the extent arising
from Landlord’s failure to perform its obligations under this Lease.  Except to the extent arising from Landlord’s
failure to perform its obligations under this Lease and to the extent caused by
Landlord’s grossly negligent acts or willful misconduct, Tenant assumes all
risk of, Tenant waives all claims against Landlord in respect of, and Landlord
is not liable for, any of the matters set forth above in this paragraph or any
of the following:  injury to Tenant’s
business, loss of income from such business, or damage or injury to the goods,
wares, merchandise, or other property or the person of Tenant, Tenant’s
Invitees, or any other persons in, on, or about the Premises, whether such
damage, loss, or injury is caused by or results from criminal acts, fire,
steam, electricity, gas, water, rain, the breakage, leakage, obstruction or
other defects of pipes, sewer lines, sprinklers, wires, appliances, plumbing,
air-conditioning or lighting fixtures, or any other cause, conditions arising
about the Premises, or other sources or places, and regardless of whether the
cause of such damage, loss, or injury or the means of repairing such damage,
loss, or injury is inaccessible to Tenant. 
“Claims” also includes those arising from or relating to:  (i) any

 

8

 

discharges, releases, or
threatened releases of noise, pollutants, contaminants, herbicides, pesticides,
insecticides, or hazardous or toxic wastes, substances, or materials (any of
the preceding a “Hazardous Material”) into ambient air, water, or land by
Tenant or Tenant’s Invitee’s, or otherwise from, on, under, or above the
Premises (except to the extent Tenant establishes that the Hazardous Materials
were released onto the Premises before the date of this Lease), (ii) the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or hazardous or toxic wastes,
substances, or materials by Tenant or Tenant’s Invitees, or otherwise from, on,
or under, the Premises, or (iii) a violation of any environmental or regulation
law on, under, or above the Premises (except to the extent Tenant establishes
that the contamination was released before Landlord first delivered possession
to Tenant of the applicable portion of the Premises or was a continued release
of such pre-possession contamination which was not exacerbated by Tenant’s acts
or omissions).

 

24.  Hazardous Substances.  Landlord represents and warrants to Tenant
that, to Landlord’s actual knowledge, the Premises do not contain any Hazardous
Materials in violation of applicable law. 
Landlord, and not Tenant, is responsible for the Hazardous Material
condition of Premises as it exists before the date of this Lease (but it is
Tenant’s burden to establish that the Hazardous Materials in question existed
on the Premises before the date of this Lease).  Neither Tenant nor any of Tenant’s Invitees may use, manufacture,
store, or dispose of any Hazardous Materials anywhere within the Premises which
are or could (a) be detrimental to the Premises, human health, or the
environment, except in accordance with all applicable laws, or (b) adversely
affect the value of the Premises.  If
the Premises are contaminated (or, due to the acts or omissions of Tenant or
Tenant’s Invitees, the Premises is contaminated) by any Hazardous Material
during the Term, then (1) Tenant shall promptly notify Landlord in writing of
such contamination, and (2) Landlord may elect to either (A) demand that Tenant
perform all remediation required by Landlord (to Landlord’s satisfaction and at
Tenant’s sole cost, necessary to return the Premises to at least as good a
condition as the Premises are in as of the date of this Lease, which Tenant
shall immediately do upon receipt of notice from Landlord, or (B) proceed to
cause such investigation, clean-up, and remediation work which Landlord deems
necessary or desirable to be undertaken, whereupon the entire cost thereof
(plus a supervisory fee equal to ten percent of such cost) will be payable by
Tenant to Landlord upon demand as additional rent.  If Tenant does not promptly commence and diligently pursue such
remediation, then Landlord may perform or cause to be performed such
remediation and Tenant shall immediately, upon demand, pay the cost thereof,
plus a supervisory fee in the amount of ten percent of such cost.  Tenant’s obligations and liability under
this paragraph shall survive the termination of Tenant’s tenancy and the Term
of this Lease, except that nothing contained in this paragraph shall be deemed
to impose liability on Tenant for any contamination arising after the Term of
this Lease provided neither Tenant nor Tenant’s Invitees contributed to such
problem during the Term of the Lease.

 

25.  Prohibition Against Asbestos-Containing
Materials.  Tenant may not allow or
permit any materials which contain asbestos in any form or concentration
(“Asbestos-Containing Materials”) to be used or stored in the Premises or used
in the construction of any improvements or alterations to the Premises,
including building or construction materials and supplies.   Such prohibition against
Asbestos-Containing Materials shall apply regardless of whether the Asbestos-Containing
Materials may be considered safe or approved for use by a manufacturer,
supplier, or governmental authority, or by common use or practice.

 

26.  Security Measures.  Tenant acknowledges (i) that the Basic
Monthly Rent does not include the cost of any security measures for any portion
of the Premises (ii) that Landlord has no obligation to provide any security
measures, (iii) that Landlord has made no representation to Tenant regarding
the safety or security of the Premises, and (iv) that Tenant is solely
responsible for providing any security it deems necessary to protect itself,
its property, and Tenant’s Invitees in, on, or about the Premises.  Landlord has no duty to warn Tenant of any
criminal acts or dangerous conduct that has occurred in or near the Premises,
regardless of Landlord’s knowledge of such crimes or conduct.

 

27.  Subordination and Attornment.  Within one week after Landlord’s written
request (which may be made from time to time throughout the Term), Tenant shall
execute a Subordination, Non-Disturbance, and Attornment Agreement in the
applicable Lender’s standard form (“SNDA”). 
The SNDA must provide Tenant with basic non-disturbance protection and
may provide, among other things, that this Lease is subject and subordinate to
the interests of the Lender (and to all renewals, modifications,
consolidations, replacements, or extensions thereof), and that if the Lender
succeeds to the rights of Landlord under this Lease, whether by foreclosure,
deed in lieu of foreclosure or otherwise, then (i) such successor landlord will
not be subject to any offsets or defenses which Tenant might have against
Landlord, (ii) such successor landlord will not be bound by any prepayment by
Tenant of more than one month’s installment of rent, (iii) such successor
landlord will not be subject to any liability or obligation of Landlord except
those arising after such succession, (iv) Tenant shall attorn to and recognize
such successor landlord as Tenant’s landlord under this Lease, (v) Tenant shall
promptly execute and deliver any instruments that may be necessary to evidence
such attornment, and (vi) on such attornment, this Lease shall continue in
effect as a direct lease between such successor landlord and Tenant.  Tenant irrevocably constitutes and appoints
Landlord as its special attorney-in-fact to execute and deliver the SNDA if
Tenant fails to deliver it to Landlord within the one-week period described
above.  If Landlord fails to provide
Tenant, within 60 days after the date of this Lease, an SNDA signed by all of
its Lenders (who have an interest in the Premises as of such 60th
day) on the Lender’s standard form, Tenant may terminate this Lease by giving
written notice of termination to Landlord between the 61st and 68th
day following the date of this Lease (in which case Landlord shall return to
Tenant any prepaid rent and Security Deposit and neither party will have any
further obligation to the other under this Lease, except for Tenant’s indemnity
obligations on account of the period preceding the termination).  Additionally, if any new Lender obtains an
interest in the Premises after the date of this Lease, Landlord shall
diligently pursue an SNDA from the new Lender.

 

28.  Estoppel Certificates.  Within 10 days after notice from Landlord,
Tenant shall execute and deliver to Landlord, in recordable form, a certificate
stating (i) that this Lease is unmodified and in full force and effect, or in
full force and effect as modified, and stating all modifications, (ii) the
then-current Basic Monthly Rent, (iii) the dates to which Basic Monthly Rent
has been paid in advance, (iv) the amount of any security deposit, prepaid rent
or other payment constituting rent which has been paid (including Operating
Expenses), (v) whether or not Tenant or Landlord is in default under this Lease
and whether there currently exist any defenses or rights of offset under the
Lease, and (vi)

 

9

 

such other matters as Landlord
shall reasonably request.  Tenant’s
failure to deliver the certificate within the 10-day period shall be conclusive
upon Tenant for the benefit of Landlord, and any successor in interest to
Landlord, any Lender or proposed Lender, and any purchaser of the Premises
that, except as may be represented by Landlord, this Lease is unmodified and in
full force and effect, no rent has been paid more than 30 days in advance, and
neither Tenant nor Landlord is in default under this Lease.  Tenant irrevocably constitutes and appoints
Landlord as its special attorney-in-fact to execute and deliver such
certificate to any third party if Tenant fails to deliver such certificate
within such 10-day period.  Conversely,
within 10 days after notice from Tenant, Landlord shall execute and deliver to
Tenant, in recordable form, a certificate stating the items described
above.  Landlord’s failure to deliver
the certificate within the 10-day period shall be conclusive upon Landlord for
the benefit of Tenant, and any successor in interest to Tenant, that, except as
may be represented by Tenant, this Lease is unmodified and in full force and
effect, no rent has been paid more than 30 days in advance, and neither Tenant
nor Landlord is in default under this Lease. 
Landlord irrevocably constitutes and appoints Tenant as its special attorney-in-fact
to execute and deliver such certificate to any third party if Landlord fails to
deliver such certificate within such 10-day period.

 

29.  Waiver.  No delay or omission in the exercise of any right or remedy of
Landlord in the event of any default by Tenant shall impair such right or
remedy or be construed as a waiver.  The
receipt and acceptance by Landlord of delinquent rent does not constitute a
waiver of any default other than the particular rent payment accepted.  Landlord’s receipt and acceptance from
Tenant, on any date (the “Receipt Date”), of an amount less than the amount due
on such Receipt Date, or to become due at a later date but applicable to a
period before the Receipt Date, does not release Tenant of its obligation (i)
to pay the full amount due on such Receipt Date or (ii) to pay when due the
full amount to become due at a later date but applicable to a period before
such Receipt Date.  No act or conduct of
Landlord, including the acceptance of the keys to the Premises, constitutes an
acceptance by Landlord of the surrender of the Premises by Tenant before the
Expiration Date.  Only a written notice
from Landlord to Tenant stating Landlord’s election to terminate Tenant’s right
to possession of the Premises constitutes acceptance of the surrender of the
Premises and accomplishes a termination of this Lease.  Landlord’s consent to or approval of any act
by Tenant requiring Landlord’s consent or approval may not be deemed to waive
or render unnecessary Landlord’s consent to or approval of any other or
subsequent act by Tenant.  Any waiver by
Landlord of any default must be in writing and does not constitute a waiver of
any other default concerning the same or any other provision of this Lease.  Tenant waives any rights granted to Tenant
under California Code of Civil Procedure Section 1179, California Civil Code
Section 3275, and any successor statue(s). 
Tenant represents and warrants that if Tenant breaches this Lease and,
as a result, this Lease is terminated, Tenant will not suffer any undue
hardship as a result of the termination and, during the Term, will make such
alternative or other contingency plans to provide for its vacation of the
Premises and relocation in the event of such termination.  Tenant acknowledges that Tenant’s waivers
set forth in this paragraph are a material part of the consideration for
Landlord’s entering into this Lease and that Landlord would not have entered
into this Lease in the absence of such waivers.

 

30.  Brokers.  Landlord and Tenant each represents that no real estate broker,
agent, finder, or other person is responsible for bringing about or negotiating
this Lease except as identified in Article 2 above (the “Brokers”) and neither
Landlord nor Tenant has dealt with any real estate broker, agent, finder, or
other person, relative to this Lease in any manner to whom compensation is due
on account of this Lease, other than Brokers. 
Landlord and Tenant shall defend, indemnify, and hold harmless the other
against all liabilities, damages, losses, costs, expenses, attorneys’ fees and
claims arising from any claims that may be made against the indemnified party
by any real estate broker, agent, finder, or other person (other than as set
forth above), alleging to have acted on behalf of or to have dealt with the
indemnifying party.  Landlord is solely
responsible for compensating Brokers in accordance with a separate written
agreement between Landlord and Brokers.

 

31.  Easements.  Landlord may from time to time grant such easements, rights and
dedications, and cause the recordation of parcel maps, easement and operating
agreements, and restrictions affecting the Premises so long as such actions do
not interfere with Tenant’s use of the Premises.  Tenant shall promptly sign any documents or instruments to accomplish
the foregoing upon request by Landlord. 
Tenant irrevocably appoints Landlord as Tenant’s special
attorney-in-fact to execute and deliver such documents or instruments on behalf
of Tenant if Tenant refuses or fails to do so.

 

32.  Limitations on Landlord’s Liability.  If Landlord is in default of this Lease, and
as a consequence Tenant recovers a money judgment against Landlord, such
judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levy against the right, title, and interest of
Landlord in the Premises, and out of rent or other income from the Premises
receivable by Landlord or out of the consideration received by Landlord from
the sale or other disposition of all or any part of Landlord’s right, title,
and interest in the Premises.  Neither
Landlord nor Landlord’s affiliates, members, managers, shareholders, officers,
directors, agents, or employees shall be personally liable for any deficiency.

 

33.  Sale or Transfer of Premises.  If Landlord sells or transfers any portion
of the Premises, Landlord, on consummation of the sale or transfer, shall be
released from any liability thereafter accruing under this Lease.  If any security deposit or prepaid rent has
been paid by Tenant, Landlord may transfer the security deposit or prepaid rent
to Landlord’s successor-in-interest and on such transfer Landlord shall be
discharged from any further liability arising from the security deposit or
prepaid rent.

 

34.  Quitclaim Deed and Memorandum.  Tenant shall execute and deliver to Landlord
on the Expiration Date or earlier termination of this Lease, promptly on
Landlord’s request, a quitclaim deed to the Premises, in recordable form,
designating Landlord as transferee. 
Landlord and Tenant shall execute a Memorandum of Lease in the form of
the attached Exhibit D, in
recordable form, and Tenant may cause the Memorandum to be recorded in the
Official Records of San Diego County, California.

 

10

 

35.  No Merger. The voluntary or other
surrender of this Lease by Tenant, or a mutual cancellation of this Lease, or a
termination by Landlord, shall not work a merger, and shall, at the option of
Landlord, terminate any existing subleases or may, at the option of Landlord,
operate as an assignment to Landlord of any such subleases.

 

36.  Miscellaneous.

 

36.1. Financial
Statements.  Upon Landlord’s written
request, Tenant shall promptly furnish to Landlord, from time to time,
financial statements certified by Tenant to be correct and complete, reflecting
Tenant’s then current financial condition. 
Such financial statements shall include a current balance sheet and a
profit and loss statement covering the most recent 12-month period available.  During any period Tenant’s stock is
publicly-traded on a U.S. national exchange, the financial statements shall be
limited to those publicly available.  In
addition, except when Tenant’s stock is publicly-traded on a U.S. national
exchange, upon Landlord’s written request, Tenant shall allow Landlord, or a
certified public accountant of Landlord’s choosing, to determine Tenant’s
current financial condition by reviewing Tenant’s current financial books,
records, and accounts.

 

36.2.  Governing Law, Venue and Jurisdiction.  This Lease is governed by and construed in
accordance with the laws of the State of California, irrespective of
California’s choice-of-law principles. 
All actions and proceedings arising in connection with this Lease must
be tried and litigated exclusively in the State and Federal courts located in
the County of San Diego, State of California, which courts have personal
jurisdiction and venue over each of the parties to this Lease for the purpose
of adjudicating all matters arising out of or related to this Lease.  Each party authorizes and accepts service of
process sufficient for personal jurisdiction in any action against it as
contemplated by this paragraph by registered or certified mail, return receipt
requested, postage prepaid, to its address for the giving of notices set forth
in this Lease.

 

36.3.  Further Assurances.  Each party to this Lease shall execute and
deliver all instruments and documents and take all actions as may be reasonably
required or appropriate to carry out the purposes of this Lease.

 

36.4.  Time of Essence.  Time and strict and punctual performance are
of the essence with respect to each provision of this Lease.

 

36.5.  Attorney’s Fees.  The prevailing party(ies) in any litigation,
arbitration, mediation, bankruptcy, insolvency or other proceeding
(“Proceeding”) relating to the enforcement or interpretation of this Lease may
recover from the unsuccessful party(ies) all costs, expenses, and actual
attorney’s fees (including expert witness and other consultants’ fees and
costs) relating to or arising out of (a) the Proceeding (whether or not the
Proceeding proceeds to judgment), and (b) any post-judgment or post-award
proceeding including, without limitation, one to enforce or collect any
judgment or award resulting from the Proceeding.  All such judgments and awards shall contain a specific provision
for the recovery of all such subsequently incurred costs, expenses, and actual
attorney’s fees.

 

36.6.  Modification.  This Lease may be modified only by a
contract in writing executed by the party to this Lease against whom
enforcement of the modification is sought.

 

36.7.  Prior Understandings.  This Lease and all documents specifically
referred to and executed in connection with this Lease:  (a) contain the entire and final agreement
of the parties to this Lease with respect to the subject matter of this Lease,
and (b) supersede all negotiations, stipulations, understandings, agreements,
representations and warranties, if any, with respect to such subject matter,
which precede or accompany the execution of this Lease.

 

36.8.  Interpretation.  Whenever the context so requires in this
Lease, all words used in the singular may include the plural (and vice versa)
and the word “person” includes a natural person, a corporation, a firm, a
partnership, a joint venture, a trust, an estate or any other entity.  The terms “includes” and “including” do not
imply any limitation.  No remedy or
election under this Lease is exclusive, but rather, to the extent permitted by
applicable law, each such remedy and election is cumulative with all other
remedies at law or in equity.  The
paragraph headings in this Lease:  (a)
are included only for convenience, (b) do not in any manner modify or limit any
of the provisions of this Lease, and (c) may not be used in the interpretation
of this Lease.  All provisions, whether
covenants or conditions, to be performed or observed by Tenant shall be deemed
to be both covenants and conditions. 
The obligations of Tenant are the joint and several obligations of each
of them.

 

36.9.  Partial Invalidity.  Each provision of this Lease is valid and
enforceable to the fullest extent permitted by law.  If any provision of this Lease (or the application of such
provision to any person or circumstance) is or becomes invalid or
unenforceable, the remainder of this Lease, and the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, are not affected by such invalidity or
unenforceability.

 

36.10.  Notices.  Each notice and other communication required or permitted to be
given under this Lease (“Notice”) must be in writing.  Notice is duly given to another party upon:  (a) hand delivery to the other party, (b)
receipt by the other party when sent by facsimile to the address and number for
such party set forth in Article 2 (provided, however, that the Notice is not
effective unless a duplicate copy of the facsimile Notice is promptly given by
one of the other methods permitted under this paragraph), (c) three business
days after the Notice has been deposited with the United States postal service
as first class certified mail, return receipt requested, postage prepaid, and
addressed to the party as set forth in Article 2, or (d) the next business day
after the Notice has been deposited with a reputable overnight delivery
service, postage prepaid, addressed to the party as set forth in Article 2 with
next business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery-service-provider.  Each party shall make a reasonable, good
faith effort to ensure that it will accept or receive Notices to it that are
given in accordance with this paragraph. 
A party may change its address for purposes of this paragraph by giving
the other party(ies) written notice of a new address in the manner set forth
above.

 

11

 

36.11.  Drafting Ambiguities.  Each party to this Lease and its legal
counsel have reviewed and revised this Lease. 
The rule of construction that ambiguities are to be resolved against the
drafting party or in favor of the party receiving a particular benefit under an
agreement may not be employed in the interpretation of this Lease or any
amendment to this Lease.

 

36.12.  Third Party Beneficiaries.  Nothing in this Lease is intended to confer
any rights or remedies on any person or entity other than the parties to this
Lease and their respective successors-in-interest and permitted assignees.

 

This Lease is not effective
against Landlord unless and until, within one week after the date of this
Lease, Landlord receives (a) a fully executed original of this Lease and the
Guaranty of Lease below executed by Invision Technologies Company, a Delaware
corporation (“Guarantor”), and (b) evidence reasonably satisfactory to Landlord
of the due authorization and execution of this Lease by Tenant and the Guaranty
of Lease by Guarantor.

 

	
  LANDLORD:

  	
   

  	
  TENANT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CARMEL
  MOUNTAIN #8 ASSOCIATES, L.P.,

  a California limited partnership

  	
   

  	
  QUANTUM
  MAGNETICS, INC., a California corporation

  
	
   

  	
   

  	
   

  
	
  By:

  	
  CHANCELLOR
  DEVELOPMENT CORPORATION

  	
  By:

  	
   /s/
  L. J. Burnett

  	
   

  
	
   

  	
  a California
  corporation, General Partner

  	
   

  	
   

  	
  L. J.
  Burnett 

  	
  , President

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  , Secretary

  	
   

  
	
   

  	
  By: 

  	
  /s/ Roger A.P. Joseph

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Roger A.P. Joseph, President

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CARMEL
  MOUNTAIN ENVIRONMENTAL, LLC,

  	
   

  	
   

  
	
  a California
  limited liability company

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By: 

  	
  /s/ Bruce E. Tabb

  	
   

  	
   

  	
   

  
	
   

  	
  Bruce E. Tabb, Managing Member

  	
   

  	
   

  	
   

  
											

 

GUARANTY OF LEASE

 

The
undersigned, INVISION TECHNOLOGIES COMPANY, a Delaware corporation
(“Guarantor”), absolutely and unconditionally guarantees, on demand, to and for
the benefit of Landlord, the full, timely, and complete payment and performance
of all of Tenant’s obligations, whether monetary or otherwise, set forth in or
arising out of the foregoing Single-Tenant Net Lease Agreement (collectively,
the “Guaranteed Obligations”).  This
Guaranty constitutes an absolute, direct, immediate, and unconditional
guarantee of timely payment and performance, and not merely of collectibility,
and includes all primary, secondary, direct, indirect, fixed, and contingent
obligations of Tenant to pay Basic Monthly Rent, Operating Expenses, and all
other rent including late charges, insurance, taxes, indemnifications, and
other fees, charges, sums, costs, and expenses which may be owing by Tenant at
any time in connection with the Guaranteed Obligations, as they may be
modified, amended, extended, or renewed from time to time.  If a specific amount outstanding and owing
by Tenant under the Lease or the Guaranteed Obligations is determined by a
court of competent jurisdiction, that determination is conclusive and binding
on Guarantor, regardless of whether or not Guarantor was a party to the
proceeding in which the determination was made.  If Tenant defaults in the payment of any amount when due under
the Lease, Guarantor shall pay to Landlord or order, on demand, all sums due
and owing under the Lease. 
Additionally, Guarantor shall assume responsibility for and shall fully
perform all of the other Guaranteed Obligations promptly on receiving written
notice from Landlord.  No delay by
Landlord in providing notice of a default by Tenant or making demand on
Guarantor affects Guarantor’s obligations under this Guaranty.  The obligations of Guarantor under this
Guaranty are independent of the obligations of Tenant or any other
guarantor.  The obligations of Guarantor
under this Guaranty are continuing and irrevocable until all of the Guaranteed
Obligations have been fully satisfied. 
If at any time all or any part of any payment received by Landlord from
Tenant, Guarantor, or any other person under or with respect to the Lease or
this Guaranty is refunded or rescinded pursuant to any court order (including
any court order arising out of the insolvency, bankruptcy, or reorganization of
Tenant, a Guarantor or any other guarantor), then the Guarantor’s obligations
under this Guaranty shall, to the extent of the payment refunded or rescinded,
be deemed to have continued in existence, notwithstanding previous receipt of
payment by Landlord, regardless of any contrary action by Landlord, as though
such previous payment to Landlord had never occurred (and such contrary action
had not been taken).  This Guaranty is
not affected or limited in any manner if recovery against Tenant is barred by
any statute of limitations or is otherwise unenforceable against Tenant, or if
any of the Guaranteed Obligations arises from transactions which may be
voidable as the result of bankruptcy, insolvency, fraudulent conveyance, receivership,
or offsets not arising out of the Lease; provided, however, Guarantor will not
be liable for obligations for which Tenant is not obligated to perform because
of the express terms of the Lease.  This
Guaranty shall not be affected or limited in any manner by whether Tenant may
be liable, with respect to the Guaranteed Obligations individually, jointly
with

 

12

 

others, primarily, or
secondarily.

 

This Guaranty
shall not be affected or limited in any manner by (a) any assignment of, or any
modification or amendment (by agreement, course of conduct, or otherwise) to,
all or any portion of any lease, agreement, instrument, or document with
respect to or that evidences the Guaranteed Obligations, or (b) the renewal,
extension, or modification, at any time, of any of the Guaranteed Obligations;
provided, however, in the event of a Transfer by Tenant to an unaffiliated
third party and the subsequent modification(s) of the Lease by Landlord and the
Transferee, Guarantor will not be obligated to perform the increased
obligations resulting from the modification(s).  By this Guaranty, Guarantor guarantees Tenant’s performance of
the Guaranteed Obligations as so amended, assigned, renewed, extended, or
modified, whether or not the amendment, assignment, renewal, extension, or
modification is made with the consent of or notice to Guarantor.

 

If Tenant
defaults with respect to any of the Guaranteed Obligations, and if Guarantor
does not satisfy Tenant’s obligations immediately upon its receipt of written
notice of such default from Landlord, Landlord may, at its election, proceed
immediately against any Guarantor (as if such default arose from the direct and
primary obligation of Guarantor), any other guarantor, or Tenant, or any
combination of Tenant, Guarantor, and any other guarantor.  In the event of any default under this
Guaranty, an action or actions may be brought and prosecuted against the
Guarantor, whether or not Tenant or any other guarantor is joined in such
action(s) or a separate action or actions are brought against Tenant or any
other Guarantor or guarantor.  Landlord
may maintain successive actions for separate defaults.  Unless and until the Guaranteed Obligations
have been fully satisfied or waived in writing by Landlord, Guarantor shall not
be released from its obligations under this Guaranty irrespective of (i) the
exercise by Landlord of any of Landlord’s rights or remedies (including
compromise or adjustment of the Guaranteed Obligations or any part thereof),
(ii) any release by Landlord of Tenant or any other Guarantor or guarantor,
(iii) any such action or any number of successive actions, or (iv) the
satisfaction by Guarantor of any liability under this Guaranty incident to a
particular default.  Landlord may
perform any or all of Guarantor’s obligations hereunder, in which case,
Guarantor shall reimburse Landlord immediately upon demand for all costs and
expenses, including all reasonable attorneys’ fees, that Landlord incurs in
performing such obligations, together with interest on those sums from and
after the date(s) they are incurred at the rate of eighteen percent (18%) per
annum.

 

Guarantor
waives all rights afforded a surety or guarantor under applicable law,
including all benefits it may otherwise be entitled to under California Civil
Code Sections 2787 through 2855, and similar laws, and the following:

 

a.  Guarantor waives all rights it would
otherwise have to require Landlord, as a condition to Landlord’s exercise of
any of its rights under this Guaranty, to (i) proceed against Tenant or any
other guarantor, (ii) perfect, retain, protect, proceed against, or exhaust any
security that Landlord holds or may hold from Tenant, or (iii) pursue any other
remedy in Landlord’s power.

 

b.  Guarantor waives the benefit of all statutes
of limitations affecting Guarantor’s liability under this Guaranty to the
extent permitted by law.

 

c.  Guarantor waives all defenses which
Guarantor might otherwise have to its obligations under this Guaranty by reason
of any disability of Tenant or any other person(s), including the incapacity,
lack of authority, death, or disability of Tenant or any other person(s) or the
failure of Landlord to file or enforce a claim against the estate (in
administration, bankruptcy or any other proceeding) of Tenant or any other
person(s).

 

d.  Guarantor waives all defenses and rights
which Guarantor might otherwise have to exoneration under this Guaranty,
including all rights under California Civil Code Section 2819 and similar laws,
based on any alteration, modification, compromise, renewal, extension, or
assignment of the Lease or any of the Guaranteed Obligations, whether done with
or without the knowledge or consent of Guarantor, and Guarantor grants Landlord
the right to take any such action relative to the Guaranteed Obligations
without the knowledge or consent of Guarantor without in any manner affecting
the liability of Guarantor under this Guaranty.

 

e.  Guarantor waives all other defenses based on
the termination of Tenant’s liability from any cause or the impairment of any
other collateral or security for the Guaranteed Obligations provided, however,
Guarantor will not be liable for obligations for which Tenant is not
obligated to perform because of the express terms of the Lease.

 

f.  Guarantor subordinates to Landlord all of
Guarantor’s rights to participate in any security now or later held by
Landlord.

 

g.  Guarantor waives all presentments, demands
for performance, notices of non-performance, protests, notices of protest,
notices of dishonor, notices of non-payment, and all other notices of any kind,
including all notices of the existence, creation, or incurring of new or
additional obligations and any notice of acceptance of this Guaranty, which,
upon execution by Guarantor, shall

 

13

 

immediately be binding upon
Guarantor.

 

h.  Guarantor waives all duties Landlord may
have to investigate the authority of any representative, or purported
representative, of Tenant to incur any obligation or enter into any agreement
on behalf of Tenant.

 

i.  Guarantor waives all rights it may otherwise
attain by reason of Landlord’s failure to enforce, or delay in enforcing, any
of Landlord’s rights with respect to the Guaranteed Obligations.

 

All rights,
powers and remedies of Landlord under this Guaranty shall be cumulative and not
alternative and such rights, powers and remedies shall be in addition to all
rights, powers and remedies given to Landlord by law.

 

Guarantor
represents and warrants that the following are accurate and complete as of the
date of this Guaranty and shall be true at all times in the future while this
Guaranty is outstanding:  (i) this
Guaranty is executed at Tenant’s request and not at the request of
Landlord;  (ii) Guarantor has sufficient
net worth and sufficient liquidity of assets to enable Guarantor to promptly
perform all of the Guaranteed Obligations as and when they are due;  (iii) Landlord has made no representation to
Guarantor as to the creditworthiness or financial condition of Tenant; and  (iv) Guarantor has carefully read and
negotiated all provisions of this Guaranty and has consulted with competent
legal counsel in connection therewith.

 

Guarantor
covenants that it is intimately aware of Tenant’s business and financial
condition and that it has conducted a thorough investigation of all material
factors regarding the making of the Lease and this Guaranty. Furthermore,
Guarantor represents that it has the resources, access, and opportunity to
remain informed at all times of the financial status of Tenant and of all other
material information relative to the Lease and Guarantor’s obligations under
this Guaranty; and Guarantor covenants to remain informed relative to all such
matters as long as this Guaranty remains in effect.  On the basis of the foregoing, Guarantor waives any obligation
which Landlord might otherwise have as a condition to enforcing Guarantor’s
obligations under this Guaranty, to keep Guarantor informed relative to any
information regarding the Lease, the Tenant, any security for the Lease, or any
other factors affecting the obligations of Tenant of Guarantor.

 

In the event
of Tenant’s insolvency or the disposition of the assets of Tenant, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Tenant applicable to the payment of
all claims of Landlord and of each Guarantor shall be paid to Landlord and
shall be first applied by Landlord to the Guaranteed Obligations.  Guarantor assigns to Landlord all claims
which the Guarantor may have or acquire against Tenant or any assignee or
trustee in bankruptcy of Tenant; provided, that such assignment shall be
effective only for the purpose of assuring to Landlord full payment and performance
of all of the Guaranteed Obligations. 
All promissory notes now or hereafter evidencing any indebtedness of
Tenant to Guarantor must be marked with a legend that such indebtedness shall
be subordinate to the Guaranteed Obligations and, if Landlord so requests,
shall be delivered to Landlord. 
Guarantor authorizes Landlord to, from time to time, execute and file,
on Guarantor’s behalf, financing statements and continuation statements and to
execute such other documents and to take such other action as Landlord deems
necessary or appropriate to perfect, preserve and enforce Landlord’s rights
under this Guaranty.

 

All of the
provisions of the foregoing Lease Agreement in Article 36 are incorporated into
and repeated here in this Guaranty, but with each reference to “Tenant”
replaced with “Guarantor” and each reference to “this Lease” replaced with
“this Guaranty”.

 

	
  GUARANTOR:

  	
  INVISION
  TECHNOLOGIES COMPANY, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Ross Mulholland

  	
   

  	
   

  
	
   

  	
   

  	
  Ross Mulholland, CFO

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ian Johnston

  	
   

  	
   

  
	
   

  	
   

  	
  Ian Johnston, Secretary

  	
   

  	
   

  

 

14

 

Exhibit A – Premises

 

Lot 8 of
Rancho Carmel Unit No. 2, in the City of San Diego, County of San Diego, State
of California, according to Map thereof No. 10382, filed in the Office of the
County Recorder of said County, April 29, 1982.

 

15

 

Exhibit B – Description of Expansion Improvements

 

A 5,000 square
foot out-building to be constructed in the rear parking lot behind the existing
Building, in compliance with H-1 occupancy type construction, including thick
reinforced concrete walls and roof with explosion resistant exterior
doors.  It will have roof-mounted air conditioning
(hidden from view) for interior occupancy of Tenant’s employees.  Interior clear ceiling height to be
approximately 12 feet.

 

16

 

Exhibit C – Schematic Plans of Tenant Improvements

 

 

17

 

[GRAPHIC]

 

FIRST FLOOR PRELIMINARY SPACE
PLAN

 

18

 

[GRAPHIC]

 

SECOND FLOOR PRELIMINARY SPACE
PLAN

 

19

 

[GRAPHIC]

 

TEST BUILDING

 

20

 

Addendum No. 1 to Single-Tenant Net Lease Agreement – Extension Option

 

So long as
Tenant is not in default under this Lease, and the original Tenant named in
this Lease (or an assignee of the entire Lease approved by Landlord) remains
the Tenant under this Lease and continues to occupy and operate the entire
Premises, Tenant may once extend the Term by an additional ten years (the
“Extension Period”), at an initial Basic Monthly Rent equal to the fair market
rent of the entire Premises (including the Expansion Improvements) determined
in accordance with this Addendum (“FMR”). 
The initial Basic Monthly Rent of the Extension Period automatically is
increased on the first day of the calendar month which is two years after the
first day of the Extension Period, and every two years after such date of rent
increase (an “Adjustment Date”), to an amount equal to 107% of the Basic
Monthly Rent payable on account of the calendar month immediately preceding the
Adjustment Date.  Tenant may exercise
the option granted in this paragraph only by giving Landlord written notice of
Tenant’s irrevocable election to extend the Term, which notice must be received
by Landlord at least nine months (and no more than 14 months) before the
applicable Extension Period begins. 
Thereafter, Landlord and Tenant shall use good faith efforts to arrive
at a mutually acceptable FMR by the date which is at least 100 days before the
applicable Extension Period.  If,
however, Landlord and Tenant do not timely agree on the FMR, the FMR will be
determined in accordance with the following procedures:

 

1.  On or before the date which is 100 days
before the applicable Extension Period, Landlord and Tenant each shall deliver
written notice to Landlord’s counsel (or another mutually agreed on third
party), in a sealed envelope, of its own best estimate of the fair market
monthly rental value for the Premises during the first year of the applicable
Extension Period (each party’s “Offer”). 
Promptly after such deadline, Landlord’s counsel shall open the sealed
Offers and notify each party of the other’s Offer.  Either party may accept the other party’s Offer within five days
after its receipt thereof by giving the other party its written notice of
acceptance, in which case the accepted Offer becomes the FMR.  If the Offers are within five percent of
each other (or if both parties accept the other’s Offer), the FMR will be the
average of the two Offers.  If only one
of the parties timely delivers an Offer, that Offer will be the FMR.

 

2.  If the FMR is not timely established under
the preceding paragraph, the FMR will be determined as follows:  On or before the 60th day before the Initial
Expiration Date, Landlord and Tenant each shall appoint a California licensed
MAI appraiser and give written notice of the name and address of such appraiser
to the other party.  If either party
fails to appoint an appraiser as required by the preceding sentence, the
appraiser appointed by the other party shall appoint the second appraiser.  The parties shall instruct the two
appraisers to determine the fair market monthly rental value for the Premises
during the first year of the new Extension Period in light of all other terms
of this Lease within four weeks after both appraisers are selected.  If the fair market monthly rental values
determined by the appraisers fall within five percent of each other, the FMR
will be the average of those two values. 
Otherwise, within ten days after the expiration of the 4-week appraisal
period, the two appraisers shall appoint a third California licensed MAI
appraiser and deliver written notice of the name and address of the third
appraiser to Landlord and Tenant.  If
the two appraisers fail to appoint a third appraiser within the time required,
either Landlord or Tenant may petition the Superior Court of San Diego County,
California, for the appointment of the third appraiser.  Within two weeks after her appointment, the
third appraiser shall determine which of the two prior appraisals is most
accurate (the “Chosen Appraisal”).  The
fair rental value established by the Chosen Appraisal will be the FMR.  The fees and costs of both/all of the
appraisers must be paid by the party whose Offer differs from the FMR by the
largest dollar amount.

 

This extension option automatically
terminates and becomes void if three times in any 18-month period Tenant
defaults under this Lease.

 

21

 

Addendum No. 2 to Single-Tenant Net Lease Agreement – Disbursement of
TI Allowance

 

Before beginning
Tenant’s Work, Tenant shall provide Landlord with a written representation
(including reasonable supporting documentation) of the total costs and fees to
complete Tenant’s Work and prepare the Premises and the Expansion Space for
Tenant’s use and occupancy, including the contractors’ overhead, profit,
architectural, construction, permitting, utility connection and “tap-in”
charges, etc., as well as fees and costs of third parties including Architect,
and other charges in having the Plans prepared and the Tenant Improvements
constructed, inspected and operational (the “TI Costs”).  Tenant shall also provide evidence that
Tenant has the funds immediately available to fund the positive difference, if
any, between the TI Costs minus the TI Allowance (the “Shortfall”).  All costs of Tenant’s Work to the extent of
the Shortfall (as it may change from time to time) must be paid by Tenant
before Tenant requests any disbursement (or further disbursement) of the TI
Allowance.  If the TI Costs ultimately
prove to be less than the TI Costs previously anticipated, then the unused
portion of the TI Allowance must be funded to Tenant to the extent necessary to
reimburse Tenant for any Shortfall funded by Tenant that would otherwise have
been funded from the TI Allowance.

 

So long as
Tenant is not in default under this Lease and no Shortfall then exists,
Landlord shall disburse funds from the TI Allowance (subject to a 10%
retention) to pay TI Costs directly, or by joint checks, to the applicable
payees on a monthly basis if Landlord receives at least one week before the
scheduled disbursement an application (the “Application”) specifying the amount
and date of the disbursement for which Tenant is applying.  The Application shall be completed and
certified to be accurate by Tenant, the Contractor and the Architect and shall
specifically identify the nature of each expense by reference to items in
Tenant’s TI Costs statement.  Each
Application must contain, or be accompanied by, an itemized statement providing
all information reasonably required by Landlord, including:

 

(a)  The total amount expended or incurred by
Tenant and due and payable to the Contractor, subcontractors, laborers, and
materialmen, for work performed, and material or equipment furnished, since the
preceding Application.

 

(b)  A description of the items for which
disbursement is requested, which description shall refer to the line items of
Tenant’s TI Cost statement provided to Landlord for which disbursement is
requested.

 

(c)  Invoices and a signed conditional waiver and
release of lien in a form approved by Landlord from Contractor and from each
subcontractor, materialman, and laborer, to be paid in full or in part from the
requested disbursement of TI Allowance proceeds, together with unconditional lien
releases in form approved by Landlord from each subcontractor, materialman, and
laborer and from the Contractor for all work, services and/or materials paid
for out of the previous disbursement.

 

(d)  A statement of the names, addresses, and
types of business entity of all subcontractors, materialmen, and laborers with
respect to whom a disbursement is requested, and certificates that each is
fully qualified and complies in all respects with the requirements of the
Lease.

 

(f)  A certificate from the Architect certifying
that all work has been completed in accordance with the Plans, in a good and
workmanlike manner and in accordance with sound construction practices, and
that the undisbursed proceeds of the TI Allowance are sufficient to pay for the
lien free completion of Tenant’s Work.

 

The persons authorized by
Tenant to execute Applications include Russ Lowell and anyone authorized in
writing by Mr. Lowell.

 

Landlord will
fund the balance of the retention promptly after Landlord receives evidence of
lien-free completion of Tenant’s Work in a good and workmanlike manner, and
complete as-built plans and specifications for Tenant’s Work along with copies
of all warranties and owner’s manuals in connection with the components of
Tenant’s Work, all of which are automatically assigned to Landlord on
termination of this Lease to the extent in effect (and Tenant may not
prematurely terminate them and shall ensure that all contracts, plans and
warranties specifically provide for such assignment).

 

22Exhibit 10.41

 

***Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. §§ 200.80(b)(4) and 240.24b-2

 

REVISION
NO. 1 TO

AGREEMENT
FOR PRODUCTS AND SERVICES

BETWEEN

INVISION
TECHNOLOGIES, INC.

AND

COORSTEK,
INC.

 

THIS REVISION NO. 1 TO AN AGREEMENT FOR
PRODUCTS AND SERVICES is made by and between CoorsTek,
Inc., with offices located at 16000 Table Mountain Parkway, Golden, Colorado
80403 (hereinafter “CoorsTek” or 
“Supplier”), and InVision Technologies, Inc., with offices located at
7151 Gateway Boulevard, Newark, California 94560 (hereinafter “InVision” or
“Customer”).

 

WHEREAS, effective June 10, 2002, the parties to
entered into the original version of this Agreement;

 

WHEREAS, since the effective date of the original
agreement the parties have expanded the scope of their relationship;

 

WHEREAS, the parties now wish to amend certain
provisions of their Agreement to fully reflect the terms of the relationship
between them;

 

WHEREAS, the parties now wish to enter into this
Revision No. 1 to the Agreement and intend for Revision No. 1 to be the
Agreement controlling their relationship;

 

NOW, THEREFORE, in
consideration of the promises, mutual covenants and agreements contained
herein, the receipt and sufficiency of which are hereby acknowledged, Customer
and Supplier agree as follows:

 

1.             DEFINITIONS

The terms
defined in this Section 1 shall have the meanings set forth below whenever they
appear in this Agreement, unless a different definition is described for a
particular Section or provision:

 

1.1.                            “Affiliate”
means (i) any corporation, subsidiary, or business entity forty percent (40%)
of which is owned directly or indirectly by Customer, or (ii) any corporation
which directly or indirectly owns forty percent (40%) or more of Customer, or
(iii) any corporation, subsidiary, or business entity under the direct or
indirect control of such corporation, subsidiary, or business entity as
described in (i) or (ii).

 

1.2.                            “Agreement”
means this written contract between Customer and Supplier covering the purchase
of Products and Services together with the Statement of Work, attached
exhibits, and amendments to this Agreement issued in accordance with the
Section 25 entitled “Amendments”.

 

1.3.                            “Liabilities”
means all judgments, orders, awards, claims, damages, losses, liabilities,
costs and expenses, including, but not limited to, court costs and reasonable
attorneys’ fees.

 

 

1.4.                            “Change”
means a Customer or Supplier proposed change to the Supplier’s obligations
hereunder.

 

1.5.                            “Customer”
means InVision Technologies, Inc. and shall also include any Affiliate of
InVision that places any Order(s) or obtains any Products or Services under
this Agreement.

 

1.6.                            “Final
Acceptance Test” means inspection by the Federal Aviation
Administration (FAA), an entity approved by the FAA, or other authorized
government authority to perform such test of any Products delivered under this
Agreement.

 

1.7.                            “Order(s)”
means a written or electronic offer by Customer for Products or Services that
shall be deemed to incorporate all provisions of this Agreement.

 

1.8.                            “Products”
means any deliverables under this Agreement, including assemblies, components
and subassemblies associated with a System.

 

1.9.                            
“Services” means the work to be performed by Supplier under this Agreement
in providing Supply Chain Management, Assembly Services, or field service
support and excludes work performed by Supplier in providing Products.

 

1.10.                     “Statement(s)
Of Work” means the written instruments made part of this Agreement by this reference
describing, among other things, the scope of the Products to be delivered or
Services to be performed by Supplier hereunder, the time frame for completion
thereof and the fee(s) associated therewith.

 

1.11.                     “Supplier”
means CoorsTek, Inc., and shall also include any Affiliate of CoorsTek that
provides any Products or Services under this Agreement.

 

1.12.                     “System”
means an InVision model CTX 2500, CTX 5500DS, or CTX9000DSi
explosive detection system (EDS).

 

2.             TERM

This Agreement shall commence upon the execution hereof and shall
continue until June 9, 2003 and may be
renewed for consecutive one-year term(s) if Customer provides Supplier with
written notice of its intent to renew at least 30 days prior to expiration.

 

3.             TERMINATION

3.1.                            The rights and obligations
created herein shall be subject to termination only in accordance with the
termination provisions of this Agreement.

 

3.2.                            Either party to this
Agreement shall have the right to terminate a singular Statement of Work upon
the following conditions.  In the event
of a breach of a material term of a singular Statement of Work, the
non-breaching party shall give the breaching party written notice of the
breach.  The breaching party will have
ten (10) business days to cure such breach or within ten (10) business days of
receiving the notice, must provide to the non-breaching party an acceptable
plan to cure the breach.  Failure to
cure the breach or to set forth an acceptable plan to cure the breach within the
allotted time frame shall give the non-breaching party the right to immediately
terminate that singular Statement of

 

2

 

Work for cause
pursuant to the wind down provision contained in the subject Statement of Work

 

3.3.                            Customer shall have the
right to terminate this Agreement if Customer’s contract with the Federal
Aviation Administration and/or Transportation Security Administration is
terminated or substantially reduced by the government. Upon written notice of
such a termination, Supplier shall cease performance of all Services and
manufacture of all Products, as provided in the applicable Statement of
Work(s).

 

3.4.                            Termination under this
Section 3 shall not limit or affect either party’s rights or obligations
arising under this Agreement prior to such termination.

 

4.             SCOPE OF PRODUCTS AND SERVICES

 

4.1.                            Services
- The description of the Services, together with the time(s) of performance are
described in this Agreement and Attachment 1 the Supply Chain Management
Services Statement of Work and Attachment 2 Assembly Services Statement of
Work. The Services shall be performed upon such terms as set forth in the
Statements of Work and this Agreement.

 

4.2.                            Products
– Attachment 3 the Statement of Work for Components contains a description of
the Products to be provided under this Agreement.  Products shall be manufactured and delivered upon such terms as
set forth in Attachment 3 and this Agreement.

 

4.3.                            Field
Service or Spares - Attachment 4, when and if negotiated by the parties will
contain the Statement of Work for Field Services or Spares to be provided under
this Agreement, if any.

 

5.             AGREEMENT
CHANGE ORDERS

 

5.1.                            During
the term of this Agreement, Customer or Supplier agree to meet not less
frequently than once per calendar quarter to review Supplier’s performance
under this Agreement.  If as a result of
these quarterly meetings, or as otherwise may arise during the term of this
Agreement, Customer proposes a change in Supplier’s obligations hereunder, then
all such Changes shall be implemented pursuant to the procedures set forth in
this Section.

 

5.2.                            If
Customer desires to propose a Change, it shall deliver a written notice to the
Supplier describing the Change proposal and establishing a reasonable period
for Supplier to respond.  Supplier shall
respond to such proposal within the time stated in the proposal by preparing
and delivering to the Customer, a written document indicating:

 

5.2.1.                  the effect of
the proposal, if any, on the amounts payable by Customer under this Agreement;

 

5.2.2.                  the effect of
the proposal, if any, on Supplier’s performance of its obligations under this
Agreement;

 

5.2.3.                  the anticipated
time schedule for implementing the proposal; and

 

3

 

5.2.4.                  any other information
requested in the proposal or reasonably necessary for Customer to make an
informed decision regarding the proposal.

 

5.3.                            If
Customer accepts the change proposal response by the Supplier, the parties
shall amend this Agreement to incorporate such changes.

 

5.4.                            No
change shall be made by the Supplier without the written consent of
Customer.  If Supplier desires to
propose a Change, it shall deliver a written request to Customer, which shall
include the information described in Section 5.2 above.

 

5.5.                            In the
event that Customer and Supplier can not agree on a Change, then Supplier will
perform the Change as instructed by Customer, and Customer will pay a
provisional fee in an amount as determined by Customer.  The actual amount of the fee will be determined
in accordance with the Dispute Resolution clause 20 of this Agreement.

 

6.             FEE(S)

As
consideration for Supplier’s manufacture of the Products and performance of the
Services, Customer agrees to pay Supplier the Fee(s) set forth in the
applicable Statement of Work.

 

7.             INVOICES AND PAYMENTS

Payment terms
are net [***] days unless noted otherwise in the applicable Statement of
Work.  A late payment charge of [***]%
per month (annual rate of [***]%) will be added to past due accounts, unless
other arrangements are made.  All orders
are subject to management approval of and periodic review of credit, export and
payment terms, which may be modified by Supplier on reasonable notice for good
cause.  When Wire Remittance is required
or necessary, remittance should be made to:

 

COORSTEK

c/o LaSalle
Bank National Association

ABA #:
0071000505

Swift #:  [***]

Acct #:  [***]

 

When Check
Remittance is required or necessary, checks should be sent to:

 

COORSTEK

c/o Bank of
America

135 South
LaSalle Dept. # 3193

Chicago,
Illinois   60674-3193

 

8.             WARRANTIES

 

Except as set forth in the applicable
Statement of Work SUPPLIER MAKES NO OTHER WARRANTY OF ANY KIND WHATEVER,
EXPRESS OR IMPLIED.  SUPPLIER EXPRESSLY
DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.

 

9.             CONFIDENTIALITY/PROTECTION OF PROPRIETARY
RIGHTS

 

All of the
Customer’s specifications and processes are Confidential Information, and shall
be protected from disclosure as provided in the Non-Disclosure Agreement
between Customer and

 

4

 

Supplier dated
January 8, 2002, attached to this Agreement as Attachment 6 and made a part
hereof.

 

10.          INDEPENDENT CONTRACTOR

Supplier and
Customer hereby declare and agree that they are engaged in independent
businesses and will perform their respective obligations under this Agreement
as independent contractors and not as the agent or employee of the other party;
that the persons performing services hereunder are not agents or employees of the
other party; that each party has and hereby retains the right to exercise full
control of and supervision over the performance of its obligations hereunder
and full control over the employment, direction, compensation and discharge of
all employees assisting in the performance of such obligations; that each party
will be solely responsible for all matters relating to payment of its
employees, including compliance with workers’ compensation, unemployment,
disability insurance, social security withholding, and all other federal, state
and local laws, rules and regulations governing such matters; and that each
party will be responsible for its own acts and those of its agents, employees
and subcontractors during the performance of its obligations under this Agreement.
Each party agrees that its employees are not entitled to unemployment insurance
benefits from the other party as a result of performing under this
Agreement.  Each party is responsible
for and shall pay all assessable federal and state income tax on amounts paid
under this Agreement.

 

11.          INDEMNITY

11.1.                     Customer
shall indemnify and hold harmless Supplier, its owners, parents, Affiliates,
subsidiaries, agents, directors and employees from any Liabilities arising from
and in connection with Supplier providing Services or Products under this
Agreement or from Customers’ use of Product(s) or the acts or omissions of
Customer, its agents and employees and others under its direction or control
except to the extent such Liabilities are caused by or are the result of the
negligence or willful misconduct of Supplier. 
Such Liabilities shall include, but not be limited to, those
attributable to personal injury, sickness, disease or death; and/or result from
injury to or destruction of real or personal property including loss of use
thereof, theft, misuse or misappropriation.

 

11.2.                     Supplier
shall indemnify and hold harmless Customer, its owners, parents, Affiliates,
subsidiaries, agents, directors and employees from any Liabilities arising from
and in connection with Supplier providing Services or Products under this
Agreement or the acts or omissions of Supplier, its agents and employees and
others under its direction or control except to the extent such Liabilities are
caused by or are the result of the negligence or willful misconduct of
Customer.  Such Liabilities shall
include, but not be limited to, those attributable to personal injury,
sickness, disease or death; and/or result from injury to or destruction of real
or personal property including loss of use thereof, theft, misuse or
misappropriation.

 

11.3.                     Customer
shall indemnify and hold harmless Supplier, its owners, parents, Affiliates,
subsidiaries, agents, directors and employees from and against all Liabilities
arising out of or resulting from (i) assertions under workers’ compensation or
similar employee benefit acts made by Customer or any of Customer’s employees,
agents, subcontractors, or subcontractors’ employees or agents, or (ii) any
other claim which may be asserted by any of Customer’s employees, customers,
agents, subcontractors or subcontractor’s employees or agents against Supplier,
its owners, parents, affiliates, subsidiaries, agents, directors and employees
except to the extent such claim is the direct result of the gross negligence or
willful misconduct of Supplier.

 

5

 

11.4.                     Supplier
shall indemnify and hold harmless Customer, its owners, parents, Affiliates,
subsidiaries, agents, directors and employees from and against all Liabilities
arising out of or resulting from (i) assertions under workers’ compensation or
similar employee benefit acts made by Supplier or any of Supplier’s employees,
agents, subcontractors, or subcontractors’ employees or agents, or (ii) any
other claim which may be asserted by any of Supplier’s employees, suppliers
(but not including suppliers under supply chain management services), agents,
subcontractors or subcontractor’s employees or agents against Customer, its
owners, parents, affiliates, subsidiaries, agents, directors and employees
except to the extent such claim is the direct result of the gross negligence or
willful misconduct of Customer.

 

11.5.                     The foregoing
indemnification obligations are conditioned upon the following:

 

11.5.1.           The party claiming a
right to be indemnified (“Indemnified Party”) notifies the other party
(“Indemnifying Party”) within ten (10) days of receipt or notice of any claim
or action for which the Indemnified Party will seek indemnification;

 

11.5.2.           The Indemnifying Party
has sole control of the defense and/or settlement of any claim;

 

11.5.3.           The Indemnified Party
shall furnish to the Indemnifying Party, upon request, information available to
the Indemnified Party for such defense; and

 

11.5.4.           The Indemnified Party
shall provide the Indemnifying Party with reasonable assistance in connection
with such defense.

 

12.          INSURANCE

 

12.1.                     Supplier
will, at its expense, procure and maintain insurance on all of its operations,
including the policies listed below. Supplier will furnish certificates of
insurance as requested.

 

12.1.1.    Workers’ Compensation Insurance in the
statutory amount.

 

12.1.2.    Employer’s Liability Insurance, in the
amount of $[***] per occurrence.

 

12.1.3.           Commercial
General Liability Insurance, including coverage for property damage and
personal injury, in the amount of $[***] per occurrence.

 

12.1.4.           Property
Insurance, including coverage for Customer owned material located on Supplier’s
premises and in transit, in the amount of $[***] per occurrence.  Commercial Automobile Liability Insurance
with a $[***] combined single limit.

 

12.2.                     Customer
will, at its expense, procure and maintain insurance on all of its operations,
including the policies listed below. Customer will furnish certificates of
insurance as requested.

 

12.2.1.           Workers’ Compensation
Insurance in the statutory amount.

 

12.2.2.           Employer’s Liability
Insurance, in the amount of $[***] per occurrence.

 

6

 

12.2.3.           Commercial General
Liability Insurance, including coverage for property damage and personal
injury,  in the amount of $[***] per
occurrence.

 

12.2.4.           Products liability
coverage, including aviation related products, war risk and terrorism coverage,
including coverage for property damage and personal injury, in the amount of
$[***] per occurrence.

 

12.2.5.           Commercial Automobile
Liability Insurance with a $[***] combined single limit.

 

13.          PATENT, TRADEMARK,
COPYRIGHT OR TRADE SECRET INDEMNIFICATION

 

13.1.                     Customer shall indemnify and hold
harmless Supplier, its owners, parents, Affiliates, subsidiaries, agents,
directors and employees from and against all Liabilities that may result by
reason of any infringement or claim of infringement of any patent, trademark,
copyright, trade secret or other proprietary right relating to the design
and/or use of the Systems.  Customer
will defend and/or settle at its own expense any action brought against
Supplier to the extent that it is based on a claim that the System design(s)
and/or the use thereof, infringe any patent, trademark, copyright, trade secret
or other proprietary right.

 

13.2.                     If a preliminary or final judgment
shall be obtained against Supplier based upon its providing of Services or
Product(s) or any part thereof by reason of alleged infringement, or if in
Supplier’s opinion, such System(s) or any part thereof, and/or the use thereof
are likely to become subject to a claim for infringement, Customer shall, at
its expense and option and without any effect or waiver of any right Supplier
may possess at either law or equity, either: (1) procure for Supplier the right
to continue manufacturing and using such System(s); or (2) replace or modify
System(s) so that it becomes non-infringing but only if the modification or
replacement does not adversely affect the Supplier’s rights or ability to use
same as specified herein.

 

13.3.                     Supplier shall indemnify and hold
harmless Customer, its owners, parents, Affiliates, subsidiaries, agents,
directors and employees from and against all Liabilities that may result by
reason of any infringement or claim of infringement of any patent, trademark,
copyright, trade secret or other proprietary right relating to the Supplier’s
supply chain management and/or manufacturing and assembly processes.  Supplier will defend and/or settle at its
own expense any action brought against Customer to the extent that it is based
on a claim that the supply chain management and/or manufacturing and assembly
processes and/or the use thereof, infringe any patent, trademark, copyright,
trade secret or other proprietary right.

 

13.4.                     If a preliminary or final judgment
shall be obtained against Customer based upon its providing of supply chain
management and/or manufacturing and assembly processes or any part thereof by
reason of alleged infringement, or if in Customer’s opinion, such supply chain
management and/or manufacturing and assembly processes or any part thereof,
and/or the use thereof are likely to become subject to a claim for
infringement, Supplier shall, at its expense and option and without any effect
or waiver of any right Customer may possess at either law or equity, either:
(1) procure for Customer the right to continue using such Services; or (2)
replace or modify Services so that they become non-infringing but only if the
modification or replacement does not adversely affect the Customer’s rights or
ability to use same as specified herein.

 

7

 

13.5.                     The foregoing
indemnification obligations are conditioned upon the following:

 

13.5.1.           The party claiming a
right to be indemnified (“Indemnified Party”) notifies the other party
(“Indemnifying Party”) within ten (10) days of receipt or notice of any claim
or action for which the Indemnified Party will seek indemnification;

 

13.5.2.           The Indemnifying Party
has sole control of the defense and/or settlement of any claim;

 

13.5.3.           The Indemnified Party
shall furnish to the Indemnifying Party, upon request, information available to
the Indemnified Party for such defense; and

 

13.5.4.           The Indemnified Party
shall provide the Indemnifying Party with reasonable assistance in connection
with such defense.

 

14.          ADVERTISING; PUBLICITY

Customer and Supplier grant to each other permission to reference the
other in advertising, promotional efforts and publicity so long as the party
originating the advertisement, promotional effort or publicity provides the
other party prior notice.   Nothing in
this section shall prohibit either party from making any disclosure ordered by
a court or agency of competent jurisdiction or otherwise required by law.

 

15.          PLANT AND WORK RULES

Supplier and Customer, while on the premises of the other shall comply
with all plant rules and regulations including, where required by governmental
regulation, submission of satisfactory clearance from the appropriate
governmental authorities.

 

16.          FORCE
MAJEURE

Neither party shall be liable for failure to perform when such failure
is caused by unforeseeable force majeure circumstances.  If such circumstances occur, the party
injured by the other’s inability to perform may elect to (1) terminate that
portion of this Agreement adversely impacted by the failure to perform and as
specified in Section 3 of this Agreement; and/or (2) suspend that portion of
this Agreement adversely impacted by the failure to perform for the duration of
the force majeure circumstances, and then resume performance under this
Agreement.  The party experiencing the
force majeure circumstances shall cooperate with and assist the injured party
in all reasonable ways to minimize the impact of such circumstances on the
injured party, including assisting in locating and arranging for substitute
Products or Services.

 

17.          SUPPLIER’S
RIGHT FOR FIRST OPPORTUNITY TO SUBMIT OFFER

Customer shall give Supplier the first opportunity to submit an offer
to provide Supply Chain Management Services related to any new products
outsourced by Customer.

 

18.          RESERVATION OF RIGHTS

Neither party’s delay or failure in enforcing any right or remedy
afforded hereunder or by law shall prejudice or operate to waive that right or
remedy or any other right or remedy which it shall have available; nor shall
any such failure or delay operate to waive either party’s rights to any
remedies due to a future breach of this Agreement, whether of a like or different
character.

 

8

 

19.          SEVERABILITY

In the event that a court or a governmental or regulatory agency with
proper jurisdiction determines that this Agreement or a provision of this
Agreement is unlawful respectively, this Agreement, or that provision of this
Agreement, to the extent it is unlawful, shall terminate.  If a provision of this Agreement is
terminated but the parties can continue legally, commercially and practicably
without the terminated provision, the remainder of this Agreement shall
continue in effect.  No additional
liability shall attach to either party as a result of any such termination.

 

20.          DISPUTE RESOLUTION

Any controversy, claim, or dispute arising out of or relating to this
Agreement, or the breach thereof, shall be settled through good faith
negotiation between the parties.  In the
event that said negotiations are not successful, the controversy, claim, or
dispute shall be resolved through arbitration. 
Such arbitration shall take place in San Francisco, California and shall
proceed in accordance with Commercial Arbitration Rules of the American
Arbitration Association and the laws of the State of California without regard
to the provisions thereof concerning conflict of laws.  All costs and expenses of the arbitration
(including fees of the arbitrators) shall be split equally between the
parties.  The non-prevailing party shall
pay the prevailing parties attorney fees in any such arbitration.

 

21.          NONEXCLUSIVE AGREEMENT

Except as set forth in section 17 above, it is expressly understood and
agreed that this Agreement does not grant to Customer or Supplier any exclusive
privileges or rights and Supplier and/or Customer may contract with other
Customers and/or Suppliers to provide comparable services.

 

22.          ASSIGNMENT

Neither party
may assign this Agreement without the express written permission of the other
party.  Provided, however, that a change
in control of a party, by merger, acquisition or other change in stock
ownership, shall not be deemed to be an assignment.

 

23.          SETOFF

All claims for money due or to become due
from one party shall be subject to deduction or setoff by the other party by
reason of any counterclaim arising out of this or any other transaction with
that party.

 

24.          REMEDIES CUMULATIVE

The remedies provided herein shall be cumulative and in addition to any
other remedies provided by law or equity.

 

25.          AMENDMENTS

No change or modifications of any terms or conditions herein shall be
valid or binding on either party unless made in writing and signed by Customer
and an authorized representative of Supplier.

 

9

 

26.          NOTICES

Any notice required to be given hereunder shall be in writing and shall
be addressed to the parties at their respective address set forth below.  All notices shall be deemed given five (5)
days after mailing by certified mail, return receipt requested, and one (1) day
after sending by a nationally recognized overnight courier service which
provides a delivery receipt.

 

	
  Customer:

  	
   

  	
  Supplier:

  
	
  InVision Technologies

  	
   

  	
  CoorsTek,
  Inc.

  
	
  7151 Gateway Boulevard

  	
   

  	
  Legal
  Services Office

  
	
  Newark, California 94560

  	
   

  	
  16000 Table
  Mountain Parkway

  
	
   

  	
   

  	
  Golden,
  Colorado 80403

  

 

27.          WAIVER

Either party’s failure to insist on performance of any of the terms or
conditions herein or to exercise any right or privilege, or either party’s
waiver of any breach hereunder shall not be construed to be a waiver, or waive
any other terms, conditions, or privileges, whether of the same or similar
type.

 

28.          GOVERNING LAW

This Agreement
and all transactions hereunder shall be governed by and construed in accordance
with the laws of the State of California, without regard to any provisions
regarding conflict of laws.

 

29.          INTELLECTUAL PROPERTY

All
intellectual property rights in Supplier’s supply chain management and
manufacturing and assembly processes, including without limitation utility
patent, design patent, trademark and copyright, are the sole property of
Supplier.  All intellectual property
rights in the Product, including without limitation utility patent, design
patent, trademark and copyright, all Customer specifications, and all methods
of manufacturing the Products as provided by Customer, are the sole property of
Customer.  If Supplier makes an
improvement to the Products, the specifications or the method of manufacturing
the Products, then Supplier hereby grants Customer a perpetual, irrevocable,
exclusive and royalty-free license to use such improvements.  Notwithstanding the foregoing, if Supplier
makes an improvement to a method of manufacturing the Products that can be
applied to products that do not compete with Customer’s Products, then
Supplier’s grant of license shall be non-exclusive and Supplier shall not grant
a license to any party that competes, directly or indirectly, with Customer.

 

30.          LIMITATION OF LIABILITIES

Notwithstanding any other provision of this Agreement, neither party
shall be liable to the other for special, indirect, consequential or incidental
losses or damages of any kind or nature whatsoever, including but not limited
to lost profits, lost records or data, lost savings, loss of use of facility or
equipment, loss by reason of facility shut-down or non-operations or increased
expense of operations, or other costs, charges, penalties, or liquidated
damages, regardless of whether arising from breach of contract, warranty, tort,
strict liability or otherwise, even if advised of the possibility of such loss
or damage or if such loss or damage could have been reasonably foreseen.

 

10

 

31.          EXPORT
AND IMPORT CONTROL

 

31.1.       The
Product is subject to the Export Control regulations of the United States
Department of State and/or the United States Department of Commerce.  Customer agrees to provide Supplier with all
necessary information to comply with the all export laws, controls and
regulations of the United States Government. 
Customer will be the United States Principal Party of Interest and
accordingly, Customer shall be responsible and liable for all aspects of export
compliance.

 

31.2.       Customer
will be the Importer of Record and accordingly shall be responsible and liable
for all aspects of import compliance necessary to obtain System components.

 

32.          GOVERNMENT
SUBCONTRACT

This Agreement
is a subcontract under Customer’s contract with the Federal Aviation
Administration, Contract No. DTFA01-02-C-00023.  Supplier shall comply with the contract clauses listed below.  Supplier may obtain the full text of these
clauses via Internet at: http://fast.faa.gov (on this web page, select
“toolsets”, then “procurement toolbox”).

 

	
  3.6.2-9

  	
  Equal
  Opportunity

  	
  August 1998

  
	
  3.6.2-12

  	
  Affirmative
  Action for Special Disabled and Vietnam

  Era Veterans

  	
  January 1998

  
	
  3.6.2-13

  	
  Affirmative
  Action for Workers with Disabilities

  	
  April 2000

  
	
  3.2.2.3-8

  	
  Audit and
  Records

  	
  April 1996

  

 

33.          DEFENSE
PRIORITY

This Agreement
is subject to a Defense Priority and Allocation System (DPAS) Rating of
DO-H8.  Supplier shall fill this order
in compliance with the DPAS regulations, 15 CFR Part 700.

 

34.          SURVIVAL

The following
Sections of this Agreement shall survive any termination thereof, 1, 3, 4, 6,
7, 8, 9, 11, 13, 17, 18, 19, 20, 26, 27, 28, 29, 30, 31, 35, 36 and 37.

 

35.          HEADINGS

Headings are
intended solely as a convenience and shall not control the meaning or
interpretation of any provision of this Agreement.

 

36.          CONSTRUCTION

The parties
acknowledge that they and their respective counsel have reviewed this Agreement
in its entirety and have had a full and fair opportunity to negotiate its
terms.  Each party therefore waives all
applicable rules of construction that any provision of this Agreement should be
construed against its drafter, and agrees that all provisions of the Agreement
shall be construed as a whole, according to the fair meaning of the language
used.

 

11

 

37.          ENTIRE AGREEMENT

This Agreement
constitutes the entire agreement between the parties hereto and supersedes any
previous agreements or understandings whether oral or written.  The printed terms and conditions contained
in purchase orders, invoices or other documents issued by Customer with respect
to this Agreement, whether previously or in the future, shall be of no effect
and shall be superseded by this Agreement. 
In the event of any conflict between or among any documents which are
part of this Agreement, precedence shall be given first to the text of this
Agreement and second to its Attachments, and third to its Exhibits. Any term or
condition, other than delivery date, quantity or price terms, on an Order,
acknowledgment form, or other forms or documents will not apply and are
objected to, unless such term is approved in writing by an authorized
representative of each party.

 

IN WITNESS WHEREOF
the parties have caused this Agreement to be executed by their duly authorized
representatives as of the last date of signature written here below.

 

	
  CoorsTek, Inc.:

  	
  InVision
  Technologies:

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ David Morosoli

  	
   

  	
  By: 

  	
  /s/ Brad Dudschus

  	
   

  
	
  Name: David
  Morosoni

  	
  Name: Brad Dudschus

  
	
  Title:   V.P. Assembly Operations

  	
  Title:   Supply Chain Operations

  
	
  Date:

  	
  1/24/03

  	
   

  	
  Date: 

  	
  1-24-03

  	
   

  
										

 

12

 

ATTACHMENT
1

SUPPLY
CHAIN MANAGEMENT SERVICES

STATEMENT
OF WORK

TO

AGREEMENT
FOR SERVICES

 

This Statement of Work is
attached to and made a part of that certain Agreement for Services
(“Agreement”), by and between CoorsTek, Inc., (“Supplier”) and InVision
Technologies (“Customer”).

 

1.     Services
Description

 

a.       Overall:  Supplier shall receive instructions from
Customer to carry out Supply Chain Management (SCM) Services in the performance
of this Agreement, including procurement, for Customer related to the assembly
of the Systems.  Supplier will be
responsible for managing (on behalf of Customer) an estimated 350 component
suppliers.  Supplier will provide a
facility for the receipt and inspection of all components purchased from
suppliers.

 

b.       Procurement
Planning and Execution:  Based
solely on Customer’s released Master Production Schedule and
Customer-controlled Bills of Materials, Supplier will generate Materials
Resource Planning (MRP) to determine order requirements; Supplier will
negotiate price, lead time, and delivery on behalf of Customer; Supplier, on
behalf of Customer using forms provided by or approved by Customer will use
both traditional (discrete Purchase Orders (PO)) and more advanced (Vendor
Managed Inventory, Just-in-Time/Kanbans) purchasing mechanisms to bring the
required inventory into the physical and logical system; it is the Customer’s
intent that the Supplier execute the procurement activities to meet all
firm-planned orders reflected in the Master Production Schedule, to mitigate
material liability,  and to plan
procurement activities to meet the forecasted demand; all changes to Customer’s
Approved Vendor List / Approved Parts List need the Customer’s approval and
must pass through the Change Notification process described in Section 5 of the
Agreement, to cut-in the approved change; Supplier will ensure fair and
equitable treatment of all multiple-source suppliers given equal performance in
terms of cost, schedule, and quality.

 

c.       Receiving,
Receiving Inspection, and Receiving Test: 
Based on Customer’s designations for receiving inspection and
component-level testing, Supplier, either directly or through suppliers
authorized by Customer will evaluate incoming materials to ensure conformance
to standards; known “good” product will be accepted and stored by the Supplier;
non-conforming material will be immediately returned to the vendor by the
Supplier.

 

d.       Accounts
Payable Administration:  Based on
confirmed “good” product (see section above) and accepted receipts, Supplier
will supply Customer with weekly check run requirements along with auditable
records (POs, shipping documents, receiving documents); Supplier will transfer
to Customer’s system (ROI*) the following information by cost category
(standard cost, PPV, freight, tooling, NRE, expedite charges).

 

e.       Inventory
Management and Control:  Supplier
will physically store and control Customer’s inventory at several locations
(Central Warehouse, WIP Warehouses, and a single Material Review Board (MRB)
Warehouse); logically, the detailed inventory records and transactions will
reside in the Supplier’s Enterprise Resource (ERP) system; Supplier will
provide on-site support to ensure accurate transactions at the manufacturing
sites (Supplier’s and Customer’s); Supplier will conduct on-going cycle count
activities as well and will review all adjustments with Customer – Customer
retains the responsibility to approve adjustments; Customer-defined reports and
audits will be used to verify the accuracy of the Supplier’s inventory control
system.

 

13

 

f.        Material
Handling:  Supplier will provide
material handlers who will be responsible for the line-side supply using
Kanbans and Demand Flow techniques; Supplier’s material handlers will move
known “good” material to the line to prevent stock-outs and will rapidly
remove/disposition defective material; additionally, Supplier will actively
manage the shortage list – expediting material as required to ensure continuity
of supply to both production sites; Supplier will measure delivery performance
to each site and will regularly review performance with Customer.

 

g.       Material
Review Board (MRB) for Discrepant Items: 
Supplier will maintain a physical MRB at  both assembly sites and one logical MRB in its ERP system;
Supplier will clear MRB on a daily basis working with Customer and any other
Contract Manufacturer; Supplier owns responsibility for driving dispositioning
material for continued use or re-work; Supplier retains responsibility for
returning material to vendor when it cannot be used in the production process;
Supplier will collect and report quality statistics based on the MRB activity;
Supplier will regularly measure and report performance to Customer and will
drive continuous improvement of the supply base.

 

h.       Return
Material Authorization (RMA) and Return to Vendor (RTV) for
Components/Sub-systems:  When
Supplier finds defective materials, it will request RMAs from the vendors and
the manage the returns process; Supplier will manage its MRP to compensate for
the discrepant material and will work with the vendors to prevent any
stock-outs; Supplier will generate credits to Customer based on the returns.

 

2.     Fee

 

a.       Non-Recurring
Expenses (“NRE”). Supplier will
submit proposed NRE charges for approval prior to initiating order.  Supplier will bill Customer [***] for NRE
incurred during the [***].  NRE is
intended to cover production set-up expenses including extraction, testing
areas, assembly fixtures, tooling fixtures, electrical accommodations, etc.  An NRE, not to exceed $[***], will be
reimbursed by Customer for the inclusion of CTX9000Dsi SCM activities.

 

b.       Fee.  Supplier shall issue an invoice to
Customer[***] based upon number of unit starts as determined by gantries placed
at assembly station 1 as illustrated in Attachment 6 Business Structure and Materials
Management Overview.  The
addition of material management services for related products such as field
support is possible and the rate structure will be adjusted by mutual consent
of the Supplier and Customer to accommodate changes in quantity/volume that may
result.

 

•                  Q1
2003 SCM Fee:  Based upon a quarterly
combined volume estimate of [***] units the SCM fee for the CTX 2500 is $[***]
per unit, the SCM fee for the CTX 5500 is $[***] per unit, and the SCM fee for
the CTX 9000 is $[***] per unit.

•                  SCM
Fees for subsequent quarters will be determined based upon the quantity of
systems forecast by InVision for the quarter.

 

3.     Inspection
and Acceptance

a.     Inspection
- Customer may inspect Services performed by Supplier and/or its subcontractors
in progress or completed at any time.

b.     Acceptance
shall be deemed to occur no later than when Customer issues payment for SCM
Services in accordance with Section 2 of this SOW

 

14

 

4.     Warranty

For the Services provided under this Statement of Work, Supplier
warrants that the Services shall be performed in accordance with a reasonable
standard of care and to the reasonable satisfaction of Customer.

 

5.     Schedule

Supplier shall begin satisfactory implementation of supply chain
management services no later than May 1, 2002. 
CTX9000Dsi SCM activities will begin no later than October 1, 2002.

 

6.     Wind
down of Supply Chain Management Services

a.     Termination
for Cause Procedure - Upon termination for cause of the SCM Services
required under this SOW by either party the following shall occur:

i.                  Supplier
will cease all work being performed under this SOW.

ii.              Supplier
will deliver to Customer all finished Product, work in process, and raw
materials and take all reasonable measures to protect Customer’s property in
Supplier’s possession.

iii.          Each
party shall retain rights to intellectual property such party brought to this
Agreement and each party shall be bound by all confidentiality, intellectual
property, warranty and indemnity obligations in accordance with the terms and
conditions of this Agreement.

iv.             Customer
will pay Supplier for SCM Services performed and for all SCM Services performed
in accordance with this SOW and for reasonable and necessary expenses which
have accrued to the date of termination less any amounts previously paid.

b.     Termination
Procedure at End of Agreement Term- Upon termination of this SOW other than
for cause the following shall occur:

i.                  No
later than 30 days from the effective date of the termination Customer shall
provide Supplier with a Notice of Termination including:

1.              The
effective termination date.

2.              A
transition plan including but not limited to details of  (1) the transfer of all finished Product,
work in process, raw materials, records, data and other information owned by
Customer and used by Supplier in providing SCM Services and (2) for all other
activities required by Customer related to the termination of this SOW.  The transition plan shall also include a
reasonable schedule for these activities.

ii.              According
to the schedule in the transition plan, Supplier will cease all work being
performed under this SOW.

iii.          Supplier
will take all reasonable measures to protect Customer’s property in Supplier’s
possession.

iv.             Each
party shall retain rights to intellectual property such party used in
conjunction SCM Services and each party shall be bound by all confidentiality,
intellectual property, warranty and indemnity obligations in accordance with
the terms and conditions of this Agreement.

v.                 Supplier
will have no obligation to train a third party to provide SCM Services to
Customer.

vi.             Customer
will pay Supplier for SCM Services performed and for all SCM Services performed
in accordance with this SOW, for reasonable and necessary expenses which have
accrued to the date of termination, less any amounts previously paid, plus any
costs incurred by Supplier’s in implementation of the transition plan.

c.     Termination
for Convenience Procedure- Upon termination of this SOW for the convenience
of the TSA, the following shall occur:

i.                  The Customer shall provide Supplier
with a Notice of Termination including:

 

15

 

1.     The
effective termination date.

2.     A
transition plan including but not limited to details of  (1) the transfer of all finished Product,
work in process, raw materials, records, data and other information owned by
Customer and used by Supplier in providing Assembly Services and (2) for all
other activities required by Customer related to the termination of this
SOW.  The transition plan shall also
include a reasonable schedule for these activities.

ii.              Supplier will immediately cease all work
being performed under this SOW, except for work specified in the transition
plan required by Customer to terminate this SOW.

iii.          Supplier will take all reasonable measures to
protect Customer’s property in Supplier’s possession.

iv.             Each party shall retain rights to
intellectual property such party used in conjunction Assembly Services and each
party shall be bound by all confidentiality, intellectual property, warranty
and indemnity obligations in accordance with the terms and conditions of this
Agreement.

v.                 Supplier will have no obligation to
train a third party to provide Assembly Services to Customer.

vi.             Customer will pay Supplier for Assembly
Services performed and for all Assembly Services performed in accordance with
this SOW, for reasonable and necessary expenses which have accrued to the date
of termination, less any amounts previously paid, plus any costs incurred by
Supplier’s in implementation of the transition plan

 

16

 

ATTACHMENT
2

ASSEMBLY
AND INTEGRATION SERVICES

STATEMENT
OF WORK

TO

AGREEMENT
FOR SERVICES

 

This Statement of Work is
attached to and made a part of that certain Agreement for Services
(“Agreement”), by and between CoorsTek, Inc., (“Supplier”) and InVision
Technologies (“Customer”).

 

1.     Services
Description

 

a.     Overall:  Supplier shall receive instructions from Customer
to carry out Assembly and Integration Services in the performance of this
Agreement.  Supplier will provide all
necessary labor, facilities and infrastructure required to perform the assembly
services.  This service does not include
Customer’s Quality Assurance and Factory Acceptance Testing.

 

b.     Assembly:  Supplier will build sub-assemblies and
complete mechanical/electrical assembly to Customer’s specifications.

 

c.     Bay
Test:  Supplier will manage the
“powering on” of the System, align the X-Ray Tube, Collimeter, and Detectors
per specification, and prepare the system for integration; system-level rework
to bring the System into specification will be conducted by the Supplier as
part of this effort.

 

d.     Integration:  Supplier will integrate the System’s
hardware and software using Customer-provided instructions, work sequences, and
specifications; system-level rework to bring the System into specification will
be conducted by the Supplier as part of this effort.

 

e.     Manufacturing
Support through Quality Assurance (QA) and Factory Acceptance Testing (FAT):  When Supplier notifies Customer that the
System is ready for QA or FAT, Customer expects a fully capable and compliant
System; if the System fails to meet the QA or FAT specifications during testing,
Customer will notify Supplier of the discrepancy and the Supplier will rework
the System and resubmit it for testing; Supplier maintains responsibility for
the System until it ships complete from the site.

 

f.      In-process
Rework (to meet product specification or based on Customer-approved MRB
dispositions):  Supplier to manage
internal rework required to bring the System into specification and to pass
QA/FAT tests for first-run products.

 

2.     Fee

a.     Non-Recurring Expenses (“NRE”).   Supplier will submit proposed NRE charges for approval prior to
initiating order.  Supplier will
bill Customer [***] for NRE incurred during the [***].  NRE is intended to cover production set-up
expenses including extraction, testing areas, assembly fixtures, tooling
fixtures, electrical accommodations, etc.

b.     Customer
expects to see declining costs associated with assembly of the Systems over
time based on the high volumes and expected learning

c.     An
assembly fee for the CTX 2500 of $[***] per unit will be incurred for the second
quarter of 2002 based on Customer’s acceptance of the work by Supplier

d.     An
assembly fee for the CTX 5500 of $[***] per unit will be incurred for the
second quarter of 2002 based on Customer’s acceptance of the work by Supplier

e.     On
a quarterly basis, Supplier will review its actual hourly content required to
build the Systems and Customer and Supplier will negotiate a revised price
equal to or less than the previous quarter’s price.  The revised price will be based on a fee equal to (1) $[***]

 

17

 

per man hour (verification of actual amount to be confirmed after
completion of the first control build) plus (2) a burden rate of [***]%
of the material cost charged to InVision by its suppliers plus (3)
[***]% of the total of (1) and (2). For clarity the current period assembly
fees were  calculated as follows for
items (1) (2) and (3):

 

Model CTX 2500 requires [***]-man hours and
materials cost of $[***].

Calculation Example:

	
  (1) ($[***] x [***]) =

  	
   

  	
  $

  	
  [***] plus

  	
   

  
	
  (2) ([***] x $[***]) =

  	
   

  	
  $

  	
  [***] plus

  	
   

  
	
  (3) [***] x ([***] + [***]) =

  	
   

  	
  $

  	
  [***]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  [***]

  	
   

  

 

Model CTX 5500 requires [***]-man hours and
materials cost of $[***].

Calculation Example:

	
  (1) ($[***] x [***]) =

  	
   

  	
  $

  	
  [***] plus

  	
   

  
	
  (2) ([***] x $[***]) =

  	
   

  	
  $

  	
  [***] plus

  	
   

  
	
  (3) [***] x ([***] + [***]) =

  	
   

  	
  $

  	
  [***]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  [***]

  	
   

  

 

f.      In
the event that Customer and Supplier can not agree on a fee for a subsequent
quarter, then Supplier will continue to perform all Services under this
Statement of Work, and Customer will pay a provisional fee in an amount as
determined by Customer, and the actual amount of the fee will be determined in
accordance with the Dispute Resolution clause 20 of this Agreement.

 

3.     Inspection
and Acceptance

a.               Inspection
- Customer may inspect Services performed by Supplier and/or its subcontractors
in progress or completed at any time.

b.               Acceptance
- Customer will conduct a Final Acceptance Test on each System. Assembly
Services shall be deemed accepted upon satisfactory completion of Final
Acceptance Test.

 

4.     Warranty

a.               For
the Services supplied under this Statement of Work, Supplier warrants that the
Services will be performed so as to assure conformance to specifications and
drawings, be of first class workmanship and free from defects in workmanship
for twelve (12) months from the date of delivery (“Warranty”).

b.               If
the Services are not supplied as warranted, Supplier will repair the Products,
and if repair is not successful, replace the Products.

c.               In
any event, Customers’ exclusive remedy hereunder is limited to the furnishing
of replacement Products on an exchange basis, or, at Supplier’s option, to the
repair or replacement of defective Products, but in either case only so long as
an examination within the period of warranty reveals the parts to be defective.

d.               In addition, and
notwithstanding anything herein to the contrary, Supplier shall not incur any
obligation hereunder with respect to Services or Products which are modified in
any way by Customer or a third party without Supplier’s prior written consent,
provided, however, that Supplier shall be deemed to have given prior written
consent to Customer’s final integration, test and delivery of the Products.

 

18

 

e.               In
no event shall Supplier incur any obligation to repair or replace Products
which are determined by Supplier, in its sole discretion, to be defective due
to Customer or third party misuse, use of unauthorized repair parts or
unauthorized third-party service, or because of a use not in accordance with
specific Supplier operation and maintenance instructions.

 

5.     Schedule

Supplier shall manufacture and assemble the Systems pursuant to the
Customer’s approved MPS.  Customer will
provide updated schedules to Supplier from time to time.  Schedule changes made with less than four
(4) weeks notice may result in additional charges.

 

6.     Wind
down of Assembly Services

a.               Termination
for Cause Procedure - Upon termination for cause of the Assembly Services
required under this SOW by either party the following shall occur:

i.                  Supplier
will cease all work being performed under this SOW.

ii.              Supplier
will deliver to Customer all finished Product, work in process, and raw
materials and take all reasonable measures to protect Customer’s property in
Supplier’s possession.

iii.          Each
party shall retain rights to intellectual property such party brought to this
Agreement and each party shall be bound by all confidentiality, intellectual
property, warranty and indemnity obligations in accordance with the terms and
conditions of this Agreement.

iv.             Customer
will pay Supplier for Assembly Services performed and for all Assembly Services
performed in accordance with this SOW and for reasonable and necessary expenses
which have accrued to the date of termination less any amounts previously paid.

b.               Termination
Procedure at End of Agreement Term- Upon termination of this SOW other than
for cause the following shall occur:

i.                  No later than 30 days from the
effective date of the termination Customer shall provide Supplier with a Notice
of Termination including:

1.              The
effective termination date.

2.              A
transition plan including but not limited to details of  (1) the transfer of all finished Product,
work in process, raw materials, records, data and other information owned by
Customer and used by Supplier in providing Assembly Services and (2) for all
other activities required by Customer related to the termination of this
SOW.  The transition plan shall also
include a reasonable schedule for these activities.

ii.              According
to the schedule in the transition plan, Supplier will cease all work being
performed under this SOW.

iii.          Supplier will take all reasonable measures to
protect Customer’s property in Supplier’s possession.

iv.             Each party shall retain rights to
intellectual property such party used in conjunction Assembly Services and each
party shall be bound by all confidentiality, intellectual property, warranty
and indemnity obligations in accordance with the terms and conditions of this
Agreement.

v.                 Supplier will have no obligation to
train a third party to provide Assembly Services to Customer.

vi.             Customer will pay Supplier for Assembly
Services performed and for all Assembly Services performed in accordance with
this SOW, for reasonable and necessary expenses which have accrued to the date
of termination, less any amounts previously paid, plus any costs incurred by
Supplier’s in implementation of the transition plan.

 

19

 

c.               Termination
for Convenience Procedure- Upon termination of this SOW for the convenience
of the TSA, the following shall occur:

i.                  The Customer shall provide Supplier
with a Notice of Termination including:

1.              The
effective termination date.

2.              A
transition plan including but not limited to details of  (1) the transfer of all finished Product,
work in process, raw materials, records, data and other information owned by
Customer and used by Supplier in providing Assembly Services and (2) for all
other activities required by Customer related to the termination of this
SOW.  The transition plan shall also
include a reasonable schedule for these activities.

ii.              Supplier
will immediately cease all work being performed under this SOW, except for work
specified in the transition plan required by Customer to terminate this SOW.

iii.          Supplier will take all reasonable measures to
protect Customer’s property in Supplier’s possession.

iv.             Each party shall retain rights to
intellectual property such party used in conjunction Assembly Services and each
party shall be bound by all confidentiality, intellectual property, warranty
and indemnity obligations in accordance with the terms and conditions of this
Agreement.

v.                 Supplier will have no obligation to
train a third party to provide Assembly Services to Customer.

vi.             Customer will pay Supplier for Assembly
Services performed and for all Assembly Services performed in accordance with
this SOW, for reasonable and necessary expenses which have accrued to the date
of termination, less any amounts previously paid, plus any costs incurred by
Supplier’s in implementation of the transition plan.

 

20

 

ATTACHMENT
3

COMPONENTS
SUPPLIER

STATEMENT
OF WORK

TO

AGREEMENT
FOR SERVICES

 

This Statement of Work attached hereto is made a part of that certain
Agreement for Services (“Agreement”), by and between CoorsTek, Inc.,
(“Supplier”) and InVision Technologies (“Customer”).

 

1.     Terms and Conditions of Sale for Components
(Exhibit A to Attachment 3).

 

21

 

ATTACHMENT
4

SPARES
SUPPLIER

STATEMENT
OF WORK

TO

AGREEMENT
FOR SERVICES

 

Intentionally left blank

 

22

 

ATTACHMENT
5

NONDISCLOSURE
AGREEMENT

 

THIS AGREEMENT, made
effective as of the 8TH day of January, 2002 by and between InVision
Technologies, Inc., a Delaware corporation, (hereinafter the “Company”)
and CoorsTek  (hereinafter the “Receiving Party”), to assure the
protection and preservation of the confidential and proprietary information
made available by the Company to the Receiving Party.

 

WHEREAS, the parties desire
to assure the confidential status of the information which may be disclosed by
the Company to the Receiving Party;

 

NOW THEREFORE, in reliance
upon and in consideration of the following undertaking, the parties agree as
follows:

 

1.             Subject to the limitations set forth in
Paragraph 2, all information disclosed by the Company to the Receiving Party
shall be deemed to be “Proprietary Information”. In particular, Proprietary
Information shall be deemed to include any information, process, technique,
algorithm, program, design, drawing, formula or test data relating to any
research project, work in process, future development, engineering,
manufacturing, marketing, servicing, financing or personnel matter relating to
the Company, its present or future products, sales, suppliers, customers,
employees, investors, or business, whether or oral, written, graphic or
electronic form.

 

2.             The term “Proprietary Information” shall not
be deemed to include information which the Receiving Party can demonstrate by
competent written proof: (i) is now, or hereafter becomes, through no act or
failure to act on the part of the Receiving Party, generally known or
available; (ii) is known by the Receiving Party at the time of receiving such
information as evidenced by its records: (iii) is hereafter furnished to the
Receiving Party by a third party, as a matter of right and without restriction
on disclosure; or (iv) is the subject of a written permission to disclose
provided by the Company.

 

3.             The Receiving Party shall maintain in trust
and confidence and not disclose to any third party or use for any unauthorized
purpose any Proprietary Information received from the Company. The Receiving
Party may use such Proprietary Information only to the extent  required to
accomplish the purposes of this Agreement. The Receiving Party shall not use
Proprietary Information for any purpose or in any manner which would constitute
a violation of any laws or regulations, including without limitation the export
control laws of the United States. No other rights of licenses to trademarks,
inventions, copyrights, or patents are implied or granted under this Agreement.

 

4.             Proprietary Information supplied shall not be
reproduced in any form except as required to accomplish the intent of this
Agreement.

 

23

 

5.             The Receiving Party represents and warrants
that it shall protect the Proprietary Information received with at least the
same degree of care used to protect its own Proprietary Information from
unauthorized use or disclosure. The Receiving Party shall advise its employees
or agents who might have access to such Proprietary Information of the
confidential nature thereof and shall obtain from each of such employees and
agents an agreement to abide by the terms of this Agreement. The Receiving
Party shall not disclose any Proprietary Information to any officer, employee
or agent who does not have a need for such information.

 

6.             All Proprietary Information (including all
copies thereof) shall remain the property of the Company, and shall be returned
to the Company after Receiving Party’s need for it has expired, or upon request
of the Company, and in any event, upon completion or termination of this
Agreement.

 

7.             Notwithstanding any other provision of this
Agreement, disclosure of Proprietary Information shall not be precluded if such
disclosure:

 

(a)  is in response to a valid order of a court
or other governmental body of the United States or any political subdivision
thereof; provided, however, that the responding party shall first have given
notice to the other party hereto and shall have made a reasonable effort to
obtain a protective order requiring that the Proprietary Information so
disclosed be used only for the purpose for which the order was issued;

 

(b)  is otherwise required by law; or

 

(c)  is otherwise necessary to establish rights
or enforce obligations under this Agreement, but only to the extent that any
such disclosure is necessary.

 

8.             This Agreement shall continue in full force
and effect for so long as the Receiving Party continues to receive Proprietary
Information. This Agreement may be terminated at any time upon thirty (30) days
written notice to the other party. The termination of the Agreement shall not
relieve the Receiving Party of the obligations imposed by Paragraphs 3, 4, 5
and 12 of this Agreement with respect to Proprietary Information disclosed prior
to the effective date of such termination and the provisions of these
Paragraphs shall survive the termination of this Agreement for a period of five
(5) years from the date of such termination.

 

9.             The Receiving Party agrees to indemnify the
Company for any loss or damage suffered as a result of any, breach by the
Receiving Party of the terms of this Agreement, including any reasonable fees
incurred by the Company in the collection of such indemnity.

 

10.          This Agreement shall be governed by the laws
of the State of California as those laws are applied to contracts entered into
and to be performed entirely in California by California residents.

 

11.          This Agreement contains the final, complete
and exclusive agreement of the parties relative to the subject matter hereof
and may not be changed, modified, amended or supplemented except by a written
instrument signed by both parties.

 

24

 

12.          Each party hereby acknowledges and agrees
that in the event of any breach of this Agreement by the Receiving Party,
including, without limitation, an actual or threatened disclosure of
Proprietary Information without the prior express written consent of the
Company, the Company will suffer an irreparable injury, such that no remedy at
law will afford it adequate protection against, or appropriate compensation
for, such injury. Accordingly, each party hereby agrees that the Company shall
be entitled to specific performance of the Receiving Party’s obligations under
this Agreement, as well as such further injunctive relief as may be granted by
a court of competent jurisdiction.

 

	
  AGREED
  TO:

  	
  AGREED
  TO:

  
	
   

  	
   

  
	
   

  	
   

  
	
  InVision
  Technologies

  	
  CoorsTek

  
	
  7151
  Gateway Blvd.

  	
  16000
  Table Mountain Pkwy.

  
	
  Newark,
  CA  94560

  	
  Golden,
  CO.

  
	
   

  	
   

  
	
  By:

  	
  /s/ ERIC
  HURST

  	
   

  	
  By:

  	
  /s/ JOHN
  GHINAZNI

  
	
   

  	
   

  
	
  Name:

  	
  ERIC
  HURST

  	
   

  	
  Name:

  	
  John
  Ghinazni

  
	
   

  	
   

  
	
  Title:

  	
  Program
  Manager

  	
   

  	
  Title:

  	
  Director

  
									

 

25

 

ATTACHMENT
6

BUSINESS
STRUCTURE AND MATERIALS MANAGEMENT OVERVIEW

 

[***]

 

 

 

 

26

 

ATTACHMENT 7

CTX 9000 INFEED AND OUTFEED ASSEMBLY

STATEMENT OF WORK

TO

AGREEMENT FOR SERVICES

 

1.     This
Statement of Work is attached to and made a part of that certain Agreement for
Services (“Agreement”), by and between CoorsTek, Inc., (“Supplier”) and
InVision Technologies (“Customer”).

 

2.     Services Description

a.               Overall:
Supplier shall implement instructions from Customer to carry out the Assembly
of the Infeed (PN600396-1) and the Outfeed (PN600397-1) sections of the CTX9000
including all necessary labor, facilities and infrastructure required to
perform the Assembly.

 

b.               Assembly:
Supplier will build sub-assemblies and complete mechanical/electrical assembly
to Customer’s specifications.

 

c.               In-process
Rework (to meet product specification or based on Customer-approved MRB
dispositions):  Supplier to manage
internal rework required to bring the System into specification and to pass
QA/FAT tests for first-run products.

 

3.     Fee

a.               Non-Recurring Expenses (“NRE”).  Supplier
will submit proposed NRE charges for approval prior to initiating order.  Customer shall reimburse Supplier’s
NRE not to exceed $[***].  NRE is
intended to cover set-up expenses including electrical accommodations, assembly
fixtures, and suspension upgrade on delivery vehicle to ensure undamaged
delivery.

b.               Customer
expects to see declining costs associated with assembly of the Systems over
time based on the high volumes and expected learning curve.

c.               On
a quarterly basis, Supplier will review its actual hourly content required to
build the Systems and Customer and Supplier will negotiate a revised price for
the upcoming quarter.  The revised price
will be based on a fee equal to (1) $[***] per man hour (verification of actual
amount to be confirmed after completion of the first control build) plus
(2) a burden rate of [***]% of the total material cost charged to InVision by
its suppliers plus (3) [***]% of the total of (1) and (2). For clarity
the initial period assembly fees were calculated as follows for items (1) (2)
and (3):

 

Combined
Infeed/Outfeed Assembly requires [***]-man hours and materials cost of $[***].

Calculation Example:

	
  (1) ($[***] x [***]) =

  	
   

  	
  $

  	
  [***] plus

  	
   

  
	
  (2) ([***] x $[***]) =

  	
   

  	
  $

  	
  [***] plus

  	
   

  
	
  (3) [***] x ([***] + [***]) =

  	
   

  	
  $

  	
  [***]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  [***]

  	
   

  

 

d.     In
the event that Customer and Supplier can not agree on a fee for a subsequent
quarter, then Supplier will continue to perform all Services under this
Statement of Work, and Customer will pay a provisional fee in an amount as
determined by Customer, and the actual amount of the fee will be determined in
accordance with the Dispute Resolution clause 20 of this Agreement.

 

27

 

4.     Inspection and Acceptance

a.               Inspection – Customer may inspect
Services performed by Supplier and / or its subcontractors in progress or
completed at any reasonable time.

 

b.               Acceptance shall be deemed to
occur at the point at which the unit is delivered to the integration site.

 

5.     Warranty

a.               For
the Services supplied under this Statement of Work, Supplier warrants that the
Services will be performed so as to assure conformance to specifications and
drawings, be of first class workmanship and free from defects in workmanship
for twelve (12) months from the date of delivery (“Warranty”).

b.               If
the Services are not supplied as warranted, Supplier will repair the Products,
and if repair is not successful, replace the Products.

c.               In
any event, Customers’ exclusive remedy hereunder is limited to the furnishing
of replacement Products on an exchange basis, or, at Supplier’s option, to the
repair or replacement of defective Products, but in either case only so long as
an examination within the period of warranty reveals the parts to be defective.

d.               In
addition, and notwithstanding anything herein to the contrary, Supplier shall
not incur any obligation hereunder with respect to Services or Products which
are modified in any way by Customer or a third party without Supplier’s prior
written consent, provided, however, that Supplier shall be deemed to have given
prior written consent to Customer’s final integration, test and delivery of the
Products.

e.               In
no event shall Supplier incur any obligation to repair or replace Products
which are determined by Supplier, in its sole discretion, to be defective due
to Customer or third party misuse, use of unauthorized repair parts or
unauthorized third-party service, or because of a use not in accordance with
specific Supplier operation and maintenance instructions.

 

6.     Schedule

a.               Supplier
shall manufacture and assemble the Systems pursuant to the Customer’s approved
MPS.  Customer will provide updated
schedules to Supplier from time to time. 
Schedule changes made with less than four (4) weeks notice may result in
additional charges.

 

7.     Wind
down of Assembly Services

a.               Termination
for Cause Procedure - Upon termination for cause of the Assembly Services
required under this SOW by either party the following shall occur:

i.                 Supplier
will cease all work being performed under this SOW.

ii.             Supplier
will deliver to Customer all finished Product, work in process, and raw
materials and take all reasonable measures to protect Customer’s property in
Supplier’s possession.

iii.         Each
party shall retain rights to intellectual property such party brought to this
Agreement and each party shall be bound by all confidentiality, intellectual
property, warranty and indemnity obligations in accordance with the terms and
conditions of this Agreement.

iv.            Customer
will pay Supplier for Assembly Services performed and for all Assembly Services
performed in accordance with this SOW and for reasonable and necessary

 

28

 

expenses which have accrued to the date of
termination less any amounts previously paid.

 

b.               Termination
Procedure at End of Agreement Term- Upon termination of this SOW other than
for cause the following shall occur:

i.                 No
later than 30 days from the effective date of the termination Customer shall
provide Supplier with a Notice of Termination including:

1.             The
effective termination date.

2.             A
transition plan including but not limited to details of  (1) the transfer of all finished Product,
work in process, raw materials, records, data and other information owned by
Customer and used by Supplier in providing Assembly Services and (2) for all
other activities required by Customer related to the termination of this
SOW.  The transition plan shall also
include a reasonable schedule for these activities.

ii.             According
to the schedule in the transition plan, Supplier will cease all work being
performed under this SOW.

iii.         Supplier
will take all reasonable measures to protect Customer’s property in Supplier’s
possession.

iv.            Each
party shall retain rights to intellectual property such party used in
conjunction Assembly Services and each party shall be bound by all
confidentiality, intellectual property, warranty and indemnity obligations in
accordance with the terms and conditions of this Agreement.

v.                Supplier
will have no obligation to train a third party to provide Assembly Services to
Customer.

vi.            Customer
will pay Supplier for Assembly Services performed and for all Assembly Services
performed in accordance with this SOW, for reasonable and necessary expenses
which have accrued to the date of termination, less any amounts previously
paid, plus any costs incurred by Supplier’s in implementation of the transition
plan.

 

c.               Termination
for Convenience Procedure- Upon termination of this SOW for the convenience
of the TSA, the following shall occur:

i.                 The
Customer shall provide Supplier with a Notice of Termination including:

1.             The
effective termination date.

2.             A
transition plan including but not limited to details of  (1) the transfer of all finished Product,
work in process, raw materials, records, data and other information owned by
Customer and used by Supplier in providing Assembly Services and (2) for all
other activities required by Customer related to the termination of this
SOW.  The transition plan shall also
include a reasonable schedule for these activities.

ii.             Supplier
will immediately cease all work being performed under this SOW, except for work
specified in the transition plan required by Customer to terminate this SOW.

iii.         Supplier
will take all reasonable measures to protect Customer’s property in Supplier’s
possession.

iv.            Each
party shall retain rights to intellectual property such party used in
conjunction Assembly Services and each party shall be bound by all
confidentiality, intellectual property, warranty and indemnity obligations in
accordance with the terms and conditions of this Agreement.

v.                Supplier
will have no obligation to train a third party to provide Assembly Services to
Customer.

vi.            Customer
will pay Supplier for Assembly Services performed and for all Assembly Services
performed in accordance with this SOW, for reasonable and necessary

 

29

 

expenses which have accrued to the date of
termination, less any amounts previously paid, plus any costs incurred by
Supplier’s in implementation of the transition plan.

 

***Confidential
treatment requested.

 

30

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