-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YDWGax/u3g5C6f3iVGUFsX3/tjpDvLOiHogvZ95Ag22UAkCG/ZP/b8wrma+/b7Br 6lE+pjkvru/OiCcxXYJBlg== 0000912057-94-001106.txt : 19940330 0000912057-94-001106.hdr.sgml : 19940330 ACCESSION NUMBER: 0000912057-94-001106 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E SYSTEMS INC CENTRAL INDEX KEY: 0000030875 STANDARD INDUSTRIAL CLASSIFICATION: 3812 IRS NUMBER: 751183105 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-05237 FILM NUMBER: 94518579 BUSINESS ADDRESS: STREET 1: 6250 LBJ FREEWAY CITY: DALLAS STATE: TX ZIP: 75266-0248 BUSINESS PHONE: 2146611000 MAIL ADDRESS: STREET 1: P.O. BOX 660248 CITY: DALLAS STATE: TX ZIP: 75266 FORMER COMPANY: FORMER CONFORMED NAME: LTV ELECTROSYSTEMS INC GREENVILLE EMPLOY DATE OF NAME CHANGE: 19730621 FORMER COMPANY: FORMER CONFORMED NAME: LTV ELECTROSYSTEMS INC DATE OF NAME CHANGE: 19720516 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1993 Commission File Number 1-5237 ------------------------ E-SYSTEMS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 75-1183105 (STATE OR OTHER (I.R.S. EMPLOYER JURISDICTION OF IDENTIFICATION INCORPORATION OR NUMBER) ORGANIZATION) 6250 LBJ Freeway, P.O. Box 660248, Dallas, Texas 75266-0248 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
Registrant's telephone number, including area code: (214) 661-1000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME AND EXCHANGE TITLE OF CLASS ON WHICH REGISTERED - ------------------------------------ ----------------------------- Common Stock, $1.00 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 4, 1994. COMMON STOCK $1.00 PAR VALUE, $1,202,048,806 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 4, 1994. COMMON STOCK, $1.00 PAR VALUE -- OUTSTANDING SHARES, 33,948,943 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement dated March 25, 1994 are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS The Company was incorporated in Delaware in 1964. The Company designs, develops and produces advanced electronic systems and products, primarily for sale in defense related markets, and provides various related technical services. The Company's largest business segments are the design, development and production of reconnaissance and surveillance systems and command, control and communications systems which represented approximately 80% of the Company's sales in 1993. The Company also designs, develops and manufactures intelligence collection and processing systems, which through reconnaissance and surveillance activities collect radio frequency signals and images, process that data, correlate it with other information ("fusion"), and communicate the information to users including various decision makers, such as battlefield tactical commanders and the National Command Authority. In addition, the Company produces navigation and control systems, and performs aircraft maintenance and modification and other services. Approximately 89% of the Company's sales in 1993 were made under contracts with the U.S. Government or to prime contractors with the U.S. Government and approximately 9% were to international customers (principally governments). A substantial portion of the Company's business is conducted under contracts which carry governmental security classifications, many of which prohibit the disclosure of any of the information concerning the nature of the work being done. The sales and operating profits of the Company's business segments for the three years ending December 31, 1993, are set forth in tables at page 39 of this Annual Report on Form 10-K. The backlog believed to be firm at December 31, 1993 was $2,133 million compared to $2,320 million at December 31, 1992. Approximately 87% of the backlog is represented by contracts with the U.S. Government and prime contractors, excluding foreign military sales contracted directly with the U.S. Government. The backlog figures consist of the sales value of U.S. Government contracts and subcontracts which have been contractually documented and for which funds have been authorized by the procuring agency and contracting authority, and the aggregate sales price of firm orders for undelivered nongovernment business. Approximately 70% of the backlog at December 31, 1993 is expected to result in sales during 1994, and the remainder is expected to result in sales in subsequent years. No single contract accounts for more than 10% of the Company's backlog. RECONNAISSANCE AND SURVEILLANCE The Company believes that it is a leader in design, development and integration of sophisticated reconnaissance and surveillance systems. These systems include signal intelligence systems (i.e., communications and electronic intelligence systems), intrusion detection systems, electronic support measures and automated, remotely controlled reconnaissance systems. A wholly owned subsidiary of the Company, Engineering Research Associates, Inc., headquartered in Vienna, Virginia ("ERA"), designs and develops high frequency surveillance systems. Another wholly owned subsidiary, HRB Systems, Inc., ("HRB") headquartered in State College, Pennsylvania, designs and develops signal collection, processing and analysis systems, which complement the Company's activities in the intelligence and reconnaissance systems market. Strategic reconnaissance and surveillance systems produced by the Company utilize technically advanced sensors, receivers, electro-optical devices, processing equipment, computers and display and communications devices which detect, locate and analyze hostile electromagnetic signals and other data. These systems provide information as to the location and sources of such signals and the functions, operating characteristics and intentions of such sources. The systems consist of various electronic components and other materials manufactured by the Company and others, which are integrated to perform functions specified by customers. Many systems are integrated using complex interconnection and processing equipment such as mini-computers and micro-processors together with related software. 2 These versatile systems are adaptable to meet evolving needs such as arms-control verification, drug interdiction and improved submarine detection. As an example, one program calls for the design, development and production of a transportable ground station integrating multi-sensor processing and dissemination of strategic and tactical imagery. It will provide, for the first time, near real-time imagery intelligence to tactical commanders. Each system will be specifically tailored to the particular branch of the service to which it is assigned and to the commander's unique needs. The Company has developed reconnaissance and surveillance systems which operate in all environments. The Company's activities in the field of airborne reconnaissance and surveillance systems also involve the modification of aircraft, the installation of the systems, flight testing and technical support and maintenance service for the systems. An advanced version of the EGRETT aircraft, developed as a reconnaissance and surveillance platform for the German Air Force, can carry a variety of payloads including signal intelligence, imagery and environment sensors and communications devices. In January 1993, the Company was notified by the German government that it does not plan to proceed with the GAFECS program, which was the principal user of the EGRETT aircraft. The loss of this program adversely impacted the Company's short-term international business goals, however, the Company believes that there are other government and commercial applications for the aircraft, such as special operations and anti-terrorist support, drug interdiction, search and rescue, communications relay, environmental sensing and monitoring, geophysical surveys and scientific experiments. The Company generally engages in the design, development and production of reconnaissance and surveillance systems under a number of separate contracts, each of which involves relatively few units of production. COMMAND, CONTROL AND COMMUNICATIONS The Company develops and produces a broad range of systems and products for instantaneous communication via line-of-sight, satellites or integrated networks. These systems receive information that is gathered by advanced electronic means and conventional measures such as radar, photo reconnaissance and radio. The information is then transmitted to data processing systems and is displayed in a command center in a form which can readily be used to command and control forces and to monitor rapidly changing strategic and tactical events. These systems include communications (both analog and digital), large scale data processing, software, data link terminals, antennas and display equipment. The Commanders Tactical Terminal is a joint service, interoperable system using airborne relays to disseminate and receive intelligence information to widely dispersed field units on a near real-time basis. The Company is developing a high-priority survivable communications integration system for the U.S. Space Command. It uses microwave, satellite, land lines, fiber optics, sensors and processors to provide secure and accurate communications between U.S. early warning stations and The North American Air Defense Command ("NORAD") in Colorado Springs. The Company produces a transportable, interoperable and self-contained signal intelligence system called Celtic, which provides a readily reconfigurable system to support signal acquisition or a combination of signal acquisition and direction finding. Celtic is one of the fundamental building blocks E-Systems is using to expand in the international marketplace. The Company produces a Multi-mission UHF Satcom Transceiver ("MUST"), a full duplex radio, which combines state-of-the-art modem and transceiver functions into a single unit. As the smallest airborne demand assured multiple access and interoperable radio available today, the MUST transceiver supplies upgrades while simplifying existing communication systems. E-Systems has also developed key components of the Government Emergency Telecommunications Service ("GETS"). This service allows priority status for officials and emergency support personnel to establish communication over public telephone networks in times of crisis. 3 E-Systems also designed and furnishes the Data Distribution System, a key element of the United States Navy's Cooperative Engagement Capability, which provides a highly reliable secure data communication link to distribute real time sensor information for ship defense. Threat tracking information is shared interactively between all ships and aircraft in the same battle group. An outgrowth of the Company's command, control and communications business segment has been the development of complex, computer-based digital data storage systems for easy information retrieval and rapid transmission to the users. The Company's EMASS-R- Data Storage and Retrieval System is being marketed to energy exploration companies, which have extremely large geological databases to maintain and access, and to other non-defense Government customers with huge databases. The Company also produces mobile command and control facilities which can be airlifted anywhere in a worldwide command mission area. These shelters are self-contained command centers for the control of airlift operations from tactical airfields which have no other communications facilities in place. They provide secure line-of-sight or satellite data and voice communications. These systems were used during the Iraq-Kuwait war in the Middle East. NAVIGATION AND CONTROLS The Company develops and manufactures automatic control products for aircraft, missile steering and tracking systems, and aircraft navigation aids. Substantially all Boeing commercial jet aircraft, including the 757 and 767 aircraft, flown by domestic and international airlines are equipped with flight controls designed and manufactured by the Company. Flight controls are sold to manufacturers as original equipment and to airlines as replacements. The Company also produces an automatic pilot module for the Boeing 737 and 757. The Company's flight control systems provide the pilot with computer measured responses to stress on aircraft control surfaces or perform other precision control functions. The Company manufactures portable tactical air navigation systems for military use to assist pilots in landing at remote or unimproved locations. AIRCRAFT MAINTENANCE AND MODIFICATION AND OTHER SERVICES The Company provides maintenance, repair and modification services for commercial, executive and military aircraft of all types. Other similar work by the Company involves U.S. Air Force aircraft which are regularly returned to the Company for maintenance and systems updating. In addition, the Company maintains field teams for servicing and operational support throughout the world. The Company also has designed and installed a number of executive or head-of-state custom interiors in various types of aircraft. The Company and a wholly owned subsidiary, Serv-Air, Inc., performs special services such as facilities operations, logistics and support, electronics repair, computer based training and simulation systems and base management and support services at various military installations in both the continental United States and worldwide. The Company provides worldwide technical and logistics support for the United States Air Force fleet of KC-10 aircraft used for in-flight refueling and cargo transport. Logistics support includes an on-line computerized inventory management system, which supports material procurement, inventory control and specialized repair and overhaul activity for more than 10,000 line items. Serv-Air also provides base support to four major U.S. Army Commands, maintaining infrastructure, utilities and services equivalent to those required in a large city. Primary functions include facility engineering, utility systems operation and repair, equipment and vehicle maintenance, audio visual services, supply and inventory control, housing management, transportation and various administrative efforts. At a Government facility in Lexington, Kentucky, Serv-Air converts crash damaged Apache helicopters into training devices. The Company also provides contract field teams on call to modify, maintain or repair aircraft, watercraft, vehicles and heavy support equipment for the U.S. military forces anywhere in the world. 4 Operating from 17 fixed sites and additional remote sites, E-Systems maintains a fleet of 150 aircraft for the U.S. Customs Service. These aircraft are equipped with sophisticated airborne avionics sensor systems, including downward and forward looking infrared sensors. The Company also performs work for the Federal Aviation Administration on its flight inspection fleet of aircraft used to verify the accuracy and integrity of the country's en route flight guidance system and approach and takeoff airport guidance and control. The Company has a contract to modify four Lear Jet Model 60 aircraft and a Challenger 601-3R aircraft for the Federal Aviation Administration in connection with this program. NON-TRADITIONAL BUSINESS As the defense budget declines, the Company is devoting many of its resources and competencies into systems suited for non-defense Government and commercial customers using leading edge technologies developed for the Department of Defense. Although none of the current programs contribute a significant amount of sales or profits to the Company, the management believes that some of these projects will lead to business areas of which may offer growth potential and make contributions to earnings within the not too distant future. Examples of the initiatives throughout the Company include the harnessing of surveillance technology developed for the Department of Defense into products which can provide nondisruptive means to detect traffic incidents and to estimate traffic volume and flow rates. This system, developed in part with a Government grant, is designed to reduce congestion on the public highways and is expected to be part of a national intelligent vehicle highway plan. Another product aimed at the transportation industry is Accutrans, which uses existing technology to develop a real time system for fleet management, location and status of mass transit vehicles. Another system, Vista Flight Net, enhances weather and flight information for the Federal Aviation Administration's Flight Service Stations, making current and accurate information more readily available to the general aviation pilot. Several of the Company's divisions are working on initiatives in the medical and health care industry. The Company's PACS systems (Picture Archiving and Communications System) is the core element of a comprehensive image management and communications system within a major medical center. The Company is performing contracts involving large data handling capabilities to apply this knowledge to the Federal Student Loan program. Designed to detect and locate those who default on student loans, the system provides support for the United States Health, Education and Welfare Department. The emergence of the so-called "Information Highway", and its opportunities for massive data exchange, is leading to demands for increased levels of integrity and privacy in data systems. E-Systems has a family of products called TeleSecurity-TM- which build on defense security communications systems and have been developed as inexpensive and superior wide area network security systems which control remote access to protected resources. The Company's INFOSEC systems offers a completely secure information storage and retrieval system to protect both Government and civilian sensitive data. INFOSEC automates information processing through consolidation of data systems using media encryptors and encrypted compact discs. GOVERNMENT CONTRACTS Companies engaged primarily in supplying defense related equipment to the Government are subject to certain business risks unique to that industry. Among these are dependence on Government appropriations, changing policies and regulations, complexity of design and rapidly changing technologies and possible cost overruns. Since the Government usually awards or funds contracts for only one year at a time, the Company's business depends primarily upon such relatively short-term contracts, the periodic exercise by the Government of contract options and annual funding of continuing contracts. Approximately 47% of the Company's current Government contracts are firm, fixed price contracts accounting for approximately $1.0 billion. Under this type of contract, the price paid to the Company is not subject to adjustment by reason of the costs incurred by the Company in the 5 performance of the contract, except for costs incurred due to contract changes ordered by the Government. Multi-year fixed price contracts normally allow for price revision based on U.S. Government price indices. The Company incurs significant work-in-process costs in the performance of United States Government contracts. However, the Company is usually entitled to invoice the U.S. Government for monthly progress payments on fixed price contracts and twice-monthly on some cost reimbursable contracts. The Government recently reduced the progress payment rate on fixed price contracts from 85% to 75%, increasing the Company's working capital requirements. The Company does not normally acquire inventory in advance of contract award, and the Company does not maintain significant stocks of finished products for sale. Government progress payments affect the amount of working capital necessary for the Company to finance work-in-process costs in the performance of these contracts. The Government does not recognize interest or other costs associated with the use of capital and, therefore, progress payment reductions may have adverse effects on the Company's profitability. The Company also performs work for the Government under cost reimbursable and incentive type contracts. Cost reimbursable contracts provide for reimbursement of costs incurred, to the extent such costs are allowable under Government regulations, plus a fee. Under incentive type contracts, the amount of profit or fee realized varies with the attainment of incentive goals such as costs incurred, delivery schedule, quality and other criteria. Fixed price contracts normally carry a higher profit rate than cost reimbursable and incentive type contracts to compensate for higher business risk. In addition, government law and regulation provides that certain types of costs may not be included in either the directly-billed cost or the indirect overheads for which the government is responsible. Many of these so-called "unallowable" costs include ordinary costs of doing business in a commercial context. These costs must be borne out of the pretax profit of the corporation and, thus, tend to reduce margins on government work. The so called "unallowable costs", which are not recoverable as a cost of business on Government contracts, although they are ordinary and necessary costs of doing business in the commercial context, are spelled out in Government acquisition regulations which do not permit contractors to bill the Government directly or indirectly for specified kinds of costs on Government cost reimbursement contracts, and do not allow these costs to be included in the bidding and pricing structure of negotiated fixed price contracts. The allowability or unallowability of such costs and other similar costs are covered in detail in the Federal Acquisition Regulations. Examples of such unallowable costs, including costs which are generally regarded as ordinary and necessary business expenses are: Public relations and advertising costs; contributions to local civil defense funds and projects; donations; business entertainment; independent research and development costs and bid and proposal costs over a negotiated ceiling; insurance costs to protect from the cost of correcting defects in material and workmanship; interest on borrowings and other financial costs, including costs associated with raising capital; lobbying; organizational costs including pursuit of mergers and acquisitions; patent and intellectual property costs not specifically required by contract; reconversion costs; employee relocation costs (with exceptions); travel and per diem costs in excess of those reimbursed to government employees and certain legal fees. Any Government contract may be terminated for the convenience of the Government at any time the Government believes that such termination would be in its best interests. Under contracts terminated for the convenience of the Government, the Company is entitled to receive payments for its allowable costs and, in general, a proportionate share of its fee or profit for the work actually performed. Recognition of profits is based upon estimates of final performance, which may change as contracts progress. Work may be performed prior to formal authorization or adjustment of contract price for increased work scope, change orders and other funding adjustments. Because of the complexity of Government contracts and applicable regulations, contract disputes with the Government occur in the ordinary course of the Company's business. The resolution of such disputes may affect the 6 profitability of the Company in performing these contracts. The Company believes that adequate provision has been made in its financial statements for these and other normal uncertainties incident to its Government business. Changes to procurement regulations in recent years, as well as the Government's drive against "fraud, waste and abuse" in defense procurement systems have increased the complexity and cost of doing business with the Government. Some of these changes have redefined the ability to recover various standard business costs which the Government will not allow, in whole or in part, as the cost of doing business on Government contracts. Other legal and regulatory practices have increased the number of auditors, inspectors general and investigators to the point that the Company, like every other major Government contractor, is the constant subject of audits, investigations and inquiries concerning various aspects of its business practices. One pending investigation resulted in subpoenas by the Government for a large number of documents, and Government interviews of a large number of current and former employees. The Company believes that this investigation, which has been ongoing for over three years, is currently dormant. The Company is unaware that the investigation produced credible evidence of material wrongdoing by it or its employees and, therefore, believes that charges or claims will not be brought against it or its employees arising from this investigation. The Company regards charges of violation of government procurement regulations as extremely serious and recognizes that such charges could have a material adverse effect on the Company. If the Company is determined to be in noncompliance with any of the applicable laws and regulations, the possibility exists of penalties and debarment or suspension from receiving additional Government contracts. INTERNATIONAL SALES The distribution of the Company's international sales is shown on the table set forth on Page 38 of the Company's 1993 Consolidated Financial Statements included herein. These sales are primarily export sales. Reconnaissance and surveillance systems, high altitude platforms and ground-based transportable aircraft navigation systems are the principal source of international sales revenues of the Company. Since most of the Company's export sales involve technologically advanced products, services and expertise, U.S. export control regulations limit the type of products and services that may be offered and the countries and governments to which sales may be made. Consequently, the Company's international sales may be adversely affected by changes in U.S. Government export policy. In addition, the Company's international sales are subject to risks inherent in foreign commerce, including currency fluctuations and devaluations, changes in foreign governments and their policies, differences in foreign laws and difficulties in negotiating and litigating with foreign sovereigns. The Company believes that it has mitigated certain of these risks by obtaining letters of credit and advance payments and by denominating contracts in U.S. dollars where possible. COMPETITION With the recent end of the "Cold War" and prospects of substantial reductions in defense budgets for the procurement of military systems and equipment, the Company expects that its niche business in the reconnaissance, surveillance and intelligence market will probably be funded at a level which is less drastically cut than other elements of the defense budget. Therefore, the Company expects that its business will become even more attractive to competitors. The Company faces intense competition with respect to all of its products and services. Competition is heightened by "competitive advocates" required of each Department of Defense procurement office, whose jobs are to see that new and renewal contracts are subjected to increased competition. Many of the Company's significant competitors are, or are controlled by, companies which are larger and have substantially greater financial resources than the Company. The Company also competes with small companies operating within a particular business segment. Sales are made principally 7 through competitive proposals in response to requests for bids from U.S. Government agencies and prime contractors. The principal competitive factors are price, technology, service and ability to perform. The Company's business consists largely of projects which involve the production of a relatively small number of units. Due to the diversity and specialized nature of the products produced and the governmental security restrictions applicable to many of the Company's activities, the Company cannot determine its market position in significant areas of its business. However, the Company believes that it is one of the leading manufacturers of reconnaissance and surveillance systems. RESEARCH AND DEVELOPMENT Research and development and the Company's technological expertise have been important factors in the Company's growth. A substantial portion of the Company's business consists of research and development oriented products conducted under cost reimbursable contracts, many of which also result in the production of prototype hardware and systems. It is not possible to estimate separately the value of the research and development portion of these contracts as compared to the preproduction and prototype portion. In 1993, the Company spent approximately $53.2 million on product research, design and development related to U.S. Government contracts (in addition to the activities described in the above paragraph). This compares to approximately $53.9 million in 1992 and $51.4 million in 1991 and includes research, development and engineering and costs incurred to submit bids and proposals for the Company's highly technical products and services to its customers. Most of the expenditures during these periods were recovered by the Company pursuant to independent research and development agreements negotiated with the U.S. Government. These agreements generally provide that the research and development costs up to specified ceiling limits and for specified efforts may be included in the overhead expense charged to certain Government contracts and recovered as part of the contract price. RAW MATERIALS The Company's products require a wide variety of components and materials. The Company has multiple external sources for most of the components and materials it uses in production and produces certain components and materials internally. Although the Company has experienced shortages and long lead times for certain components and materials, such shortages and long lead times have not had a material effect on the Company's business, and the Company believes that the sources and availability of its raw materials are adequate. ENVIRONMENTAL PROTECTION Federal environmental regulation of the electronics manufacturing industry is effected primarily through the Environmental Protection Agency ("EPA"). Regulations promulgated and proposed by the EPA, as well as state and local authorities, contain detailed provisions governing the types and amounts of waste generated from the electronic manufacturing process and the manner of disposal of such waste. Federal "Superfund" legislation mandates the clean-up of toxic waste sites, which may include sites used by the Company and others in the electronics manufacturing industry. See "Item 3. Legal Proceedings, ENVIRONMENTAL MATTERS". EMPLOYEES At December 31, 1993, the Company employed approximately 16,700 persons, approximately 42% of whom are engineers, scientists and highly skilled technicians. Approximately 1,900 of the Company's employees are covered by collective bargaining agreements with various unions. The Company considers its employee relations to be good. 8 PATENTS, TRADEMARKS AND LICENSES The Company is a high technology company and, as such, is a holder of numerous patents. In addition, the Company is a party to various license agreements and has registered trademarks for a number of its products. None of the business segments of the Company are materially dependent upon patents, licenses, or trademarks. ITEM 2. PROPERTIES. The Company occupies buildings which contain approximately 7,053,000 square feet of floor space. Approximately 1,860,000 square feet are owned by the Company and the remaining 5,195,000 square feet are leased. Approximately 37,000 square feet of space are leased (or subleased) to non-affiliated persons. The principal plants and offices are located as follows:
APPROXIMATE SQUARE FEET LOCATION FLOOR SPACE DESCRIPTION - ---------------------------------- --------------- ------------------------------------------------------------ Greenville, Texas 2,894,000 Offices, engineering, research and development, production: airborne electronic systems installation, aircraft overhaul and maintenance. Garland, Texas 1,405,000(a) Offices, engineering, research and development, production: radiation laboratory, electronic components, high powered transmitters, radar antennas and other products. St. Petersburg, Fla. 598,000(b) Offices, engineering, research and development, electronic assembly, production: communication systems and equipment and electronic data handling systems. Loudoun County, Falls Church and 846,000(c) Offices, engineering, research and development, production: Fairfax County, Va. reconnaissance and surveillance and electronics. Salt Lake City, Utah 180,000 Offices, engineering research and development, production: electro-mechanical, navigation and automatic controls. State College, Penn. 351,000 Offices, engineering, research and development, production: reconnaissance and surveillance. Dallas, Texas 80,000(d) Corporate offices. Other Properties 699,000(e) Offices, production and depot maintenance of electronic equipment and systems. - ------------------------ (a) Approximately 977,000 square feet are owned by the Company. (b) Approximately 559,000 square feet are owned by the Company. (c) Approximately 205,000 square feet are owned by the Company. (d) Owned by the Company. (e) This includes approximately 460,000 square feet at various locations owned by the United States Government and operated by the Company.
The plant located at Greenville, Texas, is held under a lease, which expires as of October 1, 2017. A portion of the Garland, Texas, facilities of the Company is held under a lease which expires June 1, 2001, with options to renew for seven successive five-year periods. The Falls Church, Virginia, facility is held under a lease which expires in December 2005, with an option to renew for an additional five-year period. The plant located at Salt Lake City, Utah, is held under a lease which expires in October 1994, with options to renew the lease for three successive five-year periods. 9 The facilities located at State College, Pennsylvania are held under various leases expiring from June 1992 to December 2005 with options to renew, ranging from ten years to multiple five-year periods. All real property and buildings are suitable for the Company's business and are generally fully utilized. The plants, machinery and equipment owned and leased by the Company are well maintained and suitable for its operations. ITEM 3. LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS ORANGE COUNTY, FLORIDA. An administrative proceeding was instituted in 1984 by the EPA and the Florida Department of Environmental Regulation against approximately 150 entities, including the Company, for disposal of hazardous waste at the City Chemical Company, Inc. hazardous waste recycling plant in Orange County, Florida. The extent of the Company's contribution of hazardous waste to that plant is estimated at 6.55% of the total waste deposited at the site. In conjunction with other Potentially Responsible Parties ("PRP's"), the Company had conducted a Remedial Investigation/Feasibility Study to define the parameters of needed remedial action. Based upon that study, a Record of Decision was issued by the EPA on March 29, 1990. That decision estimates the capital cost of the selected remedial measure at $1,516,725. Estimated operations and maintenance expenditures over a ten year period at the site are approximately $3,000,000. The EPA entered into a settlement agreement with the Company and approximately 130 other PRP's to finance the remedial program. A Consent Decree to effect that program was entered at the U.S. District Court for the Middle District of Florida on December 9, 1991. The design of the remedial program was completed in 1992. A contract for implementation of that design was awarded on January 20, 1993 with construction completion expected in mid-1994. Since the date of the initial Consent Decree, a substantial number of PRP's have exercised their right to buy-out of their liability at this site by paying a substantial premium above their volumetric contribution. As a result of those payments, no payment by the Company has been required to implement the construction of the remedial program; however, at the 80% construction completion point, the EPA will demand, pursuant to the Consent Decree, that the PRP's replenish the trust account by funding it to 120% of the initial program cost estimate. This will require the Company to make a payment of approximately $165,000 in 1994. The trust account will be used for annual operations and maintenance expenditures. Overruns will be funded at approximately 11% by the Company. The Company estimates total liability to the EPA at this site at approximately $400,000. The Company will also be responsible for a portion of the state's environmental response costs based upon its volumetric share of waste sent to the site. Liability for repayment of the state expenditures is estimated at approximately $100,000. SIMPSONVILLE, SOUTH CAROLINA. An Administrative Proceeding was instituted in 1987 by the EPA against the Company, along with other entities, for environmental response costs at the Golden Strip Septic Tank National Priority List (NPL) Site in Simpsonville, South Carolina. The EPA alleges that the Company and its predecessor corporation, LTV, disposed of hazardous waste at this site at various times prior to 1975. Documents relating to these allegations have been destroyed due to the significant lapse of time between the cessation of operations of the Golden Strip Site in 1975 and the notification to the Company from the EPA in 1987. The Company and other potentially Responsible Parties formed a group to conduct a Remedial Investigation/Feasibility Study. That study developed and analyzed several alternative remedial programs. A Record of Decision was executed by the EPA on September 12, 1991 selecting a remedial program estimated to cost approximately $4,000,000 with recurring annual operations and maintenance costs of approximately $75,000. A Consent Decree negotiated between the EPA and the PRP's was lodged in October, 1992. That Decree approves and authorizes implementation of the remedial program selected by the EPA. The environmental consulting firm of RMT, Inc. has completed a detailed design for the selected remedy. The design is currently 10 awaiting EPA approval prior to implementation. The four major PRP's have executed an agreement allocating liability for the remedial costs. Under the terms of the agreement, the Company is responsible for 19.25% of remedial program costs. Two additional companies will participate to the extent of their very limited resources. The 1994 aggregate expenditures for the site are estimated at $1,500,000 with the Company's share being approximately $290,000. The Company's total liability for construction of the remedial program is estimated at approximately $886,000. SALT LAKE CITY, UTAH. The Company entered into a Stipulated Consent Agreement with the State of Utah, Division of Solid and Hazardous Waste on May 16, 1991 based upon preliminary data which indicated that soil and groundwater contamination existed immediately adjacent to a former underground storage tank located at the Montek Division. The Company has identified the lateral extent of the contamination and has proposed a remedial program consisting of limited soil removal and a groundwater pump and treat system. The remedial program is awaiting approval from the State of Utah. Remedial costs for this program are not expected to exceed $950,000 over a three year period. Neither the anticipated costs to be incurred by the Company to clean-up the sites where the Company has been named a "Potentially Responsible Party", the aggregate of those costs, nor the aggregate of all costs to be incurred to clean-up soil and groundwater contamination are expected to have a material adverse effect on the Company's financial condition. The Company is engaged in an industry which uses relatively insignificant quantities and varieties of hazardous chemicals. However, the current state of the law provides for liability without fault for companies dealing with hazardous waste materials. The federal courts have held that a single company may be held liable for the entire clean-up costs at a given site. Therefore, the Company may be sued for the total cost of cleaning up any of the sites where the Company's waste has been deposited. Should the Government institute such an action, the Company will vigorously oppose any attempt to impose liability beyond its volumetric share of waste sent to the site. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 11 EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, offices held and other information with respect to each of the executive officers of the Company as of February 25, 1994 are as follows:
NAME AGE OFFICE(S) OFFICER SINCE DATE(1) - ---------------------------- --- ------------------------------------------------ ----------------------- E. Gene Keiffer 64 Chairman of the Board September 2, 1975 A. Lowell Lawson 56 Chief Executive Officer and President November 30, 1978 Terry W. Heil 56 Senior Vice President October 12, 1988 Peter A. Marino 52 Senior Vice President October 14, 1991 Brian D. Cullen 53 Senior Vice President April 21, 1987 J. Robert Collins 52 Vice President -- Strategic Planning and September 22, 1993 Development James W. Crowley 64 Vice President, Secretary and General Counsel November 23, 1970 Art Hobbs 46 Vice President -- Corporate Relations and April 1, 1991 Administration Talbot S. Huff 53 Vice President April 21, 1987 James W. Pope 50 Vice President -- Finance and Chief Financial January 27, 1982 Officer James J. Reilly 53 Vice President -- Financial Operations August 30, 1989 (principal accounting officer) H.L. Thurmon 52 Vice President -- New Business Development November 1, 1971 Marshall D. Williamson 52 Vice President July 28, 1993 - ------------------------ (1) Each of the executive officers has been elected to his position until the next annual meeting of the stockholders of the Company, April 27, 1994, or until his successor be duly elected and qualified.
12 Each of the executive officers has been employed as indicated in the table above for more than five years except as may be indicated below: E. GENE KEIFFER -- Mr. Keiffer is Chairman of the Board having been elected to that position on April 25, 1989. He had served as Chief Executive Officer from April 25, 1989 to January 26, 1994. Previously he served as Senior Vice President and Group Executive Officer since November 1, 1983. A. LOWELL LAWSON -- Mr. Lawson was elected Chief Executive Officer on January 26, 1994. He has held the position of President since April 25, 1989. Previously he served as Executive Vice President from April 21, 1987 to April 25, 1989 and Senior Vice President and Group Executive since November 1, 1983. TERRY W. HEIL -- Dr. Heil was elected Senior Vice President effective October 12, 1988. Prior to joining the Company at that time, Dr. Heil had been executive vice president of the Defense Electronics Group of the Singer Corporation since 1986 and had held other senior executive positions with Singer for more than five years previous. PETER A. MARINO -- From July 1991 until October 1991, Mr. Marino was executive vice president and chief operating officer of Fairchild Corporation. From September 1989 to July 1991, Mr. Marino was president and chief operating officer of Fairchild Industries, Inc. a high-technology company engaged in spacecraft and space subsystems, military avionics, defense communications, telecommunications, aerospace fasteners and capital equipment for the plastics molding industry. Between October 1988 and September 1989, he was senior vice president of Fairchild Industries, Inc. From October 1986 to September 1988, Mr. Marino was, first, executive vice president and then, president and chief operating officer of Lockheed Electronics Company, Inc. and a vice president of the parent, Lockheed Corporation. Prior to that time, Mr. Marino had been with the United States Central Intelligence Agency from 1970 to 1986, serving in various technical and managerial positions. BRIAN D. CULLEN -- Mr. Cullen served as Vice President of the Company from April 27, 1987 to January 26, 1994. J. ROBERT COLLINS -- Dr. Collins was vice president of business development of the Garland Division, Garland, Texas, from March 16, 1992 to September 22, 1993 when he was elected to his current position. Prior to that, he was division vice president of the Garland Division from May 20, 1985 to March 16, 1992. ART HOBBS -- Prior to his current position, Mr. Hobbs was the vice president of human resources of the Greenville Division, Greenville, Texas, the largest operating division of the Company. He had served in such capacity since 1982, having previously been director of employee relations for three years. JAMES J. REILLY -- Mr. Reilly was director of Financial Controls from April 14, 1989 to August 10, 1989. Before joining the Company, he was Group Controller for the Pullman Company, which is engaged in the production of aerospace and electronic and material components, since 1987. From 1978 to 1987 he was Vice President-Finance for Loral Electronics Systems Division. MARSHALL D. WILLIAMSON -- From February 1, 1993 until being elected to his current position, Mr. Williamson was vice president and assistant general manager of the Garland Division, Garland, Texas. He served as vice president of the Garland Division from May 20, 1985 until February 1, 1993 previously having held various managerial positions since joining the Company in 1975. 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York and London Stock Exchanges and principally traded in those markets. The table below shows the high and low closing prices of the Company's common stock on the New York Stock Exchange, as reported in the WALL STREET JOURNAL, and the cash dividends declared per share for each quarter during the past two years.
QUARTER 1ST 2ND 3RD 4TH - --------------------------------------------------------------------------------------------------- Stock Prices: 1993 High............................................. 44 1/4 43 48 7/8 46 1/4 Low.............................................. 36 1/4 39 5/8 41 3/4 41 5/8 1992 High............................................. 38 37 1/8 37 5/8 41 1/4 Low.............................................. 31 1/2 31 5/8 32 35 3/4 Dividends Declared: 1993.................................................. $ .275 $ .275 $ .275 $ .275 1992.................................................. $ .25 $ .25 $ .25 $ .25
HOLDERS OF RECORD: At March 4, 1994, there were 10,386 holders of record of the Company's common stock. 14 ITEM 6. SELECTED FINANCIAL DATA FIVE-YEAR SUMMARY OF OPERATIONS AND FINANCIAL CONDITION YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS: 1993 1992 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------- Net sales.................................. $ 2,097,114 $ 2,094,913 $ 1,991,284 $ 1,810,172 $ 1,626,434 Operating costs and expenses............... 1,916,458 1,924,177 1,824,238 1,663,939 1,501,780 ------------- ------------- ------------- ------------- ------------- Profit from continuing operations.......... 180,656 170,736 167,046 146,233 124,654 Other income (expense) -- net.............. 5,830 (600) 264 879 4,121 Interest expense........................... (6,211) (7,664) (8,559) (10,515) (10,226) ------------- ------------- ------------- ------------- ------------- Income from continuing operations before federal income taxes and the cumulative effect of a change in accounting principle................................. 180,275 162,472 158,751 136,597 118,549 Federal income taxes....................... 58,409 53,453 49,213 42,345 35,565 ------------- ------------- ------------- ------------- ------------- Income from continuing operations before the cumulative effect of a change in accounting principle...................... 121,866 109,019 109,538 94,252 82,984 Loss from discontinued operations.......... -- -- -- (8,632) -- ------------- ------------- ------------- ------------- ------------- Income before cumulative effect of a change in accounting principle................... 121,866 109,019 109,538 85,620 82,984 Cumulative effect of a change in accounting principle................................. -- (178,510) -- -- -- ------------- ------------- ------------- ------------- ------------- Net income (loss).......................... $ 121,866 $ (69,491) $ 109,538 $ 85,620 $ 82,984 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Earnings (loss) per share: Continuing operations.................... $ 3.58 $ 3.31 $ 3.35 $ 3.02 $ 2.65 Discontinued operations.................. -- -- -- (.28) -- Cumulative effect of a change in accounting principle.................... -- (5.42) -- -- -- ------------- ------------- ------------- ------------- ------------- Total.................................. $ 3.58 $ (2.11) $ 3.35 $ 2.74 $ 2.65 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- Cash dividends declared per common share... $ 1.10 $ 1.00 $ .75 $ .75 $ .50 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- - ---------------------------------------------------------------------------------------------------------------------- YEAR-END FINANCIAL POSITION: Bookings................................... $ 1,910,532 $ 1,905,319 $ 2,013,431 $ 1,791,724 $ 1,887,410 Backlog.................................... $ 2,133,041 $ 2,319,623 $ 2,509,217 $ 2,487,070 $ 2,505,518 Current ratio.............................. 4.44 3.01 3.51 3.12 3.27 Total assets............................... $ 1,279,173 $ 1,253,573 $ 1,075,441 $ 967,178 $ 866,215 Long-term debt............................. $ 7,873 $ 34,119 $ 84,897 $ 118,706 $ 91,133 Total debt................................. $ 33,129 $ 103,920 $ 90,462 $ 127,671 $ 110,022 Stockholders' equity at year-end........... $ 769,996 $ 660,000 $ 750,063 $ 625,960 $ 561,126 Total debt to equity ratio................. .04 .16 .12 .20 .20 Return on average stockholders' equity..... 17.0% (9.9%) 15.9% 14.5% 15.8% Employees at year-end...................... 16,703 18,590 18,622 18,435 17,920 Stockholders of record at year-end......... 10,097 10,810 11,228 12,035 12,054 Year-end closing stock price............... 43 3/8 41 1/8 37 7/8 34 3/8 30 7/8
15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SOURCES OF LIQUIDITY AND CAPITAL RESOURCES -- Net working capital increased $83 million from the prior year-end to $581 million. Net cash provided by operating activities was $96 million for 1993 compared to $123 million for 1992. This change was primarily due to collections of accounts receivable. Cash and cash equivalents at the beginning of the year and funds provided by operations were used to finance capital expenditures of $52 million, pay dividends of $36 million and pay-off $52 million in long-term debt and installment lease obligations. The ratio of total debt to equity was .04 at December 31, 1993 which is down from the total debt to equity ratio of .16 at December 31, 1992. This decrease is due to the $50 million pay-off of the five year, fixed rate Senior Notes in August 1993. The ratio of current assets to current liabilities was 4.4 at December 31, 1993 compared to 3.0 at December 31, 1992. Excluding the effect of adoption of Statement of Financial Accounting Standards (SFAS) No. 106 in 1992, return on equity increased from 15 percent in 1992 to 17 percent in 1993. The Government recently reduced the progress payment rate on fixed-price contracts from 85 percent to 75 percent. This change will increase requirements for working capital. Current financing agreements provide lines of credit up to $350 million of which $24 million was borrowed at December 31, 1993. Management believes these lines of credit and internally generated funds will be more than adequate to meet increased working capital requirements, capital expansion projects, dividend payments to shareholders and satisfy payment of the Company's maturing debt obligations. In the first quarter of 1993, the Company made the decision to fund a portion of the recurring costs associated with retiree health care benefits. To do so, the Company established a 401(h) account, which is a part of the E-Systems Salaried Retirement Plan, and a 501(c)(9) trust known as a voluntary employees' beneficiary association (VEBA). Funding the retiree health care costs will make them allowable under government contracts and deductible under Internal Revenue Service regulations, thereby, minimizing future profit impact. BUSINESS ENVIRONMENT -- The ongoing and dramatic geopolitical changes occurring in the United States and throughout the world continue to result in changes in the requirements and priorities established by Congress and the administration. Defense spending continues to decline with FY 1994 authorization at $262 billion and an administration target of $200 billion by the end of the decade. The total intelligence budget is expected to remain approximately flat over the next several years. Our customer environment is also changing with a continuing re-evaluation of roles and missions, pressure to reduce spending and a push to combine common functions within the various departments and agencies. There continues to be a large number of political and military pressure points throughout the world. The two currently dominating are the Bosnian conflict in Eastern Europe and the uncertainty that exists in the former Soviet Union. The number and diversity of conflicts or potential conflicts, coupled with decreasing forces, makes the intelligence function more important than ever. The company believes there will be a continuing need for precision weapon systems, expert command and control capabilities, and the collection and distribution of precise and timely intelligence information. As a leader in the design, development, deployment and operation of sophisticated information- oriented collection, analysis, monitoring and dissemination systems, the company is well-positioned to respond to these needs. We are also applying our technical and business strengths to markets which are outside our traditional business. This is evidenced by contract awards from the Department of Education for the development and operation of the national data base for student loans and grants and the FAA for the flight inspection aircraft program. The total value of this FAA contract including options exercisable through FY 1996 is approximately $400 million. These programs combined with increasing market 16 acceptance of our EMASS-R- information storage and retrieval products and our continuing push into medical image processing and information are expected to provide a larger non-traditional business base for the company within the next several years. In January 1993, the company was notified by the German government that it does not plan on proceeding with the GAFECS reconnaissance and surveillance program at this time. Though the loss of this program will have an impact on the company's short-term international business goals, we believe there are opportunities in the international arena which will sustain the growth of our international business. With the above mentioned geopolitical changes, the international market for our products and systems is taking on a new look. Governments who previously depended on the United States and/or NATO to provide Command, Control and Communications, surveillance and analysis functions are now faced with providing these capabilities. As a result we are presently seeing opportunities in several countries and have booked projects in some. We believe that this trend, along with our increasing EMASS-R- penetration, will continue to yield a growing international component of our business base. The company is a developer and producer of high technology electronic systems and services, consisting principally of systems design, integration, hardware modification and development for the United States government or other prime government contractors. The company's business base consists of both cost-type and fixed price contracts with 60 percent being cost-type. The profitability of cost-type contracts is contingent upon several factors: customer's evaluation of performance on contracts, costs actually incurred, delivery schedule, quality and incentive or award fee arrangements. Given this determination of profitability, contract costs and related margins are not readily explainable in typical manufacturing terms. Also, due to the nature of the products or services provided by the company, many contracts are highly sensitive and classified under relevant U.S. Government regulations. 1993 COMPARED TO 1992 NET SALES. Net sales for 1993 totaled $2,097 million compared to $2,095 million in 1992. Net sales in the Reconnaissance and Surveillance product segment decreased 9 percent to $1,260 million. The decline is attributable to the absence of the German reconnaissance and surveillance program which was canceled in January of 1993. COSTS AND EXPENSES. Operating profits increased 6 percent in 1993. This increase was primarily due to increased sales in the Aircraft Maintenance & Modification and Other Services product segment and improved margins in the Command, Control & Communications product segment. Operating profits for the Reconnaissance and Surveillance product segment were $111 million, down $3 million when compared to the same period in 1992. Operating profits in the Command, Control and Communications product segment increased $4 million, or 20 percent, to $27 million in 1993. Operating profits in the Aircraft Maintenance & Modification and Other Services product segment were $23 million, up 28 percent, or $5 million in 1993. Other income totaled $10.8 million for 1993 compared to $3.8 million for the same period in 1992. This increase was primarily due to interest associated with a one-time gain from a favorable tax settlement coupled with an increase in capital gains earned on the Company's Supplemental Executive Retirement Plan investments. INCOME. Excluding the cumulative effect of adopting SFAS 106 in 1992, net income increased 12 percent in 1993 to $121 million compared to $109 million in 1992. This increase was due to improved margins discussed above. 17 1992 COMPARED TO 1991 NET SALES. Net sales from operations increased 5 percent, or $104 million, in 1992. This increase was primarily due to increased deliveries in the Reconnaissance and Surveillance and Aircraft Maintenance & Modification and Other Services product segments. Net sales in the Reconnaissance and Surveillance segment totaled $1,379 million for the year ended December 31, 1992, up 7 percent, or $89 million, from $1,290 million in the comparable period in 1991. Net sales in the Aircraft Maintenance & Modification and Other Services product segment increased $28 million or 10 percent in 1992. COSTS AND EXPENSES. Excluding the effect of adopting SFAS 106, operating profits increased 12 percent in 1992. This increase was primarily the result of increased sales in the Reconnaissance and Surveillance segment and improved margins due to production efficiencies in the Command, Control & Communications product segment. Operating profits for the Reconnaissance and Surveillance product segment were $114 million, up $6 million when compared to the same period in 1991. Operating profits in the Command, Control and Communication product segment increased $3 million, or 14 percent, to $22 million in 1992. Higher than anticipated costs resulted in a decrease in operating profits in the Aircraft Maintenance & Modification and Other Services product segment. Operating profits in this product segment decreased from $23 million in 1991 to $18 million for the year ended December 31, 1992. LOSS. Excluding the effect of adopting SFAS 106, net income increased 10 percent for the year ended December 31, 1992. Adoption of the new accounting standard required recognition of a non-recurring charge of $179 million which resulted in a loss of $69 million for the year. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The index to Consolidated Financial Statements and Financial Statement Schedule is found on page 21. The Company's Financial Statements, Notes to Consolidated Financial Statements and Financial Statement Schedule follow the index. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Inapplicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth in the Company's proxy statement dated March 25, 1994 at pages 4 through 7 in the section entitled "Election of Directors," and is incorporated herein by reference. Reference is made to the section entitled "Executive Officers of the Registrant" under Part I. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the Company's proxy statement, dated March 25, 1994, at pages 8 through 17, under the sections entitled "Executive Compensation, Salaried Retirement Plan, Supplemental Executive Retirement Plan and Employment Agreements," and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth under "Principal Stockholders" on pages 2 and 3 of the Company's proxy statement dated March 25, 1994, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Inapplicable. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report. 1. Financial Statements 2. Financial Statement Schedule The financial statements and the financial statement schedule filed as a part of this report are listed in the "Index to Consolidated Financial Statements and Financial Statement Schedule" on page 21. The index, statements and schedule are incorporated herein by reference. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Exhibits required by Item 601 of Regulation S-K. A list of the exhibits required by Item 601 of Regulation S-K and filed as part of this report is set forth in the Index to Exhibits on pages 41 and 42, which immediately precedes such exhibits. (b) Reports on Form 8-K. No reports on Form 8-K were filed for the three months ended December 31, 1993. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. E-SYSTEMS, INC. /s/ A. LOWELL LAWSON -------------------------------------- A. Lowell Lawson DIRECTOR, CHIEF EXECUTIVE OFFICER AND PRESIDENT March 28, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE - ------------------------------------------------------ ------------------------------------- ------------------ /s/ E. GENE KEIFFER Chairman of the Board ------------------------------------------- of Directors and Director E. Gene Keiffer /s/ JAMES A. BITONTI Director ------------------------------------------- James A. Bitonti /s/ E. F. BUEHRING Director ------------------------------------------- E. F. Buehring /s/ CHARLES A. GABRIEL Director ------------------------------------------- Charles A. Gabriel /s/ C. ROLAND HADEN Director ------------------------------------------- C. Roland Haden /s/ MARTIN R. HOFFMANN Director ------------------------------------------- Martin R. Hoffmann March 28, 1994 /s/ S. LEE KLING Director ------------------------------------------- S. Lee Kling /s/ FRANCINE I. NEFF Director ------------------------------------------- Francine I. Neff /s/ DAVID R. TACKE Director ------------------------------------------- David R. Tacke /s/ JAMES W. POPE Vice President -- Finance ------------------------------------------- and Chief Financial Officer James W. Pope /s/ JAMES J. REILLY Vice President -- Financial ------------------------------------------- Operations (Principal Accounting James J. Reilly Officer)
20 E-SYSTEMS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page Report of Ernst & Young, Independent Auditors....................................................................... 22 Statement of Consolidated Operations -- Years ended December 31, 1993, 1992 and 1991............................................... 23 Consolidated Balance Sheets at December 31, 1993 and 1992................................................................. 24 Statements of Consoidated Cash Flows -- Years ended December 31, 1993, 1992 and 1991........................................................... 25 Statements of Consolidated Stockholders' Equity -- Years ended December 31, 1993, 1992, and 1991.............................................. 26 Notes to Consolidated Financial Statements.................................................. 27 FINANCIAL STATEMENT SCHEDULE: IX -- Short-Term Borrowings................................................................. 40
21 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors of E-Systems, Inc. We have audited the consolidated balance sheets of E-Systems, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of E-Systems, Inc. and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note J to the consolidated financial statements, in 1992 the company changed its method of accounting for retiree health care and life insurance benefits in accordance with FASB Statement No. 106. ERNST & YOUNG Dallas, Texas January 27, 1994 22 E-SYSTEMS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------ Revenues: Net sales.......................................................... $ 2,097,114 $ 2,094,913 $ 1,991,284 Other income -- net................................................ 10,775 3,753 6,478 ------------- ------------- ------------- 2,107,889 2,098,666 1,997,762 - ------------------------------------------------------------------------------------------------------------------ Costs and Expenses: Contract and manufacturing costs................................... 1,759,533 1,776,037 1,695,286 Selling, general and administrative expenses....................... 161,870 152,493 135,166 Interest expense................................................... 6,211 7,664 8,559 ------------- ------------- ------------- 1,927,614 1,936,194 1,839,011 ------------- ------------- ------------- Income Before Federal Income Taxes and the Cumulative Effect of a Change in Accounting Principle.................................. 180,275 162,472 158,751 - ------------------------------------------------------------------------------------------------------------------ Federal Income Taxes (Note E): Current............................................................ 62,893 51,266 52,336 Deferred........................................................... (4,484) 2,187 (3,123) ------------- ------------- ------------- 58,409 53,453 49,213 ------------- ------------- ------------- Income before the Cumulative Effect of a Change in Accounting Principle....................................................... 121,866 109,019 109,538 - ------------------------------------------------------------------------------------------------------------------ Cumulative Effect of a Change in Accounting Principle (Note J): Retiree health care and life insurance benefits -- net of tax benefit of $91,960................................................ -- (178,510) -- ------------- ------------- ------------- Net Income (Loss)................................................ $ 121,866 $ (69,491) $ 109,538 ------------- ------------- ------------- ------------- ------------- ------------- - ------------------------------------------------------------------------------------------------------------------ Net Income (Loss) Per Share (Note A): Income before the cumulative effect of a change in accounting principle......................................................... $ 3.58 $ 3.31 $ 3.35 Cumulative effect of a change in accounting principle.............. -- (5.42) -- ------------- ------------- ------------- Earnings (Loss) Per Share........................................ $ 3.58 $ (2.11) $ 3.35 ------------- ------------- ------------- ------------- ------------- -------------
See "Notes to Consolidated Financial Statements." 23 E-SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1993 AND 1992 (IN THOUSANDS) ASSETS
1993 1992 - ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents........................................................... $ 32,638 $ 62,240 Accounts receivable (Note B)........................................................ 426,404 431,852 Unreimbursed costs and fees under cost-plus-fee contracts (Note B).................. 207,519 186,071 Fixed-price contracts: Fixed-priced contracts in progress (Note C)....................................... 54,644 71,646 Less progress and advance payments................................................ 21,580 33,834 ------------ ------------ 33,064 37,812 Raw materials and purchased parts................................................... 11,714 12,114 Prepaid expenses and other assets................................................... 38,623 15,584 ------------ ------------ Total Current Assets.............................................................. 749,962 745,673 - ------------------------------------------------------------------------------------------------------------------ Other Assets: Prepaid pension costs (Note I)...................................................... 36,489 29,858 Deferred charges and other (Note I)................................................. 56,653 50,031 Deferred federal income taxes (Note E).............................................. 65,544 55,844 Costs in excess of net assets acquired (Note A)..................................... 62,401 64,728 ------------ ------------ 221,087 200,461 - ------------------------------------------------------------------------------------------------------------------ Property, Plant and Equipment (Notes A and H): Land................................................................................ 7,279 7,279 Buildings........................................................................... 94,731 89,461 Machinery and equipment............................................................. 306,915 307,420 Leasehold improvements -- Net....................................................... 75,572 75,989 Construction in progress............................................................ 13,957 11,893 ------------ ------------ 498,454 492,042 Less allowances for depreciation.................................................... 190,330 184,603 ------------ ------------ 308,124 307,439 ------------ ------------ $ 1,279,173 $ 1,253,573 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ Current Liabilities: Accounts payable.................................................................... $ 70,313 $ 95,536 Accrued liabilities (Note F)........................................................ 73,495 82,376 Short-term obligations and current portion of long-term debt (Note D)............... 25,256 69,801 ------------ ------------ Total Current Liabilities..................................................... 169,064 247,713 - ------------------------------------------------------------------------------------------------------------------ Long-Term Debt: Long-term debt (Note D)............................................................. 738 25,994 Installment lease obligations (Note H).............................................. 7,135 8,125 ------------ ------------ 7,873 34,119 - ------------------------------------------------------------------------------------------------------------------ Deferred Items: Retiree health care and life insurance benefits (Note J)............................ 290,795 287,327 Other deferred items................................................................ 41,445 24,414 ------------ ------------ 332,240 311,741 - ------------------------------------------------------------------------------------------------------------------ Stockholders' Equity (Notes D and G): Common stock, par value $1.00....................................................... 33,885 32,892 Additional capital.................................................................. 172,300 140,638 Retained earnings................................................................... 563,811 486,470 ------------ ------------ 769,996 660,000 - ------------------------------------------------------------------------------------------------------------------ Commitments and Contingencies (Notes H and K) ------------ ------------ $ 1,279,173 $ 1,253,573 ------------ ------------ ------------ ------------
See "Notes to Consolidated Financial Statements." 24 E-SYSTEMS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS THREE YEARS ENDED DECEMBER 31, 1993 (IN THOUSANDS)
1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Operating Activities: Net Income (Loss)....................................................... $ 121,866 $ (69,491) $ 109,538 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of a change in accounting principle................. -- 178,510 -- Depreciation and amortization......................................... 54,858 53,583 51,078 (Benefit) provision for deferred income taxes......................... (4,484) 2,187 (3,123) Gain on sale of investment securities................................. (2,205) (453) (626) Changes in operating assets and liabilities, net of effects from purchase of Advanced Video Products, Inc. in 1992: Decrease (increase) in accounts receivable............................ 84,794 20,813 (127,851) Increase in unreimbursed costs and fees under cost-plus-fee contracts............................................................ (21,448) (30,505) (15,565) Decrease in fixed-price contracts in progress......................... 17,002 5,340 52,474 (Decrease) increase in progress and advance payments.................. (91,600) (47,050) 17,810 (Increase) decrease in prepaid pension costs.......................... (6,631) 8,995 2,053 (Decrease) increase in accounts payable............................... (25,223) 16,937 2,402 (Decrease) increase in accrued liabilities............................ (9,596) (16,318) 5,891 (Decrease) increase in other assets and liabilities................... (21,520) 502 806 ----------- ----------- ------------ Net Cash Provided By Operating Activities........................... 95,813 123,050 94,887 - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Investing Activities: Purchases of property, plant and equipment.............................. (52,063) (90,837) (52,120) Proceeds from disposals of property, plant and equipment................ 942 992 712 Purchase of Advanced Video Products, Inc., net of cash acquired......... -- (9,959) -- ----------- ----------- ------------ Net Cash Used In Investing Activities............................... (51,121) (99,804) (51,408) - ------------------------------------------------------------------------------------------------------------------ Cash Flows From Financing Activities: Net (payments) borrowings under short-term line-of-credit agreements.... (19,533) 19,533 (4,039) Principal payments on long-term debt and installment lease obligations............................................................ (51,693) (8,855) (33,843) Proceeds from exercise of stock options................................. 32,655 15,692 39,678 Dividends paid.......................................................... (35,723) (30,445) (23,916) ----------- ----------- ------------ Net Cash Used in Financing Activities............................... (74,294) (4,075) (22,120) ----------- ----------- ------------ Net (Decrease) Increase in Cash and Cash Equivalents.................... (29,602) 19,171 21,359 Cash and cash equivalents at beginning of year.......................... 62,240 43,069 21,710 ----------- ----------- ------------ Cash and Cash Equivalents at End of Year................................ $ 32,638 $ 62,240 $ 43,069 ----------- ----------- ------------ ----------- ----------- ------------
See "Notes to Consolidated Financial Statements." 25 E-SYSTEMS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1993 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ------------------------ ADDITIONAL RETAINED SHARES AMOUNT CAPITAL EARNINGS - ----------------------------------------------------------------------------------------------------------------- Balance January 1, 1991...................................... 31,204,931 $ 31,205 $ 86,955 $ 507,800 Net income................................................... 109,538 Exercise of stock options, net of stock tendered (including tax benefit of $4,129)...................................... 1,212,219 1,212 38,466 Adjustment for minimum pension liability (net of tax benefit of $502).................................................... (968) Cash dividends on commom stock ($.75 per share).............. (24,145) ------------- --------- ----------- ----------- Balance December 31, 1991.................................... 32,417,150 32,417 125,421 592,225 Net loss..................................................... (69,491) Exercise of stock options, net of stock tendered (including tax benefit of $1,501)...................................... 474,965 475 15,217 Adjustment for minimum pension liability (net of tax benefit of $1,910).................................................. (3,708) Cash dividends on common stock ($1.00 per share)............. (32,556) ------------- --------- ----------- ----------- Balance December 31, 1992.................................... 32,892,115 32,892 140,638 486,470 Net income................................................... 121,866 Exercise of stock options, net of stock tendered (including tax benefit of $5,850)...................................... 992,682 993 31,662 Adjustment for minimum pension liability (net of tax benefit of $4,133).................................................. (7,676) Cash dividends on common stock ($1.10 per share)............. (36,849) ------------- --------- ----------- ----------- Balance December 31, 1993................................ 33,884,797 $ 33,885 $ 172,300 $ 563,811 ------------- --------- ----------- ----------- ------------- --------- ----------- -----------
See "Notes to Consolidated Financial Statements." 26 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The accounts of all subsidiaries have been included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. REVENUE AND PROFIT DETERMINATION -- Sales and costs of sales (including general and administrative expenses) on fixed-price contracts are generally recorded when units are delivered, based on the profit rates anticipated on the contracts at completion. Sales and costs of sales on long-term, small quantity, high unit value fixed-price contracts, and sales (costs and fees) on cost reimbursable contracts are recorded under the percentage-of-completion method of accounting as costs (including general and administrative expenses) are incurred. Profits expected to be realized on contracts are based on estimates of total sales value and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts and adjustments to profits resulting from such revisions are made cumulative to the date of change. Amounts in excess of agreed upon contract price for customer-caused delays, errors in specification and design, unapproved change orders or other causes of unanticipated additional costs are recognized in contract value if it is probable that the claim will result in additional revenue and the amount can be reasonably estimated (SEE NOTE C). Losses on contracts are recorded in full as they are identified. FIXED-PRICE CONTRACTS AND RAW MATERIALS -- Costs incurred in advance of contractual coverage receive an allocated portion of general and administrative expenses and are valued at the lower of cost incurred or market. Raw materials and purchased parts are valued at average cost not in excess of market. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at cost. Capitalized leases are recorded at the present value of the net fixed minimum lease commitments (SEE NOTE H). Provisions for depreciation are computed on both accelerated and straight-line methods using rates calculated to amortize the cost of the assets over their estimated useful lives and include amortization of capitalized leases. Leasehold improvements are amortized over the life of the lease and renewal options which are expected to be exercised. The company's policy is to remove the amounts related to fully-depreciated assets from the financial records. EARNINGS PER SHARE -- Earnings per share are computed based on the sum of the average outstanding common shares and common equivalent shares (1993 -- 34,041,000; 1992 -- 32,941,000; 1991 -- 32,723,000). Common equivalent shares assume the exercise of all dilutive stock options. Primary and fully diluted earnings per share are essentially the same. STATEMENT OF CASH FLOWS -- The company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. COSTS IN EXCESS OF NET ASSETS ACQUIRED -- The costs in excess of net assets acquired (goodwill) are being amortized using the straight-line method over a period of 20 to 40 years. Accumulated amortization was $6,557,000 and $4,580,000 at December 31, 1993 and 1992, respectively. FINANCIAL INSTRUMENTS AND RISK CONCENTRATION -- Financial instruments which potentially subject the company to concentrations of credit risk consist of cash equivalents, billed accounts receivable and unreimbursed costs and fees under cost-plus-fee contracts. The company's cash equivalents consist principally of U.S. Government securities and Eurodollar accounts with high credit quality financial institutions. Generally, the investments mature within 90 days and therefore are subject to minimal risk. Billed accounts receivable and unreimbursed costs and fees under cost-plus-fee contracts result primarily from contracts with the U.S. Government or prime contractors with the U.S. 27 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Government and some international customers (principally governments). Contracts involving the U.S. Government do not require collateral or other security. The company conducts ongoing credit evaluations of domestic non-U.S. Government customers and generally does not require collateral or other security from these customers. The company generally requires international customers to furnish letters of credit or make advance payments in amounts sufficient to limit the company's credit risk to a minimal level. Historically, the company has not incurred any significant credit-related losses. RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE B -- RECEIVABLES Accounts Receivable and Unreimbursed Costs and Fees Under Cost-Plus-Fee Contracts by major classification are as follows:
(IN THOUSANDS) 1993 1992 - -------------------------------------------------------------------------------------------------------- Accounts Receivable Billed: U.S. Government............................................................. $ 54,305 $ 70,976 Commercial and International................................................ 20,169 9,479 Other....................................................................... 9,790 10,432 Accrued recoverable costs and profits (primarily U.S. Government).................................................. 342,140 340,965 ----------- ----------- Total..................................................................... $ 426,404 $ 431,852 ----------- ----------- ----------- ----------- Unreimbursed Costs and Fees Under Cost-Plus-Fee Contracts to the U.S. Government: Billed...................................................................... $ 91,872 $ 71,601 Accrued costs and fees (including fee retentions of $7,756 and $7,896, respectively).............................................................. 115,647 114,470 ----------- ----------- Total..................................................................... $ 207,519 $ 186,071 ----------- ----------- ----------- -----------
Accrued recoverable costs and profits and accrued costs and fees under customer contracts represent revenue earned under the percentage-of-completion method but not yet billable under the terms of the contracts. These amounts are billable based on the terms of the contract which include shipments of the product, achievement of milestones or completion of the contract. Substantially all of the accrued recoverable costs and profits and accrued costs and fees at December 31, 1993 are to be billed during 1994. Offset against accrued recoverable costs and profits are unliquidated progress payments of $470,604,000 for 1993 and $549,950,000 for 1992. 28 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE C -- FIXED-PRICE CONTRACTS Cost elements included in Fixed-Price Contracts in Progress are as follows:
(IN THOUSANDS) 1993 1992 - ------------------------------------------------------------------------------------------------------- Production costs consisting of material, labor, and overhead: Currently in process........................................................... $ 31,002 $ 47,452 Produced in advance of contractual coverage.................................... 497 1,715 Claim recovery recorded........................................................ 10,984 9,903 General and administrative costs............................................... 12,161 12,576 --------- --------- $ 54,644 $ 71,646 --------- --------- --------- ---------
Substantially all of the costs incurred in advance of negotiated contracts at December 31, 1993 are expected to receive firm contractual coverage in 1994. NOTE D -- DEBT The company's long-term debt at December 31 is summarized as follows:
(IN THOUSANDS) 1993 1992 - ------------------------------------------------------------------------------------------------------- $50 million Senior Notes, interest at 8.95 percent, due August 1993.............. $ -- $ 50,000 $24 million ESOP line of credit, at 78 percent of the bank's prime rate or 91 percent of the bank's certificate of deposit rate at the Company's option due December 1994................................................................... 24,000 24,000 Other............................................................................ 1,994 2,262 --------- --------- Total.......................................................................... 25,994 76,262 Less current maturities.......................................................... 25,256 50,268 --------- --------- $ 738 $ 25,994 --------- --------- --------- ---------
As of December 31, 1993, the maturities of long-term debt were as follows: 1994.............................................................. $ 25,256 1995.............................................................. -- 1996.............................................................. 381 1997.............................................................. 357
The company has two lines of credit dated October 21, 1992, with total credit available of $250 million. One credit agreement in the amount of $150 million terminates October 19, 1995, and the other agreement in the amount of $100 million terminates October 14, 1994 and contains a provision for a one-year extension. These agreements, with a group of eight banks, provide for a floating interest rate based upon competitive bids from the member banks and repayment terms negotiated at the time of each borrowing. The credit agreement in the amount of $150 million provides for a facility fee of .15 percent of the committed amount, and the credit agreement in the amount of $100 million provides for a facility of .125 percent of the committed amount. The company had no borrowings under either line in 1993. The company has total lines of credit available under short-term borrowing agreements of $100 million of which none and $19,533,000 were borrowed at December 31, 1993 and 1992, respectively. The lines of credit provide for interest at each bank's offered rate at the date of the advance. 29 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE D -- DEBT (CONTINUED) Borrowings under the ESOP line of credit were used to purchase the company's common stock for contribution to the company's Employee Stock Ownership Plan. The company's various debt agreements require, among other things, that the Company maintain a specified current ratio, debt to equity ratio, and tangible net worth. Under the most restrictive of these covenants, the company has unrestricted retained earnings of $169,996,000 at December 31, 1993. The company made interest payments in 1993, 1992, and 1991, respectively, of $7,027,000, $6,817,000, and $7,880,000. NOTE E -- INCOME TAXES During 1992, the company adopted FASB Statement No. 109 "Accounting for Income Taxes." The adoption had no material impact on the company's financial statements. A reconciliation of the provision for taxes on income to the U.S. statutory rate follows:
(IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------ Federal income tax...................... $ 63,096 35% $ 55,240 34% $ 53,975 34% ESOP dividends.......................... (1,695) (1) (1,512) (1) (1,168) (1) Tax return settlements.................. (1,532) (1) -- -- (2,839) (2) Effect of tax rate change on net deferred tax assets................................. (1,857) (1) -- -- -- -- Other................................... 397 -- (275) -- (755) -- -------- ----- -------- ----- -------- ----- $ 58,409 32% $ 53,453 33% $ 49,213 31% -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Deferred income taxes result primarily from the use of accelerated methods of depreciation for tax purposes, pension income not currently taxable and safe harbor leasing transactions offset by accrued employee and retiree benefits which are not deductible until paid. 30 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE E -- INCOME TAXES (CONTINUED) The tax effects of the significant temporary differences which comprise the deferred tax assets and liabilities at December 31, 1993 and 1992 are as follows:
ASSETS 1993 1992 - -------------------------------------------------------------- Retiree health care benefits............ $103,077 $ 97,691 Supplemental executive retirement plan................................... 7,569 6,753 Pension plan minimum liabilities........ 7,571 3,340 Other................................... 5,954 7,411 -------- -------- Gross Deferred Tax Assets............... $124,171 $115,195 -------- -------- LIABILITIES - -------------------------------------------------------------- Depreciation............................ $ 21,489 $ 20,313 Pension................................. 13,778 13,384 Safe harbor lease....................... 7,963 8,184 Other................................... 13,592 14,582 -------- -------- Gross Deferred Tax Liabilities.......... $ 56,822 $ 56,463 -------- -------- Net Asset............................... $ 67,349 $ 58,732 -------- -------- -------- --------
A valuation allowance has not been recorded for the deferred federal income tax benefits as the company believes it will generate sufficient taxable income in the future to realize all of the recorded benefits. Included in operating costs and expenses are state income taxes of $6,688,000, $6,575,000, and $2,700,000 in 1993, 1992 and 1991, respectively. The company made federal income tax payments in 1993, 1992, and 1991, respectively, of $55,450,000, $62,027,000, and $43,250,000. NOTE F -- ACCRUED LIABILITIES
(IN THOUSANDS) 1993 1992 - ------------------------------------------------------------ Accrued liabilities include the following: Compensation.......................... $25,162 $24,833 Advances from customers............... 1,088 10,966 Insurance............................. 8,559 12,097 Taxes, other than income.............. 8,511 9,134 Dividends............................. 9,269 8,153 Other accrued items................... 20,906 17,193 ------- ------- $73,495 $82,376 ------- ------- ------- -------
NOTE G -- STOCKHOLDERS EQUITY At December 31, 1993, there were 50,000,000 authorized shares of common stock and 185,000 shares of authorized but undesignated preferred stock, par value $20. 31 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE G -- STOCKHOLDERS EQUITY (CONTINUED) Stock option plans, which include both "nonqualified" and incentive stock options, provide for options to be granted to key employees at prices equal to, greater than or less than market value at the date of grant and for terms not to exceed ten years. The options outstanding under the plan expire at various dates through 2003. Information on stock options is summarized as follows:
1993 1992 ------------------------------------------------------------------------------ NUMBER OF AGGREGATE NUMBER OF SHARES PRICES PER SHARE OPTION PRICES SHARES PRICES PER SHARE - ------------------------------------------------------------------------------------------------------------------------ Options outstanding at beginning of year................................... 3,133,152 $ 24.75 to $40.25 $ 99,670,400 3,629,432 $ 18.00 to $40.25 Options granted......................... 869,050 39.94 to 46.13 37,698,400 51,000 32.00 to 37.32 Options exercised....................... (1,336,949) 24.75 to 40.25 (41,568,000) (498,546) 18.00 to 34.63 Options expired or cancelled............ (15,363) 24.75 to 34.00 (552,500) (48,734) 24.75 to 34.00 ------------ ------------- --------- Options oustanding at end of year....... 2,649,890* $ 24.75 to $46.13 $ 95,248,300 3,133,152 $ 24.75 to $40.25 ------------ ------------- --------- ------------ ------------- --------- Shares reserved for future options...... 123,888* ------------ ------------ Shares exercisable at December 31, 1993................................... 1,334,169 ------------ ------------ 1991 AGGREGATE NUMBER OF AGGREGATE OPTION PRICES SHARES PRICES PER SHARE OPTION PRICES - ---------------------------------------- Options outstanding at beginning of year................................... $ 114,403,800 3,908,855 $ 10.38 to $40.25 $ 118,979,500 Options granted......................... 1,854,500 1,097,050 24.94 to 39.88 36,865,000 Options exercised....................... (15,038,700) (1,271,537) 11.32 to 35.75 (38,204,600) Options expired or cancelled............ (1,549,200) (104,936) 10.38 to 38.88 (3,236,100) ------------- ----------- ------------- Options oustanding at end of year....... $ 99,670,400 3,629,432 $ 18.00 to $40.25 $ 114,403,800 ------------- ----------- ------------- ------------- ----------- ------------- Shares reserved for future options...... Shares exercisable at December 31, 1993................................... * Total common shares reserved for exercise of stock options at December 31, 1993 were 2,773,778.
NOTE H -- LEASE COMMITMENTS Certain plant facilities are leased under agreements expiring at various dates through 2017. Substantially all of the leases for plant facilities may be renewed for up to seven years after the initial term of the lease. The capitalized value of leases amounted to $17,461,000 and $25,568,000 at December 31, 1993 and 1992, respectively, and net book value amounted to approximately $9,765,000 and $11,352,000 at December 31, 1993 and 1992, respectively. 32 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE H -- LEASE COMMITMENTS (CONTINUED) Future minimum payments as of December 31, 1993 under the capital leases and noncancelable operating leases with initial or remaining terms of one year or more follow:
CAPITAL OPERATING (IN THOUSANDS) LEASES LEASES - ------------------------------------------------------------------------------------------------------ 1994.......................................................................... $ 1,597 $ 18,184 1995.......................................................................... 1,342 14,919 1996.......................................................................... 1,200 13,141 1997.......................................................................... 1,233 10,894 1998.......................................................................... 1,165 9,327 Thereafter.................................................................... 4,788 48,169 --------- ----------- Total minimum lease payments.................................................. 11,325 $ 114,634 ----------- ----------- Amounts representing interest................................................. (3,197) --------- Present value of net minimum lease payments................................... $ 8,128 --------- ---------
Lease expense on plant facilities, machinery and equipment amounted to $18,890,000, $22,616,000 and $24,015,000 in 1993, 1992, and 1991, respectively. NOTE I -- EMPLOYEE BENEFITS The company has several noncontributory defined benefit pension plans covering substantially all employees. Plans covering salaried and non-union employees provide pension benefits that are based on the highest consecutive 60 months of an employee's compensation. Plans covering employees governed by collective bargaining agreements generally provide pension benefits of stated amounts for each year of service and provide for supplemental benefits for employees who retire with 20 years of service before age 62. The company's funding policy for all plans is to make annual contributions generally equal to the amounts accrued for pension expense, up to the maximum amount that can be deducted for federal income tax purposes. A summary of the components of net periodic expense for the company's defined benefit plans and SERP follows:
(IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------ Service cost -- benefits earned during this period............................ $ 31,985 $ 29,655 $ 25,690 Interest cost on projected benefit obligation................................. 48,762 44,015 38,763 Actual return on plan assets.................................................. (19,027) (8,135) (38,130) Net amortization and deferral................................................. (29,634) (42,644) (19,396) ---------- ---------- ---------- Net periodic pension expense.................................................. $ 32,086 $ 22,891 $ 6,927 ---------- ---------- ---------- ---------- ---------- ---------- Assumptions used in the accounting for the plans were as follows: - ------------------------------------------------------------------------------------------------------------------ Weighted-average discount rate................................................ 7.45% 8.25% 8.5% Rates of increase in compensation levels -- defined benefit plans............. 5.75% 5.75% 6.0% Rates of increase in compensation levels -- SERP.............................. 7.0% 7.0% 7.0% Expected long-term rate of return on assets................................... 10.0% 10.0% 10.0%
33 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE I -- EMPLOYEE BENEFITS (CONTINUED) The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets for the company's defined benefit pension plans, excluding the SERP:
1993 1992 ------------------------------ ------------------------------ ACCUMULATED ASSETS EXCEED ACCUMULATED ASSETS EXCEED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED ACCUMULATED (IN THOUSANDS) ASSETS BENEFITS ASSETS BENEFITS - ---------------------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation............... $ (68,428 ) $ (446,254 ) $ (58,614 ) $ (341,175 ) --------------- ------------- --------------- ------------- --------------- ------------- --------------- ------------- Accumulated benefit obligation.......... $ (76,626 ) $ (497,263 ) $ (64,319 ) $ (391,107 ) --------------- ------------- --------------- ------------- --------------- ------------- --------------- ------------- Projected benefit obligation............ $ (81,133 ) $ (644,950 ) $ (64,319 ) $ (515,318 ) Plan assets at fair value................. 60,122 501,410 60,740 466,537 --------------- ------------- --------------- ------------- Plan assets less than projected benefit obligation............................... (21,011 ) (143,540 ) (3,579 ) (48,781 ) Unrecognized net loss..................... 25,186 258,796 16,580 163,292 Prior service cost (credit) not yet recognized in net periodic pension cost..................................... 13,506 (1,556 ) 7,187 3,433 Unrecognized net asset at January 1, 1986, net of amortization...................... (9,202 ) (77,211 ) (10,517 ) (88,086 ) Adjustment required to recognize minimum liability................................ (24,982 ) -- (13,250 ) -- --------------- ------------- --------------- ------------- (Accrued) Prepaid Pension Cost............ $ (16,503 ) $ 36,489 $ (3,579 ) $ 29,858 --------------- ------------- --------------- ------------- --------------- ------------- --------------- -------------
Approximately 52 percent of the defined benefit plans' assets at December 31, 1993 are invested in mutual funds, commercial paper, common stocks and other assets, and 48 percent of the plans' assets are invested in real estate. The market value of the common stock of the company held by the plans was $63,960,000 at December 31, 1993. The company also sponsors a Supplemental Executive Retirement Program (SERP), which is a nonqualified plan that provides certain officers with defined pension benefits in excess of limits imposed by federal tax laws. The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets for the company's SERP:
(IN THOUSANDS) 1993 1992 - ---------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefit obligation................................... $(17,767) $(15,693) -------- -------- -------- -------- Accumulated benefit obligation.............................. $(22,515) $(18,809) -------- -------- -------- -------- Projected benefit obligation................................ $(25,449) $(20,492) Unrecognized net loss......................................... 8,578 5,440 Prior service cost not yet recognized in net periodic pension cost......................................................... 318 65 Unrecognized net obligation at January 1, 1986, net of amortization................................................. 2,512 2,871 Adjustment required to recognize minimum liability............ (8,474) (6,693) -------- -------- Net pension liability of the SERP............................. $(22,515) $(18,809) -------- -------- -------- --------
34 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE I -- EMPLOYEE BENEFITS (CONTINUED) The company has established a trust to fund the payment of pension benefits under the SERP. Trust assets totaled $42,134,000 and $38,497,000 at December 31, 1993 and 1992, respectively, and are included in Deferred Charges and Other in the Consolidated Balance Sheets. The assets of the Trust are invested at the discretion of the outside trustee, and at December 31, 1993, consisted primarily of listed common stock, convertible securities and fixed-income investments. Marketable equity securities held by the Trust are carried at the lower of aggregate cost or market. Income and expenses of the Trust are included in the company's consolidated income and expenses. At December 31, 1993, the outside trustee estimates the market value of the trust assets to be $46,119,000. The Trust became irrevocable in 1988 subject only to the claims of creditors in the event of insolvency of the company. In May 1993 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective for fiscal years beginning after December 15, 1993. The company plans to adopt the Statement in 1994, and it is not expected to have a material impact on the company's financial position or results of operations. The company has an Employee Stock Ownership Plan (ESOP) which includes substantially all employees. The ESOP provides for voluntary annual contributions by the company in amounts determined by the Board of Directors. The contributions may be in cash, common stock, securities or other property. The annual contributions are to be at least sufficient to discharge any current obligations of the Employee Stock Ownership Trust. The Employee Stock Ownership Trust borrows funds at various times to purchase common stock of the company for subsequent distribution to the employees over a defined period in accordance with the Employee Stock Ownership Plan. The repayment of the loans is guaranteed by the company; however, at December 31, 1993 and 1992, there were no such obligations outstanding. Contributions to the Trust for 1993, 1992, and 1991 were $11,709,000, $13,045,000 and $12,072,000, respectively. Three of the company's subsidiaries sponsor separate 401K savings plans. The plans provide for voluntary annual contributions by the company at the discretion of management. The company contributed $4,202,000, $2,480,000, and $2,217,000 to the plans in 1993, 1992 and 1991, respectively. During 1987, the Board of Directors approved a retirement policy for its outside directors which provides for post retirement remuneration and death benefits. The expense of the plan is being amortized over the anticipated remaining terms of the directors. NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS The company also provides certain health care and life insurance benefits for its retired employees. Employees retiring from the company between the ages of 55 and 65 with at least 10 years of service or who age vest under the E-Systems, Inc. Salaried Retirement Plan are eligible for these benefits. Election to participate must be made as of the date of retirement, and the retiree may elect to cover qualifying dependents. If the retiree elects no medical coverage, it may not be added at a later date. Prior to 1992, the costs for providing retiree health care and life insurance benefits were recognized as an expense as claims were paid. In 1992, the company began to recognize the projected future cost of providing postretirement benefits, such as health care and life insurance, as an expense during the employee's vesting service. Upon implementation of this change, the company immediately recognized the January 1, 1992 accumulated postretirement benefit obligation (APBO) of $270.5 million. 35 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED) A summary of the components of net periodic retiree health care and life insurance benefits cost follows:
(IN THOUSANDS) 1993 1992 1991 - ----------------------------------------------------------------------------------------------- Service cost......................................................... $ 6,546 $ 6,962 Interest cost........................................................ 21,068 21,931 Actual return on plan assets......................................... (1,930) -- Net amortization and deferral........................................ 1,275 -- ------- ------- Net periodic postretirement benefits cost............................ $26,959 $28,893 $9,500 ------- ------- ------ ------- ------- ------
The cost shown in 1992 for retiree health care and life insurance benefits is $16,856,000 higher than it would have been had the change in accounting not been made in 1992. Annual costs for 1991 are not restated. The company has begun contributing to a Voluntary Employees' Beneficiary Association trust and a 401(h) trust that will be used to partially fund health care benefits for retirees. The company is funding benefits to the extent contributions are tax-deductible, which under current legislation is limited. In general, retiree health care benefits are paid as covered expenses are incurred. Plan assets consist of listed mutual funds, and the expected long-term rate of return on plan assets is 9 percent. The following table sets forth the funded status and amounts recognized in the Consolidated Balance Sheets for the company's retiree health care and life insurance plans:
(IN THOUSANDS) 1993 1992 - ----------------------------------------------------------------------------------- Discount Rate.................................................. 7.45% 8.25% Accumulated postretirement benefit obligation (APBO): Retirees....................................................... $164,354 $176,869 Fully eligible active employees................................ 15,137 19,165 Active employees not yet eligible.............................. 86,655 77,204 Less fair value of plan assets................................. (13,614) -- -------- -------- Excess of APBO over assets..................................... 252,532 273,238 Unrecognized prior service cost................................ 13,383 -- Unrecognized net gain.......................................... 24,880 14,089 -------- -------- Accrued retiree health care and life insurance benefits liability included in Consolidated Balance Sheet.............. $290,795 $287,327 -------- -------- -------- --------
The health care cost trend rates, used to calculate both net periodic cost and the APBO, are as follows:
COST TREND YEAR ENDING DECEMBER 31 RATES - ------------------------------------------------------------------------- 1994.............................................................. 10.0% 1995-1999......................................................... 8.0% 2000 and beyond................................................... 6.0%
36 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE J -- RETIREE HEALTH CARE AND LIFE INSURANCE BENEFITS (CONTINUED) Increasing the assumed health care cost trend rates by one percentage point in each year would increase the APBO as of December 31, 1993 by $22,428,000 and net periodic benefit cost for the year ended December 31, 1993 by $2,516,000. In November 1992, the Financial Accounting Standards Board issued Statement No. 112, "Employers Accounting for Postemployment Benefits." This statement is effective for fiscal years beginning after December 15, 1993. The company plans to adopt the Statement in 1994, and it is not expected to have a material impact on the company's financial position or results of operations. NOTE K -- COMMITMENTS AND CONTINGENCIES Changes to procurement regulations in recent years, as well as the Government's drive against "fraud, waste and abuse" in defense procurement systems have increased the complexity and cost of doing business with the Government. Some of these changes have redefined the ability to recover various standard business costs which the Government will not allow, in whole or in part, as the cost of doing business on Government contracts. Other legal and regulatory practices have increased the number of auditors, inspectors general and investigators to the point that the company, like every other major Government contractor, is the constant subject of audits, investigations and inquiries concerning various aspects of its business practices. One pending investigation resulted in subpoenas by the Government for a large number of documents and government interviews of a large number of current and former employees. The company believes that this investigation, which has been ongoing for over three years, is currently dormant. The company is unaware that the investigation produced credible evidence of material wrongdoing by it or its employees and, therefore, believes that charges or claims will not be brought against it or its employees arising from this investigation. The company regards charges of violation of government procurement regulations as extremely serious and recognizes that such charges could have a material adverse effect on the company. If the company is determined to be in noncompliance with any of the applicable laws and regulations, the possibility exists of penalties and debarment or suspension from receiving additional Government contracts. The company is involved in other disagreements which are in the ordinary course of the company's business activities that are not expected to have a material adverse effect on the company's financial position. In addition, the company is involved in certain environmental matters with governmental agencies, and pending or threatened lawsuits and claims of current and former employees alleging various age, race, sex and disability discrimination or retaliatory discharge. Management believes that the impact of the above matters, if any, on the company's financial condition will not be material. NOTE L -- OPERATIONS BY PRODUCT CATEGORY The company has four significant product segments. The Reconnaissance and Surveillance category includes strategic systems for intelligence, reconnaissance and surveillance applications and tactical systems relating to electronic countermeasures and jamming and deception devices. The Command, Control and Communications category includes communications equipment and command and control systems which process data for ready analysis and decision making. In the Navigation and Controls category, automatic control products for aircraft, missile steering and tracking systems, and aircraft navigation aids are developed and manufactured. The company provides maintenance, repair and modification services for aircraft of all types and other maintenance services 37 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE L -- OPERATIONS BY PRODUCT CATEGORY (CONTINUED) through its Aircraft Maintenance and Modification and Other Services category. Product category information is reported herein by product type since each category involves several divisions. There are no sales between product categories. Identifiable assets by product category include both assets specifically identified with those operations and an allocable share of jointly used assets. Corporate assets consist primarily of cash, deferred federal income taxes, miscellaneous receivables, investments and fixed assets. Sales to the United States Government from all categories amounted to $1,865,069,000, $1,867,043,000, and $1,774,288,000, in 1993, 1992 and 1991, respectively. International sales which are primarily export sales to foreign governments and from all categories are summarized by geographic area as follows:
(IN THOUSANDS) 1993 1992 1991 - ------------------------------------------------------------------------- Middle East............................. $ 63,610 $ 68,309 $ 53,605 Europe.................................. 76,722 77,129 100,407 Australia and Pacific................... 19,436 22,921 1,268 Other regions........................... 18,990 12,371 19,963 -------- -------- -------- $178,758 $180,730 $175,243 -------- -------- -------- -------- -------- --------
38 E-SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993 NOTE L -- OPERATIONS BY PRODUCT CATEGORY (CONTINUED) Financial information by product category (in thousands) is summarized as follows:
UNAUDITED DEPRECIATION ------------------------ INCOME AND CAPITAL 1993 BOOKINGS BACKLOG NET SALES BEFORE TAX ASSETS AMORTIZATION EXPENDITURES - ------------------------------------------------------------------------------------------------------------------------------ Reconnaissance and Surveillance.................... $ 996,875 $ 1,176,951 $ 1,259,651 $ 110,611 $ 648,277 $ 33,710 $ 33,085 Command, Control and Communications.................. 332,127 382,758 330,695 26,511 155,319 7,496 6,631 Navigation and Controls.......... 42,076 162,814 122,675 20,387 47,786 4,928 3,946 Aircraft Maintenance & Modification and Other Services........................ 539,454 410,518 384,093 23,147 177,907 5,748 7,983 ----------- ----------- ----------- ----------- ----------- ------------ ------------ Total for Operating Segments... 1,910,532 2,133,041 2,097,114 180,656 1,029,289 51,882 51,645 Corporate........................ 5,830 249,884 2,976 441 Interest expense................. (6,211) ----------- ----------- ----------- ----------- ----------- ------------ ------------ Consolidated Total............. $ 1,910,532 $ 2,133,041 $ 2,097,114 $ 180,275 $ 1,279,173 $ 54,858 $ 52,086 ----------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ 1992 - ------------------------------------------------------------------------------------------------------------------------------ Reconnaissance and Surveillance.................... $ 1,144,397 $ 1,439,727 $ 1,379,019 $ 114,339 $ 664,773 $ 34,889 $ 70,571 Command, Control and Communications.................. 295,975 381,326 303,397 22,108 144,102 7,985 10,616 Navigation and Controls.......... 163,307 243,413 94,586 16,263 50,737 4,253 3,353 Aircraft Maintenance & Modification and Other Services........................ 301,640 255,157 317,911 18,026 154,069 3,905 5,539 ----------- ----------- ----------- ----------- ----------- ------------ ------------ Total for Operating Segments... 1,905,319 2,319,623 2,094,913 170,736 1,013,681 51,032 90,079 Corporate........................ (600) 239,892 2,551 911 Interest expense................. (7,664) ----------- ----------- ----------- ----------- ----------- ------------ ------------ Consolidated Total............. $ 1,905,319 $ 2,319,623 $ 2,094,913 $ 162,472 $ 1,253,573 $ 53,583 $ 90,990 ----------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------ 1991 - ------------------------------------------------------------------------------------------------------------------------------ Reconnaissance and Surveillance.................... $ 1,237,724 $ 1,674,349 $ 1,290,399 $ 108,639 $ 631,404 $ 33,981 $ 38,730 Command, Control and Communications.................. 356,377 388,748 315,457 19,338 161,256 8,540 4,608 Navigation and Controls.......... 101,269 174,692 95,854 15,788 37,573 2,716 3,990 Aircraft Maintenance & Modification and Other Services........................ 318,061 271,428 289,574 23,281 103,380 3,979 4,868 ----------- ----------- ----------- ----------- ----------- ------------ ------------ Total for Operating Segments... 2,013,431 2,509,217 1,991,284 167,046 933,613 49,216 52,196 Corporate........................ 264 141,828 1,862 513 Interest expense................. (8,559) ----------- ----------- ----------- ----------- ----------- ------------ ------------ Consolidated Total............. $ 2,013,431 $ 2,509,217 $ 1,991,284 $ 158,751 $ 1,075,441 $ 51,078 $ 52,709 ----------- ----------- ----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- ----------- ----------- ------------ ------------
39 SCHEDULE IX E-SYSTEMS, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - -------------------------------------- -------------- --------------- -------------- -------------- ------------- (3) (2) WEIGHTED MAXIMUM AMOUNT AVERAGE AMOUNT AVERAGE WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE CATEGORY OF AGGREGATE BALANCE AT END AVERAGE DURING THE DURING THE DURING THE SHORT-TERM BORROWINGS OF PERIOD INTEREST RATE PERIOD PERIOD PERIOD - -------------------------------------- -------------- --------------- -------------- -------------- ------------- Year Ended December 31, 1993: Notes payable to bank(1)............ -- -- $ 20,831,000 $ 19,817,000 6.49% Year Ended December 31, 1992: Notes payable to bank(1)............ $ 19,533,000 9.48% $ 19,533,000 $ 7,865,000 7.40% Year Ended December 31, 1991: Notes payable to bank(1)............ -- -- $ 11,900,000 $ 2,776,000 6.75% - ------------------------ (1) Notes payable to bank represent borrowings under lines of credit borrowing arrangements which have a one year termination date and are reviewed annually for renewal. (2) The average amount outstanding during the period was computed by dividing the total of the average monthly outstanding principal balances by 12. (3) The weighted average interest rate during the period was computed by calculating a monthly weighted average interest rate and summing to a weighted average interest rate for the period.
40 INDEX OF EXHIBITS SECURITIES EXCHANGE ACT OF 1934
EXHIBIT NO. ITEM - --------------- ----------------------------------------------------------------------------------------- 3(i) Composite Articles of Incorporation as Amended April 21, 1987. 3(ii) Bylaws as Amended and Restated January 26, 1994. 10a* Employment Agreement of E. Gene Keiffer dated October 25, 1989 (filed as Exhibit 10.1 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10b* Employment Agreement of A. Lowell Lawson dated September 27, 1989 and Amendment dated January 26, 1994. 10c* Employment Agreement of Terry W. Heil dated as of December 19, 1990 and Amendment dated November 22, 1993. 10d* Employment Agreement of Peter A. Marino dated October 14, 1991 and Amendment dated November 22, 1993. 10e* Employment Agreement of Brian D. Cullen dated October 14, 1991 and Amendment dated November 22, 1993. 10f* Employment Agreement of James W. Crowley as Restated June 1, 1982 (filed as Exhibit 10.19 to Annual Report on Form 10-K for fiscal year ended December 31, 1992). 10g* Form of Indemnification Agreement with Officers and Directors (filed as Exhibit 10.2 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10h* E-Systems, Inc. Stock Appreciation Rights Plan (filed as Exhibit 10.9 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10i* E-Systems, Inc. 1980 Stock Option Plan (filed as Exhibit 10.10 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10j* Form of Stock Option Agreement (rev. 1986) (filed as Exhibit 10.12 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10k* Form of Restricted Stock Award Agreement (rev. 1986) (filed as Exhibit 10.16 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10l Lease Agreement between City of Greenville and E-Systems, Inc. dated October 1, 1977, as amended by Amendments No. 1 and 2 dated October 15, 1980; Amendment No. 3 dated October 1, 1981; Amendment No. 4 dated December 11, 1990. 10m* Executive Supplemental Retirement Plan effective June 1, 1982, as amended through November 18, 1986 (filed as Exhibit 10.18 to Annual Report on Form 10-K for fiscal year ended December 31, 1991). 10n* E-Systems, Inc. 1988 Employee Stock Option Plan, as amended. 10o Trust Agreement dated June 23, 1987 between E-Systems, Inc. and AmeriTrust Company, National Association, Trustee, including First Amendment dated September 23, 1987 and Second Amendment dated February 4, 1988 (filed as Exhibit 10.21 to Annual Report on Form 10-K for fiscal year ended December 31, 1992).
41
EXHIBIT NO. ITEM - --------------- ----------------------------------------------------------------------------------------- 10p E-Systems, Inc. 1994 Employee Stock Option Plan (filed as Exhibit 1 to Proxy Statement dated March 25, 1994). 11 Statement re computation of per share earnings. 21 Subsidiaries of Registrant. 23 Consent of Independent Auditors. 99 Additional Exhibits (Annual Report on Form 11-K for the fiscal year ended December 31, 1993, for the E-Systems Tax Advantaged Capital Accumulation Plan: to be filed by amendment). - ------------------------ *Each of these exhibits is a "management contract or compensatory plan, contract, or arrangement."
42 EX-3.(I) 2 EX-3(I) EXHIBIT 3(i) CERTIFICATE AUTHORIZING THE FILING OF COMPOSITE CERTIFICATE OF INCORPORATION E-SYSTEMS, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY. That the filing and recording of the Composite Certificate of Incorporation of E-SYSTEMS, INC., a true and correct copy of which is attached hereto, was duly authorized by the Company's Board of Directors at a meeting duly called and held on November 24, 1987. IN WITNESS WHEREOF, said E-SYSTEMS, INC. has caused this certificate to be signed by JAMES W. CROWLEY, its Vice President and attested by LUTHER B. TERRY, its Assistant Secretary this 16th day of March, 1988. By: James W. Crowley Vice President ATTEST: By: Luther B. Terry Assistant Secretary COMPOSITE CERTIFICATE OF INCORPORATION OF E-SYSTEMS, INC. FIRST. The name of the corporation is E-SYSTEMS, INC. SECOND. The corporation's principal office in the State of Delaware is located at No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Company, No. 100 West Tenth Street, Wilmington 99, Delaware. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH. This corporation is authorized to issue 50,185,000 shares of capital stock. Fifty million (50,000,000) of the authorized shares shall be Common Stock, One Dollar ($1.00) par value each; and One Hundred Eighty-five Thousand (185,000) of the authorized shares shall be preferred stock, Twenty Dollars ($20.00) par value each. Shares of preferred stock may be issued from time to time in one or more series to have such distinctive designation and title as may be fixed by the Board of Directors prior to the issuance of any shares thereof. Each such series shall have such preferences and relative, participating, optional or other special rights, with such qualifications, limitations, or restrictions of such preferences and/or rights as shall be stated in the resolution or resolutions providing for the issue of such series of preferred stock, as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof, in accordance with the laws of the State of Delaware. Each share of any series of preferred stock shall be identical with all other shares of such series, except as to the date from which accumulated preferred dividends, if any, shall be cumulative. FIFTH. Cumulative voting for the election of directors shall not be permitted. SIXTH. The minimum amount of capital with which the corporation will commence business is One Thousand Dollars ($1,000). SEVENTH. The names and places of residence of the incorporators are as follows: NAMES RESIDENCES A. D. Atwell Wilmington, Delaware F. J. Obara, Jr. Wilmington, Delaware A. D. Grier Wilmington, Delaware EIGHTH: The corporation is to have perpetual existence. NINTH. The private property of the stockholders shall not be subject to the payment of the corporate debts or any extent whatever. TENTH. The following provisions are adopted for the management of the business and for the conduct of the affairs of the corporation, and for creating, defining, limiting and regulating the powers of the corporation, its directors, and stockholders: (a) The business of the corporation shall be managed by its Board of Directors and the Board of Directors shall have power to exercise all the powers of the corporation, including (but without limiting the generality hereof) the power to create mortgages upon the whole or any part of the property of the corporation, real or personal, without any action of or by the stockholders, except as otherwise provided by statute or by the By-Laws. (b) The number of directors which shall constitute the whole Board of Directors shall be such as is from time to time fixed in the manner provided in the By-Laws, but in no case shall the number be less than three (3). (c) (1) The directors (other than any directors which may be elected by the class vote of any series of the preferred stock of the corporation pursuant to the terms thereof, which directors shall be elected at the time and serve for the term specified in the resolutions providing for the issue of such series of preferred stock) shall be divided into three classes, each consisting of one-third of such directors as nearly as may be. (2) At the annual meeting of stockholders in 1972, one class of such directors shall be elected for a one-year term, one class for a two-year term and one class for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of directors whose term expires in that year shall be elected for a three-year term. If the number of such directors is changed, any increase or decrease in such directors shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible, and any additional director to any class shall hold office for a term which shall coincide with the term of such class. (3) A director shall hold office until the annual meeting for the year in which his term expires or his successor is elected and qualified; subject however, to prior resignation, death or removal of any director, the term of his successor shall be the same term as that of the director who has so resigned, died or been removed. At each election the persons receiving the greatest number of votes shall be the directors. (d) The Board of Directors shall have power to make, alter or repeal By-Laws, subject to such restrictions upon the exercise of such power as may be imposed by the stockholders in any By-Laws adopted by them from time to time. (e) The Board of Directors shall have power in its discretion to fix, determine, and vary form time to time the amount to be retained as surplus, and the amount or amounts to be set apart out of any of the funds of the corporation available for dividends, as working capital, or a reserve or reserves for any proper purpose, and to abolish any such reserve in the manner in which it was created. (f) The Board of Directors shall have power in its discretion from time to time to determine whether and to what extent and at what times and places and under what conditions and regulations the books and accounts of the corporation, or any of them, other than the stock ledger shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the corporation, except as conferred by law or authorized by resolution of the directors of the stockholders. (g) Upon any sale, exchange or other disposal of the property and/or assets of the corporation, payment therefore may be made either to the corporation or directly to the stockholders in proportion to their interests, upon the surrender of their respective stock certificates, or otherwise, as the Board of Directors may determine. (h) The Board of Directors shall have the power, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors, to appoint one or more committees, including, but not limited to, an executive committee, each committee to consist of two or more of the directors of the corporation. Any such committee or committees, to the extent provided in the resolution or in the By-Laws or in the laws of the State of Delaware and subject thereto, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation. (i) A special meeting of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. (j) Notice of each meeting of stockholders, whether annual or special, shall, at least ten days before the day on which the meeting is to be held, be given to each stockholder of record entitled to vote by delivering a written or printed notice thereof to him personally, or by mailing such notice in a postage paid envelope addressed to him at his address as it appears on the stock books of the corporation; provided, that no notice of any character of any meeting of stockholders need be given to any stockholder to whom the delivery, mailing or other giving of such notice would be unlawful (either absolutely or without official license or consent) pursuant to the provisions of any law of the United States or any rule, regulation, proclamation or executive order issued pursuant thereto. Except as otherwise required by statute, no publication of any notice of a meeting of stockholders shall be required. Every notice of a special meeting of stockholders, besides stating the time and place of the meeting, shall state briefly the purposes thereof. (k) (1) Except as otherwise provided in this certificate of incorporation, the affirmative vote of the holders of at least a majority of the outstanding capital stock of the corporation entitled to vote shall be required to authorize, adopt or approve any of the following: A. The merger or consolidation of this corporation with or into any other corporation or corporations organized under the laws of the State of Delaware or any other state or country in the manner now or hereafter permitted by law, except to the extent the vote of the stockholders is not required under Sections 251 (f), 252 (e) or 253 of the General Corporation Law of the State of Delaware or similar provisions of any succeeding legislation; or B. The sale, exchange, lease, transfer or other disposition of all or substantially all the property or assets of this corporation including its good will in a manner now or hereafter permitted by law, and in connection therewith the winding up of its affairs and its dissolution. (2) The affirmative vote of the holders of at least 80% of the outstanding capital stock of the corporation entitled to vote shall be required to authorize, adopt or approve any of the following: A. The sale, exchange, lease, transfer or other disposition by the corporation of all or substantially all of its property or assets to a related corporation or an affiliate of a related corporation; or B. The consolidation of the corporation or its merger with or into a related corporation or an affiliate of a related corporation; or C. The merger into the corporation of a related corporation or an affiliate of a related corporation; or D. Any issuance or delivery of capital stock or other securities of the corporation in exchange or payment for any properties or assets of any related corporation or any affiliate of a related corporation in a transaction for which the approval of stockholders of the corporation is required by law or by any agreement between the corporation and any national securities exchange; or E. An agreement, contract or other arrangement with a related corporation providing for any of the transactions described in the foregoing clauses of this paragraph (2). For the purpose of this paragraph (k), a 'related corporation' in respect of a given transaction shall mean any corporation (other than the corporation) which, together with affiliated and associated persons, owns of record or beneficially, directly or indirectly, shares of the corporation representing more than 5% of the total voting power of outstanding capital stock entitled to vote upon such transaction as of the record date used to determine the stockholders of the corporation entitled to vote on such transaction; an 'affiliate' of a related corporation shall mean any individual, joint venture, trust, partnership or corporation which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the related corporation; and an 'associated person' of a related corporation shall mean any officer or director or any beneficial owner directly or indirectly of 10% or more of any class of equity security of such related corporation or any affiliate. The determination of the Board of Directors of the corporation, based on information known to the Board of Directors and made in good faith, shall be conclusive as to whether any corporation is a related corporation as defined in this paragraph (k). (1) No action of the holders of the Common Stock of the corporation may be taken by consent in lieu of a meeting. ELEVENTH. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code, or the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders, or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. TWELFTH. No contract or other transaction between the corporation and any other corporation, firm or individual shall be affected or invalidated by the fact that any one or more of the directors or officers of this corporation is or are interested in or is a director or officer of such other corporation, or a member of such firm, and any director or officer, individually or jointly, may be a party to or may be interested in any contract, or transaction, of this corporation or in which this corporation is interested, and no contract, act or transaction of this corporation with any person or persons, firms or corporations, shall be affected or invalidated by the fact that any director or officer of this corporation is a party to or interested in such contract, act or transaction, or in any way connected with such person or persons, firms or corporations, and each and every person who may become a director or officer of this corporation is hereby relieved from any liability that might otherwise exist from contracting with the corporation for the benefit of himself or any firm or corporation in which he may be in anywise interested. THIRTEENTH. Meetings of stockholders may be held outside the State of Delaware, if the By-Laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws. Elections of directors need not be by ballot unless the By-Laws shall so provide. FOURTEENTH. To the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect, no Director of the corporation shall be personally liable to the corporation or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a Director of the corporation. No amendment to or repeal of this Article Fourteenth shall apply to or have any effect on the liability or alleged liability of any Director of the corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment. FIFTEENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. We, the undersigned, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set our hands and seals this 28th day of December, A.D. 1964. A. D. ATWELL (L.S.) F. J. OBARA, JR (L.S.) A. D. GRIER (L.S.) STATE OF DELAWARE ) ) COUNTY OF NEW CASTLE ) BE IT REMEMBERED that on this 28th day of December, 1964, personally came before me, a Notary Public for the State of Delaware, A. D. Atwell, F. J. Obara, Jr. and A. D. Grier, all of the parties to the foregoing certificate of incorporation, known to me personally to be such, and severally acknowledged the said certificate to be the act and deed of the signers respectively and that the facts therein stated are truly set forth. GIVEN UNDER MY HAND AND SEAL of office the day and HOWARD K. WEBB NOTARY PUBLIC APPOINTED JUNE 27, 1964 STATE OF DELAWARE TERM 2 YEARS HOWARD K. WEBB Notary Public EX-3.(II) 3 EXH-3(II) EXHIBIT 3(ii) AS AMENDED AND RESTATED JANUARY 26, 1994 BYLAWS OF E-SYSTEMS, INC. ARTICLE I OFFICES Section 1. The principal office shall be in the city of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Annual or special meetings of the stockholders shall be held at such place within the United States of America as may be fixed by the board of directors, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held such day and at such time as may be fixed by the board of directors at which they shall elect by a plurality vote a board of directors and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting shall be given to each stockholder entitled to vote thereat at least ten days before the date of the meeting. Section 4. A complete list of the stockholders entitled to vote at any election of directors, arranged in alphabetical order and showing the address of each stockholder and the number of voting shares held by each, shall be prepared by the officer in charge of the stock ledger and shall be filed at the place where the election is to be held or at another place within the city, town or village where the election is to be held (which place, if other than the meeting place, shall be specified in the notice of the meeting) at least ten (10) days before such election and shall at all times prior to the election during the usual hours for business, and during the whole time of said election, be open to examination and inspection of any stockholder. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chairman of the Board or by the Chief Executive Officer or the President and shall be called by the Chief Executive Officer, the President or the Secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting of stockholders, stating the time, place and object thereof, shall be given to each stockholder entitled to vote thereat, at least ten days before the date fixed for the meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period; and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which has been transferred on the books of the corporation within twenty days next preceding such election of directors. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the certificate of incorporation, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken. ARTICLE III DIRECTORS Section 1. The number of directors shall be the number fixed from time to time by resolutions of the board of directors; provided that the number shall be not less than three (3) nor more than fifteen (15). Unless otherwise provided in the certificate of incorporation, the directors shall be elected annually and each director shall continue in office until a successor shall have been elected and qualified, or until death, or until he or she shall resign, or shall have been removed for adequate cause. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum; and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. Section 3. The business of the corporation shall be managed by its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 4. There shall be the position of "Chairman Emeritus" of the board of directors, which shall be an honorary title which is bestowed on such person or persons as the board may from time to time designate and shall carry with it such rights, privileges, and perquisites as the board may establish. MEETINGS OF THE BOARD OF DIRECTORS Section 5. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 6. The first meeting of each newly elected board of directors shall be held immediately following the meeting of stockholders at which such directors were elected, or be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held immediately following the annual meeting, or at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 7. Regular meetings of the board of directors shall be held without special notice at such time and at such place as shall from time to time be determined by the board. Section 8. Special meetings of the board of directors may be called by the Chairman of the Board or by the President, or, on the written request of two directors, by the Secretary on twenty-four hours' notice to each director either personally or by mail or telegram. Section 9. At any stated or special meeting of the board of directors a majority of the directors at the time in office (but not less than one-third of the whole board) shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors except as may be otherwise specifically provided by statute or by the certificate of incorporation. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is present. No notice of any adjourned meeting need be given. COMMITTEES OF DIRECTORS Section 10. The board of directors may, by resolution adopted by affirmative vote of a majority of the whole board, appoint one or more committees, including, but not limited to, an executive committee, each committee to consist of two or more of the directors of the corporation. At any meeting of the committees a majority of the members of the committee shall constitute a quorum for the transaction of business, and the act of a majority of the members present at any meeting at which a quorum is present shall be the act of the committee. Any such committee or committees, other than the executive committee, appointed by the board of directors shall have and may exercise only the power of recommending action to the board of directors and of carrying out and implementing any instructions or any policies, plans and programs theretofore approved and adopted by the board of directors. The executive committee shall, during the intervals between meetings of the board of directors, have and may exercise all of the powers of the board of directors in the management of the business and affairs of the corporation, including the election or appointment of officers of the corporation (other than the President, Secretary and Treasurer), the declaration of dividends upon the capital stock of the corporation subject to the provisions of these Bylaws, and may authorize the seal of the corporation be affixed to all papers which may require it; provided, however, that the executive committee may not rescind any action previously taken by the board of directors. Meetings of the executive committee may be called and notices given in the same manner as calling and giving notice of special meetings of the board of directors. Section 11. The committee shall keep regular minutes of their proceedings and report the same to the board of directors, when required. COMPENSATION OF DIRECTORS Section 12. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may, if authorized by the board of directors, be paid a fixed sum for attendance at each meeting of the board of directors, a stated salary as a director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 13. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the board or committees. ARTICLE IV NOTICES Section 1. Notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation. Notice by mail shall be deemed given at the time when the same shall be mailed. Notice to directors may also be given personally and by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The elected officers of the corporation shall be a Chairman of the Board, a Chief Executive Officer (each of whom shall be a director), a President and one or more Vice Presidents, with or without such descriptive titles and designations as the board of directors shall deem appropriate, a Vice President - Finance and Chief Financial Officer, a Vice President - Financial Operations, a Treasurer, and a Secretary. The board of directors by resolution may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents as from time to time may appear to be necessary or advisable in the conduct of the affairs of the corporation. Any two or more offices may be held by the same person except as noted herein the Chairman of the Board, Chief Executive Officer or President shall not hold the office of Secretary; and the offices of Treasurer and Vice President - Financial Operations may not be held by the same person. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall elect and appoint the officers to fill the positions designated in Section 1 of this Article V. Section 3. The salaries of all elected officers of the corporation shall be fixed by the board of directors. Section 4. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the board of directors. CHAIRMAN OF THE BOARD Section 5. The Chairman of the Board shall preside at all meetings of stockholders, except as otherwise may be provided by statute, and at all meetings of the board of directors. The Chairman of the Board shall perform such other duties as the board of directors may from time to time designate. CHIEF EXECUTIVE OFFICER Section 6. The Chief Executive Officer shall be the chief executive officer of the corporation, and, subject to the provisions of these Bylaws, shall be responsible for general management of the affairs of the corporation. The Chief Executive Officer shall preside in the absence of the Chairman of the Board at all meetings of stockholders, except as otherwise be provided by statute, and at all meetings of the board of directors. The Chief Executive Officer shall have general authority to execute all bonds, deeds, contracts, agreements and instruments in the name of the corporation and to cause the corporate seal to be affixed thereto; and to delegate any such authority to any other elected officer of the corporation. The Chief Executive Officer shall have general authority to cause the employment or appointment of employees and agents of the corporation and to fix their compensation; and to remove or suspend any employee or agent who shall have been employed or appointed pursuant to this authority or under authority of an officer subordinate to the Chief Executive Officer. The Chief Executive Officer shall direct and supervise the corporate staff, including corporate staff officers, who shall report to the Chief Executive Officer; and shall have the power to remove or suspend for cause any subordinate officer to the Chief Executive Officer, pending final action by the authority which elected or appointed such officer. In general, the Chief Executive Officer is authorized to exercise all powers usually appertaining to the office of the chief executive of a corporation under applicable corporate law; and shall be primarily responsible for implementing the policy of the board of directors towards achieving objectives established for growth, profitability, corporate conduct and image. In the absence of the Chief Executive Officer, such duties shall be performed and such powers may be exercised by the President, or by such other officer as the Chief Executive Officer may designate in writing, subject to review and superseding action by the board of directors. PRESIDENT Section 7. The President shall be the chief operating officer of the corporation and, subject to the general supervision and direction of the Chairman of the Board and Chief Executive Officer, shall be responsible for the business and operations of the corporation. The President shall have authority to execute contracts, agreements and instruments in the name of the corporation in the ordinary course of business and to cause the corporate seal to be affixed thereto; and to delegate any such authority to any subordinate elected officer of the corporation. The President shall have general authority to cause the employment of employees and agents for the business and operations of the corporation and to fix their compensation and to remove or suspend any employee or agent who shall have been employed under the President's authority or under authority of a subordinate officer. The President shall direct and supervise the operating officers and group executives, who shall report to the President; and shall have the power to remove or suspend for cause any subordinate officer pending final action by the authority which elected or appointed such officer. In general, the President is authorized to exercise all powers usually necessary to conduct the everyday business and operations of the corporation towards achieving corporate goals and objectives. In the absence of the President, the duties and powers of the office shall be performed and be exercised by such other officer as the President shall designate in writing, subject to review and superseding action by the Chief Executive Officer or the board of directors. VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER Section 8. The Vice President - Finance and Chief Financial Officer shall be chief accounting and financial officer of the corporation and shall have active control of and shall be responsible for all matters pertaining to the accounts and finances of the corporation; and all decisions affecting either accounts or finances shall be subject to approval or concurrence by this officer. The Vice President - Finance and Chief Financial Officer shall be responsible for maintaining liaison with all government and other regulatory bodies and shall establish comprehensive budget and cost control programs; internal audit and operational analysis of overhead functions and approve all major financial aspects of all contractual arrangements. The Vice President - Finance and Chief Financial Officer shall be responsible for all financial planning for the corporation on both a long-term and short-term basis and the disposition of investments held by the corporation as authorized by the board of directors or executive committee. The Vice President - Finance and Chief Financial Officer shall direct the Treasurer and the Vice President - Financial Operations in the performance of their duties. The Vice President - Finance and Chief Financial Officer shall audit all payrolls and vouchers of the corporation and shall direct the manner of certifying the same; shall supervise the manner of keeping all vouchers for payment by the corporation and all other documents relating to such payment; shall receive, audit and consolidate all operating and financial statements of the corporation and its various subsidiaries and divisions and shall have supervision of the books of account of the corporation, its various subsidiaries and divisions, their arrangement and classification; shall supervise the accounting and auditing practices of the corporation, and shall have charge of all matters relating to insurance and taxation. The Vice President - Finance and Chief Financial Officer may assign to the Treasurer and the Vice President - Financial Operations or to one or more Assistant Treasurers and Assistant Controllers such duties as may be deemed necessary or advisable. VICE PRESIDENTS Section 9. The several Vice Presidents shall perform duties and services as shall be assigned to or required of them from time to time by the board of directors or the officer to whom they report. Except as otherwise provided in these Bylaws, the staff Vice Presidents shall report to and be under the supervision and direction of the Chief Executive Officer, and the operating Vice Presidents (including group executives) shall report to and be under the supervision and direction of the President. Each Vice President shall have authority to execute contracts, agreements and instruments in the name of the corporation in the ordinary course of business and to cause the corporate seal to be affixed thereto, subject to such limitations or restrictions as the officer to whom such Vice President reports may direct. SECRETARY AND ASSISTANT SECRETARIES Section 10. The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all proceedings of the meetings of the stockholders of the corporation and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and meetings of the board of directors. The Secretary shall be under the supervision of the Chairman of the Board and the Chief Executive Officer and shall perform such other duties as may be prescribed by either the Chairman of the Board or the Chief Executive Officer. The Secretary shall have charge of the seal of the corporation and have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the Secretary's signature or by the signature of the Treasurer or an Assistant Secretary, which may be facsimile. The Secretary shall keep and account for all books, documents, papers and records of the corporation except those for which some other officer or agent is properly accountable. The Secretary shall have authority to sign stock certificates, and shall generally perform all the duties usually appertaining to the office of the secretary of a corporation. Assistant Secretaries in the order of their seniority, unless otherwise determined by the board of directors, shall assist the Secretary, and in the absence or disability of the Secretary perform the duties and exercise the powers of the Secretary. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. TREASURER AND ASSISTANT TREASURERS Section 11. Under the general direction of the Vice President - Finance and Chief Financial Officer of the corporation, the Treasurer shall be responsible for all matters pertaining to the finances of the corporation and its subsidiaries. The Treasurer shall have charge of all matters pertaining to taxation and insurance. The Treasurer shall have the care and custody of all monies, funds and securities of the corporation and shall deposit all monies and other valuable effects in the name of and to the credit of the corporation in such depositories as may be designated by the board of directors. The Treasurer shall cause to be recorded a statement of all receipts and disbursements of the corporation in order that proper entries may be made in the books of account. The Treasurer shall have the power to sign stock certificates, to endorse for deposit or collection, or otherwise, all checks, drafts, notes, bills of exchange, or other commercial paper payable to the corporation, and to give proper receipts or discharges for all payments to the corporation. The Treasurer shall be responsible for all terms of credit granted by the corporation and for the collection of all its accounts. The Treasurer shall perform such other duties as may be prescribed by the Vice President - Finance and Chief Financial Officer. If required by the board of directors, the Treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office and for the restoration to the corporation, in case of death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the possession or under control of the Treasurer belonging to the corporation. In the absence of disability of the Treasurer, the duties of the office shall be performed by an Assistant Treasurer or other designated person. VICE PRESIDENT - FINANCIAL OPERATIONS Section 12. Under the general direction of the Vice President - Finance and Chief Financial Officer, the Vice President - Financial Operations shall be responsible for all matters pertaining to the accounts of the corporation, its subsidiaries and divisions, with the supervision of the books of account, their installation, arrangement, and classification. The Vice President - Financial Operations shall maintain adequate records of all assets, liabilities, and transactions; shall audit all payrolls and vouchers for payment by the corporation and all documents pertaining to such vouchers; coordinate the efforts of the company's independent public accountants in its external audit program; receive, review, and consolidate all operating and financial statements of the corporation and its various departments and subsidiaries; and prepare financial statements, reports and analyses; supervising the accounting practices of the corporation and of each subsidiary and division of the corporation, and prescribing the duties and powers of the chief accounting personnel of the subsidiaries and divisions. The Vice President - Financial Operations shall cause to be maintained an adequate system of financial control through a program of budgets, financial planning and interpretive reports; and shall initiate and enforce measures and procedures whereby the business of the corporation and its subsidiaries and divisions shall be conducted with the maximum integrity, efficiency, and economy. The Vice President - Financial Operations shall perform such other duties as may be prescribed by the Vice President - Finance and Chief Financial Officer. ASSISTANT CONTROLLERS Section 13. One or more Assistant Controllers may be designated to perform such functions under the supervision of the Vice President - Financial Operations as may be delegated or prescribed; and in the absence or disability of the Vice President - Financial Operations, the duties of such office shall be performed by the Assistant Controllers, in order of their seniority, unless otherwise determined by the Board of Directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS Section 1. Each person who is or was or had agreed to become a director or officer of the corporation, or each such person who is or was serving or had agreed to serve at the request of the board of directors or an officer of the corporation as an employee or agent of the corporation or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person), shall be indemnified by the corporation to the full extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. Without limiting the generality or effect of the foregoing, the corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article. No amendment or repeal of this Article VI shall apply to or have any effect on the right to indemnity permitted or authorized hereunder for or with respect to claims asserted before or after such amendment or repeal arising from acts or omissions occurring in whole or in part before the effective date of such amendment or repeal. ARTICLE VII CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chief Executive Officer, the President or Vice President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock, the designation, preferences and relative, participating, optional or other special rights of each class and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class of stock; provided, however, except as otherwise provided in Section 194 of the General Corporation Law of Delaware, 1953, in lieu of the foregoing requirements, there may be set forth on the face or the back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or shares thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Where a certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employees, any other signature on the certificate may be a facsimile, engraved, stamped or printed. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the corporation such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. RECORD DATE Section 5. The board of directors shall fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments, a person registered on its books as the owner of shares, and shall not be bound to recognize an equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. STOCK OPTIONS AND AGREEMENTS Section 7. Any stockholder of this corporation may enter into agreements giving to any other stockholder or stockholders or any third party an option to purchase any of his or her stock in the corporation; and such shares of stock shall thereupon be subject to such agreement and transferable only upon proof of compliance therewith; provided, however, that a copy of such agreement be filed with the corporation and reference thereto placed upon the certificates representing said shares of stock. ARTICLE VIII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors or by the executive committee of the board of directors at any regular or special meeting thereof, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation; and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and when called for by vote of the stockholders at any special meeting of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE IX AMENDMENTS Section 1. These Bylaws may be altered or repealed at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration or repeal be contained in the notice of such special meeting. EX-10 4 EXH-10_B EXHIBIT 10B Employment Agreement Between E-Systems, Inc. and A. Lowell Lawson September 27, 1989 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 27th day of September, 1989 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and A. Lowell Lawson (hereinafter referred to as "Employee"). RECITALS WHEREAS, ESY and Employee have previously entered into an Employment Agreement (the "Prior Agreement"), dated as of November 25, 1986, which is to expire on November 30, 1991; WHEREAS, upon the expiration of the Prior Agreement, certain benefits thereunder are to become fully vested, including supplemental retirement, death and disability benefits, medical, hospitalization and other benefits and perquisites, all of which benefits and perquisites will survive the expiration of the Prior Agreement (the "Vested Benefits"); WHEREAS, ESY desires that Employee continue to serve as a senior executive officer of ESY subsequent to the expiration of the Prior Agreement, and ESY expects Employee to continue to make major contributions to the profitability, growth and financial strength of ESY; WHEREAS, ESY desires that Employee agree to continue to serve as a senior executive officer of ESY following the expiration of the Prior Agreement; WHEREAS, Employee is willing to continue to serve as a senior executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; WHEREAS, the Board of Directors of ESY (the "Board") recognizes Employee's contributions to the growth and success of ESY during his employment and desires to recognize such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent; and NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. Employment and Term. Commencing on the Effective Date, Employee's employment shall continue hereunder through January 16, 1995, unless Employee retires pursuant to either Section 2(c)(1) or 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of three years commencing January 17, 1995 and ending January 16, 1998, unless the Board of Directors or the employee shall, not less than 120 days prior thereto, give notice in writing to the other that this Agreement shall not be extended or unless the term of this Agreement shall have otherwise terminated. Except as expressly provided in Section 4 hereof, Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During the term of this Agreement (hereinafter referred to as the "Employment Period"), Employee shall serve as President of ESY or in such other office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him with his advance written consent. The Employee's current office with ESY is set forth on Exhibit B hereto. 2. Compensation and Benefits. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $325,000 or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases (but not decreases) as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows: (1) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 65% of "Average Monthly Compensation". "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Employee may retire at any time after January 16, 1998, having then attained age 60, upon reasonable notice to the Board of Directors. Notwithstanding Section 5.1 of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan if Employee's employment is terminated prior to the close of the Employment Period for any reason, including (i) involuntary termination of employment by ESY; (ii) voluntary termination of employment by the Employee; (iii) termination of employment due to death or disability; or (iv) termination of employment for Cause (as defined in Section 10 hereof). If employment is terminated by reason of the preceding clause (i), the Employee's "Normal Retirement Date", as defined in the Executive Plan, shall be such date of termination of employment. The amounts payable pursuant to this Section 2(c)(1) shall be paid Employee and/or his beneficiaries as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(l), if the Employee voluntarily terminates his employment prior to the close of the Employment Period, Employee's rights to benefits under the Executive Plan and all other of the Vested Benefits shall remain nonforfeitable. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY and without any reduction in the benefit provided in Section 2(c)(1), and payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) shall not be funded; except that the Board of Directors of ESY may establish a trust or trusts out of which such obligations may be satisfied, provided that the principal and income of such trust or trusts are subject to the claims of creditors of ESY in the event of insolvency as provided for under the terms of such trust or trusts; and neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 3, 9 and 19 hereof, shall survive the expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal place of work as of the date hereof without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eyecare coverage equivalent to that furnished to Employee and his wife by ESY as of the date of this Agreement will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement, the Prior Agreement, or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under the Prior Agreement or any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the benefit plans, programs, and policies maintained by ESY shall not be reduced unless Employee's participation in such plans, programs, and policies remains proportionate to the participation in such plans, programs, and policies by the officers of ESY, or a successor entity, taking into account the position, responsibilities, and authority of the Employee. 3. Expenses and Perquisites. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive Employees receiving comparable compensation. Further, in consideration of Employee's commitment hereunder to remain in the employ of ESY to his attaining age 60, ESY shall be obligated to furnish certain additional reasonable postretirement perquisites and benefits, which shall be set forth in a letter to Employee through the Chairman of the Compensation and Benefits Committee and shall constitute a binding obligation upon ESY. 4. Conflicts of Interest and Competition. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. Participation in Benefit Plans. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any Employee benefit to which he would otherwise be entitled or as a participant in the present or future Employee benefit plans of ESY. 6. Insurance. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. Damages; mitigation. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 10 hereof, (i) Employee shall be entitled to the compensation and benefits provided by Sections 2(a) and 2(b) for the balance of the Employment Period and to the benefits provided by Sections 2(c), 2(e), 2(f), 3, 9 and 19 in accordance with the terms of such Sections, and (ii) ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal place of work immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee elects at the time of termination to receive payments under the terms of the Prior Agreement and the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly notify ESY of the amount of cash compensation received by him in his new employment and ESY shall be entitled to offset against amounts otherwise due to the Employee an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. Set-off; Impact on Other Agreements. There shall be no right of set-off or counter-claim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement, except as expressly set forth above in Section 7. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. Indemnification. If an amount paid hereunder is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto, ESY shall pay to Employee an additional amount in cash equal to the amount necessary to cause the aggregate remuneration received by Employee under this Agreement, including such additional cash payment (net of all federal, state, and local income taxes and all taxes payable as the result of the application of Sections 280G and 4999 of the Code or any successor provision thereto) to be equal to the aggregate remuneration Employee would have received under this Agreement, excluding such additional payment (net of all federal, state, and local income taxes), as if Sections 280G and 4999 (and any successors thereto) had not been enacted into law. 10. (a) Termination. Subject to the provisions of Section 2(c)(l) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); and any such act shall have been materially harmful to ESY; provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. (b) Effect on Prior Vested Benefits. It is specifically agreed that, although restated herein, all the Vested Benefits under the Prior Agreement shall remain fully vested and that termination of this Agreement for Cause or otherwise shall in no way abrogate ESY's obligation to pay or furnish the Vested Benefits. This Employment Agreement shall increase or enhance and not reduce the benefits available to Employee under the Prior Agreement. 11. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 12. Entire Agreement. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto, including the Prior Agreement, being herein merged. 13. Assignability. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. ESY agrees to require any successor to assume this Agreement and all ESY's obligations hereunder, as a condition of any merger, consolidation, or purchase and sale of the business and assets of ESY. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 13. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 13, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 14. Remedies Cumulative. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 15. Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 16. Withholding of Taxes. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 17. Amendments and Waivers. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 18. Notice. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 19. Legal Fees and Expenses. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC. James M. Bolding James W. Crowley Assistant Secretary Vice President, Secretary and General Counsel EMPLOYEE: A. Lowell Lawson AMENDMENT NO. ONE TO EMPLOYMENT AGREEMENT DATED AS OF SEPTEMBER 27, 1989 BETWEEN E-SYSTEMS, INC. AND A. LOWELL LAWSON In consideration of Mr. A. Lowell Lawson's being elected Chief Executive Officer as well as President of E-Systems, Inc., effective January 26, 1994, and in further consideration of the mutual promises herein contained, the Employment Agreement dated as of September 27, 1989, is hereby amended as follows: 1. E-Systems, Inc. and Mr. A. Lowell Lawson agree that the automatic extension from January 17, 1995, and ending January 16, 1998, is to take effect and neither party shall exercise its right to notify the other that the Agreement shall not be extended. 2. Effective January 26, 1994, Exhibit B is amended to specify that the position of Mr. A. Lowell Lawson is: Chief Executive Officer and President. IN WITNESS WHEREOF, the parties have caused this Amendment No. One to the Agreement dated as of September 27, 1989, as of this 26th day of January, 1994. ATTEST: E-SYSTEMS, INC. James M. Bolding James W. Crowley Assistant Secretary Vice President, Secretary and General Counsel EMPLOYEE: A. Lowell Lawson EX-10 5 EX-10_C EXHIBIT 10C EMPLOYMENT AGREEMENT between E-SYSTEMS, INC. and TERRY W. HEIL December 19, l990 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 19th day of December, 1990 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and Terry W. Heil (hereinafter referred to as "Employee"). RECITALS WHEREAS, ESY and Employee have previously entered into an Employment Agreement dated as of October 12, 1988, which the parties desire to replace in order to provide for various matters as set forth in this Agreement; WHEREAS, Employee is an executive officer of ESY and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of ESY; WHEREAS, ESY desires that Employee agree to serve as an executive officer of ESY; WHEREAS, Employee is willing to serve as an executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; and WHEREAS, the Board of Directors of ESY recognizes Employee's contributions to the growth and success of ESY during his employment and desires to recognize such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. Employment and Term. Commencing on the Effective Date, Employee's employment shall continue hereunder through February 24, 1995, unless Employee retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of five years commencing February 25, 1995, and ending February 24, 2000, unless either the Board of Directors or the Employee shall, not less than 120 days prior to February 25, 1995, give notice in writing to the other that this Agreement shall not be extended or unless this Agreement shall have been otherwise terminated. An additional automatic renewal period shall extend from February 25, 2000, to February 24, 2003; provided that the first renewal shall have occurred and that neither party has given notice not less than 120 days prior to February 25, 2000, to the other in writing that this Agreement shall not be so extended or unless this Agreement shall have been otherwise terminated. Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him, as currently set forth in Schedule 1 hereto. 2. Compensation and Benefits. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $275,000, or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. A description of current perquisites is contained in Exhibit B attached hereto. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows: (1) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 50 percent (55 percent if the Agreement is extended to February 24, 2000, as provided above and Employee retires on or after February 24, 2000; 65 percent if the Agreement is extended to February 24, 2003, as provided above and Employee retires on or after February 24, 2003) of "Average Monthly Compensation". "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Employee may retire at any time after February 24, 1998, upon providing the company with reasonable notice. Notwithstanding Section 5.l of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan unless (i) Employee voluntarily terminates his employment in breach of his obligations under this Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 10 hereof. Employee shall otherwise remain eligible for benefits under the Executive Plan upon involuntary termination of employment by ESY, or upon termination of employment due to death or disability. Employee's eligibility for benefits under the Executive Plan and this Section 2(c)(l) upon voluntary retirement shall not be accelerated by any provision of Section 5.3 of the Executive Plan. The amounts payable pursuant to this Section shall be paid Employee as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until February 24, 1998, Employee's rights to benefits under the Executive Plan shall become nonforfeitable, and Employee may retire at any time after February 24, 1998, and commence receiving his Normal Retirement Benefit. If Employee is not employed by ESY following the termination of this Agreement, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after February 24, 1998, at Employee's election. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to Employee shall be two-thirds of that amount specified in Section 2(c)(l) above, payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) may or may not be funded, but neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 10, and 19 shall survive expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal residence as of the date hereof without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eye care coverage equivalent to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. A description of the present benefits at the date of this Agreement is contained in Exhibit B hereto. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the qualified benefit plans, programs, and policies maintained by ESY shall not be reduced or altered except, and only to the extent, as required by law or governmental regulation. 3. Expenses and Perquisites. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive employees receiving comparable compensation. 4. Conflicts of Interest and Competition. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. Participation in Benefit Plans. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. Insurance. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. Mitigation. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 10 hereof, ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal residence immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee is eligible at the time of termination to receive payments under the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly pay over to ESY, as received by him in his new employment, an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. Set-off; Impact on Other Agreements. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. Indemnification. If an amount paid hereunder is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any successor provision thereto, ESY shall pay to Employee an additional amount in cash equal to the amount necessary to cause the aggregate remuneration received by Employee under this Agreement, including such additional cash payment (net of all federal, state, and local income taxes and all taxes payable as the result of the application of Sections 280G and 4999 of the Code or any successor provision thereto) to be equal to the aggregate remuneration Employee would have received under this Agreement, excluding such additional payment (net of all federal, state, and local income taxes), as if Sections 280G and 4999 (and any successors thereto) had not been enacted into law. 10. (a) Termination. Subject to the provisions of Section 2(c)(1) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); and any such act shall have been materially harmful to ESY; provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. (b) Effect on Prior Vested Benefits. It is specifically agreed that, although restated herein, all the Vested Benefits under the Prior Agreement shall remain fully vested and that termination of this Agreement for "Cause" or otherwise shall in no way abrogate ESY's obligation to pay or furnish the Vested Benefits. This Employment Agreement shall increase or enhance and not reduce the benefits available to Employee under the Prior. Agreement. 11. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 12. Entire Agreement. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 13. Assignability. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 13. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 13, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 14. Remedies Cumulative. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 15. Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 16. Withholding of Taxes. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 17. Amendments and Waivers. This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 18. Notice. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 19. Legal Fees and Expenses. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC.: James W. Crowley By: E. Gene Keiffer Secretary Chairman of the Board and Chief Executive Officer EMPLOYEE: Terry W. Heil AMENDMENT TO EMPLOYMENT AGREEMENT Between E-Systems, Inc. and Terry W. Heil dated December 19, 1990 The first sentence in Section 2(c)(1) of this Agreement is amended to read as follows: (1) On December 1, 1993, Employee shall be entitled to a "Normal Retirement Benefit", commencing on February 24, 1998 (or at retirement if later), equal to 50 percent (55 percent if the Agreement is extended to February 24, 2000, as provided above and Employee retires on or after February 24, 2000; 65 percent if the Agreement is extended to February 24, 2003, as provided above and Employee retires on or after February 24, 2003) of "Average Monthly Compensation". Section 2(c)(1) is further amended by restating the final two sentences to read as follows: By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until December 1, 1993, Employee's rights to benefits under the Executive Plan shall become nonforfeitable, and Employee may retire at any time thereafter, and after February 24, 1998, commence receiving his Normal Retirement Benefit. If Employee is not employed by ESY following December 1, 1993, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after February 24, 1998, at Employee's election. In Witness Whereof, the parties have duly executed this Amendment as of this date November 22, 1993. ATTEST: E-SYSTEMS, INC. James W. Crowley A. Lowell Lawson Secretary President (CORPORATE SEAL) Employee: EX-10 6 EX-10_D EXHIBIT 10D EMPLOYMENT AGREEMENT between E-SYSTEMS, INC. and PETER A. MARINO OCTOBER 14, 1991 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 14th day of October 1991 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and Peter A. Marino (hereinafter referred to as "Employee"). RECITALS WHEREAS, Employee is willing to serve as an executive officer of ESY and has the education, background and experience to make major contributions to the profitability, growth and business of ESY; WHEREAS, ESY desires that Employee agree to serve as an executive officer of ESY; WHEREAS, Employee is willing to serve as an executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; and WHEREAS, the Board of Directors of ESY recognizes Employee's abilities to contribute to the growth and success of ESY during his employment and desires to reward such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's employment shall continue hereunder through October 14, 1996, unless Employee retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of five years commencing October 14, 1996, and ending October 14, 2001, unless either the Board of Directors or the Employee shall, not less than 120 days prior to October 14, 1996, give notice in writing to the other that this Agreement shall not be extended or unless this Agreement shall have been otherwise terminated. Two additional automatic renewal periods shall extend from October 14, 2001 to February 3, 2004 and February 3, 2004 to February 3, 2007, respectively; provided that each prior renewal shall have occurred and that neither party has given notice not less than 120 days prior to February 3, 2001 and February 3, 2004, respectively, to the other in writing that this Agreement shall not be so extended or unless this Agreement shall have been otherwise terminated. Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him, as currently set forth in Schedule 1 hereto. 2. COMPENSATION AND BENEFITS. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $275,000, or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. A description of current perquisites is contained in Exhibit B attached hereto. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows: (1) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 50 percent of his Average Monthly Compensation, but without reduction as specified in Section 6.1(a) of the Executive Supplemental Retirement Plan ("Executive Plan") for less than 10 years' vesting. If the Agreement is not extended beyond February 3, 2001, and the employee retires on or after his "Normal Retirement Date", the "Normal Retirement Benefit" shall be 50 percent. If the Agreement is extended to February 3, 2004, as provided above and Employee retires on or after February 3, 2004, the "Normal Retirement Benefit" shall be 55 percent; and 65 percent if the Agreement is extended to February 3, 2007, as provided above and Employee retires on or after February 3, 2007. "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Notwithstanding Section 5.l of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan unless (i) Employee voluntarily terminates his employment in breach of his obligations under this Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 9 hereof. Employee shall otherwise remain eligible for benefits under the Executive Plan upon involuntary termination of employment by ESY, or upon termination of employment due to death or disability. Employee's eligibility for benefits under the Executive Plan and this Section 2(c)(1) upon voluntary retirement shall not be accelerated by any provision of Section 5.3 of the Executive Plan. The amounts payable pursuant to this Section shall be paid Employee as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until October 14, 1996, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following the termination of this Agreement, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after the "Normal Retirement Date" as defined in the Executive Plan. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to Employee shall be two-thirds of the applicable amount specified in Section 2(c)(1) above, payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) may or may not be funded, but neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9, and 18 shall survive expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal residence specified in Schedule 1 attached without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eye care coverage equivalent to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. A description of the present benefits at the date of this Agreement is contained in Exhibit B hereto. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the qualified benefit plans, programs, and policies maintained by ESY shall not be reduced or altered except, and only to the extent, as required by law or governmental regulation. 3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive employees receiving comparable compensation. 4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. INSURANCE. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. MITIGATION. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9 hereof, ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal residence immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee is eligible at the time of termination to receive payments under the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly pay over to ESY, as received by him in his new employment, an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY or any prior employment; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); provided that any such act or acts must have been materially harmful to ESY; and further provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in material harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. 10. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 12. ASSIGNABILITY. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 12. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 12, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 14. SEVERABILITY. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 17. NOTICE. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC.: James W. Crowley, Secretary E. Gene Keiffer Chairman of the Board and Chief Executive Officer EMPLOYEE: Peter A. Marino AMENDMENT TO EMPLOYMENT AGREEMENT Between E-Systems, Inc. and Peter A. Marino, dated October 14, 1991 The first sentence in Section 2(c)(1) of this Agreement is amended to read as follows: (1) On December 1, 1993, Employee shall be entitled to a "Normal Retirement Benefit", commencing at "Normal Retirement Date" (or at retirement if later), equal to 50 percent of his Average Monthly Compensation, but without reduction as specified in Section 6.1(a) of the Executive Supplemental Retirement Plan ("Executive Plan") for less than 10 years' vesting. Section 2(c)(1) is also amended by adding the following after the first sentence: "Normal Retirement Date" is defined in the Executive Plan. Section 2(c)(1) is further amended by restating the final two sentences to read as follows: By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until December 1, 1993, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following December 1, 1993, the benefit provided by the Executive Plan shall be a deferred, vested benefit available any time after the "Normal Retirement Date" as defined in the Executive Plan. In Witness Whereof, the parties have duly executed this Amendment as of this date November 22, 1993. ATTEST: E-SYSTEMS, INC. James W. Crowley A. Lowell Lawson Secretary President (CORPORATE SEAL) Employee: Peter A. Marino EX-10 7 EX-10_E EXHIBIT 10E EMPLOYMENT AGREEMENT between E-SYSTEMS, INC. and BRIAN D. CULLEN October 14, 1991 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into effective as of the 14th day of October, 1991 (the "Effective Date"), by E-Systems, Inc. (hereinafter referred to as "ESY") and Brian D. Cullen (hereinafter referred to as "Employee"). RECITALS WHEREAS, Employee is an executive officer of ESY and has made and is expected to continue to make major contributions to the profitability, growth and financial strength of ESY; WHEREAS, ESY desires that Employee agree to serve as an executive officer of ESY; WHEREAS, Employee is willing to serve as an executive officer of ESY if the rewards for successful management of the enterprise and for relinquishment of other opportunities which may be available to him are commensurate with the responsibilities that would be undertaken by him; and WHEREAS, the Board of Directors of ESY recognizes Employee's abilities to contribute to the growth and success of ESY during his employment and desires to reward such performance and to take into account compensation and benefits, trends and practices in the high technology industry in which ESY competes for business and executive talent. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, receipt of which is hereby acknowledged, ESY and Employee hereby agree as follows: 1. EMPLOYMENT AND TERM. Commencing on the Effective Date, Employee's employment shall continue hereunder through November 8, 1996, unless Employee retires pursuant to Section 2(c)(3) hereof prior to such date. The term of this Agreement shall be automatically extended for an additional period of five years commencing November 8, 1996, and ending November 8, 2000, unless either the Board of Directors or the Employee shall, not less than 120 days prior to November 8, 2000, give notice in writing to the other that this Agreement shall not be extended or unless this Agreement shall have been otherwise terminated. Two additional automatic renewal periods shall extend from November 8, 2000 to November 8, 2002, and from November 8, 2002 to November 8, 2005, respectively; provided that each prior renewal shall have occurred and that neither party has given notice not less than 120 days prior to November 8, 2000 or November 8, 2002, respectively, to the other in writing that this Agreement shall not be so extended or unless this Agreement shall have been otherwise terminated. Employee will devote his full time and efforts to ESY's business and not engage in any activities that would be inconsistent with the strategies and objectives of ESY. During this term (hereinafter referred to as the "Employment Period"), Employee shall serve as an executive of ESY and agrees to serve in such office or offices in ESY to which the Board of Directors of ESY may from time to time elect or appoint him, as currently set forth in Schedule 1 hereto. 2. COMPENSATION AND BENEFITS. In consideration of his services during the Employment Period, Employee shall be paid compensation and receive benefits from ESY as follows: (a) During the Employment Period, Employee shall be paid a base salary in equal installments not less frequently than monthly at an annual rate not less than the greater of (1) $187,000 or (2) the base salary of the Employee most recently approved by the Board of Directors of ESY. Employee's base salary shall be subject to such increases as may be approved by the Board of Directors of ESY. (b) Employee shall also receive such incentive compensation as may be approved by the Board of Directors of ESY and any profit sharing, retirement rights, or other perquisites to which Employee may be entitled under the terms of this Agreement or otherwise. A description of current perquisites is contained in Exhibit B attached hereto. (c) ESY will provide Employee with supplemental retirement, death, and disability benefits as follows:(1) Following Employee's retirement, he shall be paid a "Normal Retirement Benefit" equal to 50 percent (55 percent if the Agreement is extended to November 8, 2002, as provided above and Employee retires on or after November 8, 2002; 65 percent if the Agreement is extended to November 8, 2005, as provided above and Employee retires on or after November 8, 2005) of "Average Monthly Compensation". "Normal Retirement Benefit" and "Average Monthly Compensation" are defined in the E-Systems, Inc. Executive Supplemental Retirement Plan as amended (the "Executive Plan"), a copy of which is attached to this Agreement as Exhibit A. The Executive Plan is incorporated in all respects herein; provided, however, that the terms of this Agreement shall take precedence over any provisions to the contrary contained in the Executive Plan. Notwithstanding Section 5.1 of the Executive Plan, Employee shall be eligible for benefits under the Executive Plan unless (i) Employee voluntarily terminates his employment in breach of his obligations under this Agreement, or (ii) ESY terminates Employee's employment pursuant to Section 9 hereof. Employee shall otherwise remain eligible for benefits under the Executive Plan upon involuntary termination of employment by ESY, or upon termination of employment due to death or disability. Employee's eligibility for benefits under the Executive Plan and this Section 2(c)(1) upon voluntary retirement shall not be accelerated by any provision of Section 5.3 of the Executive Plan. The amounts payable pursuant to this Section shall be paid Employee as provided in the Executive Plan. By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until November 8, 1996, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following the termination of this Agreement, the benefit provided by the Executive Plan shall be a deferred, vested benefit available at Employee's "Normal Retirement Date" as defined in the Executive Plan. (2) If Employee should die before retiring, or while permanently disabled or retired, his surviving widow shall be paid a Spouse's Pension as set forth in the Executive Plan. If the Employee dies without a surviving spouse, but with one or more children who have not attained the age of 22 years, a Children's Pension shall be paid in accordance with the Executive Plan. Upon the death of a surviving spouse who is receiving a Spouse's Pension, surviving children of Employee shall receive a Children's Pension if the requirements of the Executive Plan are met. (3) If Employee should become permanently disabled, he shall be entitled to retire as of the date of such a permanent disability without prior notice to ESY. The retirement benefit provided hereunder to Employee shall be two-thirds of the applicable amount specified in Section 2(c)(1) above, payable in accordance with the Executive Plan. (4) It is expressly understood that ESY's obligations pursuant to this Section 2(c) may or may not be funded, but neither Employee nor his surviving spouse or children shall have any interest present or otherwise in such payments until they are actually made. (5) "Permanent disability" as used herein shall be defined as Employee's physical or mental condition which totally prevents Employee from performing the duties required of his position, and is reasonably expected to be of a permanent duration. Employee's inability to perform such services due to illness or accident reasonably expected to incapacitate him for no longer than three months shall not be deemed a permanent disability. If Employee and ESY are in disagreement as to the existence of such permanent disability, the parties hereby agree to be unconditionally bound by the majority decision of three arbitrators who shall be licensed physicians. The arbitrators shall be selected one by Employee, one by ESY and the third by the first two arbitrators. (6) The obligations of ESY under Sections 2(c) 2(e), 2(f), 9, and 18 shall survive expiration of the Employment Period and any extension thereof. (d) Employee shall be excused from performing any services for ESY hereunder during periods of temporary incapacity and during reasonable vacations without thereby in any way affecting the compensation to which he is entitled hereunder. In no event shall Employee be assigned duties that would (i) involve unreasonable personal hazard; (ii) necessitate prolonged absences or changes in the place of his residence without his consent; or (iii) require the Employee to have as his principal location of work any location that is in excess of 25 miles from the Employee's principal residence specified in Schedule 1 attached without his consent. (e) Medical, hospital, surgical, dental, prescription drugs and eye care coverage equivalent to that presently furnished to Employee and his wife by ESY will be provided to them for their lifetime during the Employment Period and retirement through insurance or otherwise; provided, however, that dental coverage after retirement shall be limited to a combined aggregate of $500 per year for Employee and spouse. A description of the present benefits at the date of this Agreement is contained in Exhibit B hereto. (f) It is the intention of the parties that this Agreement be an enhancement of, and not a reduction or limitation in, any benefit to which Employee may be entitled whether under this Agreement or under any benefit plan, program or policy in which Employee may be a participant during the Employment Period, while disabled or while retired. If the benefit to Employee shall be greater under any benefit plan, program or policy maintained by ESY, ESY shall promptly notify Employee in writing and Employee shall be entitled to receive such larger or greater benefit pursuant to such benefit plan, program or policy in lieu of or in addition to (but not in duplication of) the benefit set forth in this Agreement without in any respect waiving Employee's rights to receive any other payment of benefits to which he may be entitled otherwise under this Agreement. (g) The participation of the Employee in the qualified benefit plans, programs, and policies maintained by ESY shall not be reduced or altered except, and only to the extent, as required by law or governmental regulation. 3. EXPENSES AND PERQUISITES. During the Employment Period, Employee shall be allowed all reasonable expenses and perquisites and shall be furnished office space and facilities suitable to his position and adequate for the performance of his duties, in accordance with such general policies as may be established by ESY from time to time for executive employees receiving comparable compensation. 4. CONFLICTS OF INTEREST AND COMPETITION. Without the prior consent of ESY, Employee shall not, during the Employment Period, engage in any business (directly or through any kind of ownership or other arrangement other than ownership of securities of publicly-held corporations) that is competitive with that of ESY or its subsidiaries or accept employment with or render services to a competitor or take action inconsistent with the fiduciary relationship of an executive to his corporation. Subject to such limitations, Employee may make investments for his own account in any business or enterprise whatsoever and serve as an officer or director thereof and receive compensation therefor, provided such activity does not conflict with his obligation to render his exclusive full-time services to ESY and its subsidiaries during his employment hereunder. 5. PARTICIPATION IN BENEFIT PLANS. Except as expressly provided herein, this Agreement shall not in any way modify, limit, impair, or affect the existing or future rights or interests of Employee to receive any employee benefit to which he would otherwise be entitled or as a participant in the present or future employee benefit plans of ESY. 6. INSURANCE. ESY in its sole discretion, may purchase in its name and for its own benefit, life and disability insurance on Employee in any amount or amounts considered advisable. Employee shall have no right, title or interest therein, and will submit to required medical examinations and execute and deliver any application, or other instrument in writing, reasonably necessary to effectuate such insurance. 7. MITIGATION. In the event that this Agreement or the employment of Employee by ESY hereunder is terminated by ESY other than pursuant to Section 9 hereof, ESY shall acknowledge by notice to Employee that Employee offered to continue employment with ESY and that such offer was rejected, and Employee shall use reasonable efforts to mitigate his damages by seeking other comparable employment; provided, however, that (a) in no event shall Employee be required to accept a position of less importance or dignity or of substantially different character, compensation or benefits than the position held as of the date of this Agreement, nor shall he be required to accept a position other than in a location within 25 miles of his principal residence immediately prior to the date of termination of employment, and (b) mitigation shall not be required if the Employee is eligible at the time of termination to receive payments under the Executive Plan. Subject to the foregoing provisions of this Section 7, in the event that Employee secures other permanent employment with another corporation or other legal person, he shall promptly pay over to ESY, as received by him in his new employment, an amount equal to the total cash compensation actually paid to him in his new employment for services rendered during the Employment Period; provided that in no event shall Employee be required to repay any amounts earned in new employment that exceed the amounts otherwise payable to him under this Agreement for a comparable period. Except as otherwise expressly provided in this Section 7, Employee shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise. 8. SET-OFF; IMPACT ON OTHER AGREEMENTS. There shall be no right of set-off or counterclaim in respect of any claim, debt or obligation against any payment to Employee provided for in this Agreement. A termination of this Agreement by ESY or Employee pursuant to this Agreement shall not affect any rights that Employee may have pursuant to any other agreement, policy, plan, program or arrangement of ESY, which rights shall be governed by the terms thereof, and the obligations of ESY with respect to amounts payable pursuant thereto shall not be affected by termination of this Agreement. 9. TERMINATION. Subject to the provisions of Section 2(c)(1) hereof, ESY may terminate this Agreement and all of its obligations hereunder, except for obligations accrued but unpaid to the effective date of termination, solely for "Cause". "Cause" shall mean (i) the Employee's willful refusal, without reasonable excuse, to render services hereunder on substantially a full-time basis; (ii) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with ESY or any prior employment; (iii) intentional wrongful damage to property of ESY; (iv) intentional wrongful disclosure of secret processes or confidential information of ESY; or (v) intentional wrongful engagement in any competitive activity (as defined in Section 4); provided that any such act or acts must have been materially harmful to ESY; and further provided, however, that no such act shall constitute "Cause" if the Employee did not directly or indirectly induce the act or acts resulting in material harm to ESY. For purposes of this Agreement, no act or failure to act on the part of the Employee shall be deemed "intentional" or "willful" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" or "willful" only if done or omitted to be done by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of ESY. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for "Cause" hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the Board then in office at a meeting of the Board called and held for such purpose, after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel (if the Employee chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee had committed an act constituting "Cause" as herein defined and specifying the particulars thereof in detail. Nothing herein will limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. 10. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas, without giving effect to the principles of conflict of laws of such State. 11. ENTIRE AGREEMENT. This Agreement constitutes the whole agreement of the parties hereto in reference to any employment of Employee by ESY and in reference to any of the matters or things herein provided for or hereinbefore discussed or mentioned in reference to such employment, all prior agreements, promises, representations, and understandings relative thereto being herein merged. 12. ASSIGNABILITY. (a) In the event that ESY shall merge or consolidate with any other corporation or all or substantially all of ESY's business or assets shall be transferred in any manner to any other person, such successors shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be ESY hereunder. This Agreement shall be binding upon and inure to the benefit of any such successor and the legal representatives of Employee. (b) This Agreement is personal in nature and neither of the parties hereto shall without the consent of the other assign or transfer this Agreement or any rights or obligations hereunder except for operation of law or pursuant to the terms of this Section 12. Without limiting the generality of the foregoing, Employee's right to receive payments hereunder shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his will or by the laws of descent and distribution and, in the event of any assignment or transfer contrary to this Section 12, ESY shall have no liability to pay any amount so attempted to be assigned or transferred. 13. REMEDIES CUMULATIVE. Remedies under this Agreement of either party hereto are in addition to any remedy or remedies to which such party is entitled or may become entitled at law or in equity. 14. SEVERABILITY. If any provision of this Agreement is determined by a court of competent jurisdiction to be void or unenforceable, such provision shall be regarded as severable and shall not affect the validity or enforceability of the remaining provisions hereof. 15. WITHHOLDING OF TAXES. ESY may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling. 16. AMENDMENTS AND WAIVERS. This Agreement may be amended, modified, superseded, canceled, renewed or extended and the terms and covenants hereof may be waived, only by written instrument executed by both of the parties hereto or in the case of a waiver executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement whether by conduct or otherwise by any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement. 17. NOTICE. For the purpose of this Agreement, all communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to ESY at its principal executive office and to Employee at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of change of address shall be effective only upon receipt. 18. LEGAL FEES AND EXPENSES. It is the intent of ESY that Employee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to Employee hereunder. Accordingly, if it should appear to Employee that ESY has failed to comply with any of its obligations under this Agreement or in the event that ESY or any other person takes any action to declare this Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, Employee the benefits intended to be provided to Employee hereunder, ESY irrevocably authorizes Employee from time to time to retain counsel of his choice, at the expense of ESY as hereafter provided, to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against ESY or any director, officer, stockholder or other person affiliated with ESY, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between ESY and such counsel, ESY irrevocably consents to Employee's entering into an attorney-client relationship with such counsel, and in that connection ESY and Employee agree that a confidential relationship shall exist between Employee and such counsel. ESY shall pay and be solely responsible for any and all attorneys' and related fees and expenses incurred by Employee (a) as a result of ESY's failure to perform under this Agreement or any provision thereof, or (b) as a result of ESY or any person contesting the validity or enforceability of this Agreement or any provision thereof. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. ATTEST: E-SYSTEMS, INC.: James W. Crowley, Secretary E. Gene Keiffer Chairman of the Board and Chief Executive Officer EMPLOYEE: Brian D. Cullen AMENDMENT TO EMPLOYMENT AGREEMENT Between E-Systems, Inc. and Brian D. Cullen dated October 14,1991 The first sentence in Section 2(c)(1) of this Agreement is amended to read as follows: (1) On December 1, 1993, Employee shall be entitled to a "Normal Retirement Benefit", commencing at "Normal Retirement Date" (or at retirement if later), equal to 50 percent (55 percent if the Agreement is extended to November 8, 2002, as provided above and Employee retires on or after November 8, 2002; 65 percent if the Agreement is extended to November 8, 2005, as provided above and Employee retires on or after November 8, 2005) of "Average Monthly Compensation". Section 2(c)(1) is also amended by adding the following after the first sentence: "Normal Retirement Date" is defined in the Executive Plan. Section 2(c)(1) is further amended by restating the final two sentences to read as follows: By way of example, and not as a limitation on the foregoing provisions of this Section 2(c)(1), if the employment of Employee by ESY continues until December 1, 1993, Employee's rights to benefits under the Executive Plan shall become nonforfeitable. If Employee is not employed by ESY following December 1, 1993, the benefit provided by the Executive Plan shall be a deferred, vested benefit available at Employee's "Normal Retirement Date" as defined in the Executive Plan. In Witness Whereof, the parties have duly executed this Amendment as of this date November 22, 1993. ATTEST: E-SYSTEMS, INC. James W. Crowley, Secretary A. Lowell Lawson President (CORPORATE SEAL) Employee: Brian D. Cullen EX-10 8 EX-10_L EXHIBIT 101 AMENDMENT #5 TO 1977 LEASE AGREEMENT ----------------------- THIS AMENDMENT #5 OF AGREEMENT OF LEASE dated as of December 11, 1990 between ----------------- the CITY OF GREENVILLE, TEXAS, a Municipal Corporation of the State of Texas (herein referred to as "LESSOR"), and E-SYSTEMS, INC., a Delaware Corporation (herein referred to as "LESSEE"); WITNESSETH: WHEREAS LESSOR owns and operates an Airport in Hunt County, Texas,known as Majors Field (herein referred to as the "AIRPORT"); WHEREAS LESSOR and LESSEE have entered into a Lease Agreement as of October 1, 1977, as amended by Amendment #1 and Amendment #2,dated October 15,1980, and Amendment #3, dated October 1, 1981, and Amendment #4 dated July 15, 1990 with respect to certain premises at the Airport (herein referred to as the "LEASE" or "LEASE AGREEMENT"); and WHEREAS LESSOR and LESSEE have agreed to amend the Lease as pertains to the lease boundaries. Tract "B" to increase by approximately 81.09 acres; and WHEREAS LESSOR AND LESSEE have agreed that on the effective date of this Lease Amendment #5 the Ground Rental of the premises shall be $5,216.35 per month from that time forward but without alteration in any previously paid ground rent; * NOTE ESCULATION CLAUSE ONLY APPLIES TO 81.09 ACS (@ $ 1,216.35 mo.) WHEREAS LESSOR and LESSEE have agreed to amend the Lease to include an Escalation clause applicable only to the ground rent attributable to the additional 81.09 acres added by this and future amendments; 1 NOW, THEREFORE, for and in the consideration of the mutual covenants contained in this Amendment #5, the LESSOR and LESSEE agree to amend the Lease in the manner set forth below. All references to parts and section numbers of a part contained in the 1977 Lease Agreement as amended by Amendment #1 and Amendment #2 and Amendment #3 and said sections are hereby amended to read as set forth below. All section and parts of the Lease Agreement and Amendment #1 and Amendment #2 and Amendment #3 and Amendment #4 thereto, not modified hereby, remain in full force and effect. 1. Delete all prior versions of Part 1 and Insert the following: PART I AIRCRAFT MAINTENANCE PREMISES ----------------------------- SECTION 1.1 PREMISES - DEMISE - ----------------------------- 2. Effective as of January 1, 1991, LESSOR leases to LESSEE and LESSEE takes --------------- for its exclusive use the area including all improvements, indicated as Tract "A&B" on Exhibit "B" Revised 1990, which replaces prior Exhibits A,B,C,D, attached hereto. Tract "A&B" land and improvements are collectively referred to as the "Maintenance Premise" and are described in the legal description set forth in Exhibit "B" Revised 1990 and amended by the Map, attached hereto and made a part hereof as Exhibit "A" Revised 1990. Section 1.2 TERM - ---------------- a) The initial term of the tenancy created under this Part I commenced on October 1, 1977, and expires on October 1, 2017. The parties agree that prior to the expiration of the lease term, they will, in good faith, consider the execution of a new Lease Agreement, or an amendment to the existing lease, for a like term of years, with respect to any facilities covered by this agreement which, at the expiration of the lease term, are not and will not (during the term of the new Lease Agreement) be required by the City for the exclusive use of the general public. 2 SECTION 1.S RENTAL - ------------------ a) Commencing on January 1, 1991 the "Commencement Date', and continuing --------------- through October 1, 2017, the LESSEE shall pay Ground Rental in monthly installments of $5,216.35 per month. Rent is based on Fair Market Value as established using the average of two certified appraisals taken in 1983 and escalated. In addition, LESSEE shall pay an amount representing a Consumer's Price Adjustment as defined below. Every fifth anniversary following the "Commencement Date" shall be an Adjustment Date. LESSOR shall give notice to LESSEE, thirty (30) days prior to the Adjustment Date, of increases in the Consumer Price Index (CPI). (CPI for Urban Wage Earners and Clerical Workers-U.S. Average, CPI-U Dallas 1984=102.3). It is agreed that the CPI on the Commencement Date is 122.2, the Commencement Date Index Number. The formula to be used in calculating the amount of the adjustment is as follows: Adjustment Date Index Number DIVIDED BY Commencement Date Index Number - 1 X $1216.35 Monthly Adjustment amount for the next 5 years, The Monthly -------- Adjustment amount shall be added to the monthly ground rental of $5,216.35 to yield the total monthly ground rent for the five year period following the Adjustment Date. 2. Except as modified by this Amendment #5, the Lease remains in full force and effect. This Amendment #5 makes no change in rent or other terms in effect prior to the date of execution of this Amendment #5. THIS AMENDMENT #5 is executed as of the date first shown on Page one (1) of this Amendment. 3 CITY OF GREENVILLE, TEXAS /s/ Bill F. Morgan ------------------------- Mayor ATTEST: /s/ Pat Adams - -------------------- Pat Adams, City Secretary APPROVED AS TO FORM: /s/ Diane Callander - -------------------- Diane Callander, City Attorney E-SYSTEMS, INC. /s/ B. ------------------------- V.P. & General Manager ATTEST: /s/ Joseph P. Kulik - -------------------- Assistant Secretary 4 LEGAL DESCRIPTION Exhibit "B" Revised 1990 (Replaces Exhibits A, B, C, D) TRACT "A" - --------- All that certain lot, tract or parcel of land situated in the City of Greenville, Hunt County, Texas, and being part of the Andrew McDonald Survey, Abstract No. 679, and the Hardin Denney Survey, Abstract No. 244, Hunt County, Texas, and being part of Majors Field and being more particularly described as follows: BEGINNING at an iron rod found for corner in the centerline of County Road No. 3303, said point being in the common line between Hardin Denney Survey, Abstract No. 244, and the John McGrew Survey, Abstract No. 688, said point also being the most Easterly Northeast corner of Tract A of the 1977 Lease Agreement between the City of Greenville, Texas, and E-Systems, Inc., as recorded in Volume 810, Page 1, Hunt County Deed Record; THENCE S. 01 deg. 01 min. 13 sec. W. along the centerline of said county road and also said common line a distance of 2209.45 feet to an iron rod found for corner in the North line of the James C. Warren Survey, Abstract No. 1114, said point also being the Southwest corner of said McGrew Survey and the most Easterly Southeast corner of said Denney Survey; THENCE N. 88 deg. 44 min. 28 see. W. along the North line of said Warren Survey a distance of 746.74 feet to an iron rod found for a corner at the Northwest corner of said Warren Survey; THENCE S. 01 deg. 53 min. 35 sec. W. along the West line of said Warren Survey a distance of 1239.69 feet to a point for corner, said point being the most Southerly corner of the above cited Tract A; THENCE N. 44 deg. 17 min. 32 sec. W. a distance of 4696.87 feet to a point for Corner; THENCE N. 00 deg. 41 min. 59 sec. E. a distance of 1700.00 feet to a point for corner in a fence line, said point being in the North line of the Andrew McDonald Survey, Abstract No. 689; THENCE S. 89 deg. 18 min. 01 sec. E. along a fence line along the North line of said McDonald Survey a distance of 1240.00 feet to an iron rod found for corner at the Northeast corner of said McDonald Survey, said point also being the Northwest corner of said Denney Survey; THENCE S. 00 deg. 31 min. 34 sec. W. along the common line between the McDonald Survey and the Denney Survey a distance of 881.06 feet to an iron rod found for corner in a fence line; THENCE S. 89 deg. 13 min. 32 sec. E. along a fence line a distance of 539-08 feet to an iron rod found for corner; THENCE S. 88 deg. 59 min. 50 sec. E. along a fence line a distance of 1348.42 feet to an iron rod found for corner at the Northwest corner of a 15.00 acre tract of land described in a Deed from Charlie G. Martin, et ux, to E. W. Lindley and James Lindley, as recorded in Volume 479, Page 114, Hunt County Deed Records; THENCE S. 00 deg. 03 min. 16 sec. E. along the West line of said 15.00 acre tract a distance of 215.17 feet to an iron rod found for corner; 1 Exhibit "B" Revised 1990 (cont) TRACT "A" (cont) - --------- THENCE S. 03 deg. 26 min. 16 sec. E. along the West line of said 15.00 acre tract a distance of 472.42 feet to an iron rod found for corner at the Southwest corner of said 15.00 acre tract, said point being in a fence line; THENCE S. 89 deg. 00 min. 10 sec. E. along a fence line passing an iron rod found for corner at the Southwest corner of a 4.00 acre tract of land described in a Deed from Audie Anderson to Darrell Watson, et ux, as recorded in Volume 973, Page 90, Hunt County Deed Records, at a distance of 102.09 feet and continuing along the South line of said 4.00 acre tract passing the Southeast corner of said 4.00 acre tract at a distance of 882.91 feet and continuing for a total distance of 938.55 feet to the POINT OF BEGINNING and containing 251.030 acres of land. TRACT "B" - --------- All that certain lot, tract or parcel of land situated in the City of Greenville, Hunt County, Texas, and being part of the A. Essary Survey, Abstract No. 296, William Andrews Survey, Abstract No. 4. Andrew McDonald Survey, Abstract No. 689, S. McBride Survey, Abstract No. 717, C.B. McDonald Survey, Abstract No. 692, E.G. Eliff Survey, Abstract No. 298, and being part of Majors Field and being more particularly described as follows: BEGINNING at an iron rod found for corner in the East R.O.W. line of F.M. Highway No. 1570 at the Southwest corner of a tract of land occupied by a City of Greenville electrical sub-station and sewer pump station, said point being S. 00 deg. 47 min. 09 sec. W. a distance of 264.74 feet from the Northwest corner of a 225.90 acre tract of land described in a Warranty Deed from Hunt County, Texas, to the City of Greenville, Texas, as recorded in Volume 643, Page 496, Hunt County Deed Records, said point also being the most Westerly Northwest corner of Tract B in the 1977 Lease Agreement between the City of Greenville, Texas, and E-Systems, Inc., as recorded in Volume 810, Page 1, Hunt County Deed Records; THENCE S. 89 deg. 06 min. 19 sec. E. along the South line of said Electrical sub- station and Sewer pump station Tract a distance of 850.00 feet to an iron rod found for corner at the Southeast corner of said Tract; THENCE N. 00 deg. 47 min. 09 sec. E. along the East line of said Electrical sub-station and Sewer pump station Tract a distance of 419.36 feet to an iron rod found for corner at the Northeast corner of said tract, said point also being in the South line of a 4.196 acre tract of land described as Tract Two in a Warranty Deed from Joe B. Gibson and wife, Jan Gibson, to E-Systems, Inc., as recorded in Volume 972, Page 180, Hunt County Deed Records; THENCE N. 89 deg. 6 min. 46 sec. W. along the South line of said 4.196 acre tract a distance of 21.34 feet to an iron rod found for corner at the Southwest corner of said Tract; THENCE N. 01 deg. 13 min. 20 sec. E. along the West line of said 4.196 acre tract a distance of 186.70 feet to an iron rod found for corner a the Northwest corner of said tract, said point also being the Southwest corner of a 7.158 acre tract of land described as Tract One in the above cited Gibson to E-Systems Tract; 2 Exhibit "B" Revised 1990 (cont) TRACT "B" (cont) THENCE S. 89 deg. 16 min. 48 sec. E. along the common line between said 4.196 acre tract and 7.158 acre tract a distance of 1058.90 feet to an iron rod set for corner in the East line of a 1.610 acre tract of land described as Tract Three in the above cited Gibson to ESystems Tract; THENCE N. 07 deg. 41 min. 09 sec. W. along the East line of said 1.610 acre tract of land a distance of 275.65 feet to an iron rod found for corner in a fence line: THENCE S. 63 deg. 53 min. 51 sec. E. along a fence line along the North line of County Road No. 3302 a distance of 178.94 feet to an iron rod found for corner THENCE S. 87 deg. 25 min. 19 sec. E. along a fence line along the North line of said county road a distance of 307.25 feet to an iron rod found for corner; THENCE N. 88 deg. 30 min. 42 sec. E. along a fence line along the North line of said county road a distance of 190.34 feet to an iron rod found for a corner; THENCE S. 00 deg. 04 min. 13 sec. E. a distance of 22.43 feet to an iron rod set for corner in the centerline of said county road; THENCE N. 87 deg. 21 min. 00 sec. E. along the centerline of said county road a distance of 684.63 feet to an iron rod found for corner; THENCE S. 00 deg. 42 min. 28 sec. W. a distance of 1290.32 feet to an iron rod found for corner; THENCE N. 89 deg. 17 min. 32 sec. W. a distance of 245.17 feet to an iron rod found for corner; THENCE S. 00 deg. 42 min. 28 sec. W. a distance of 4931.53 feet to an iron rod found for corner; THENCE N. 89 deg. 17 min. 06 sec. W. passing the most Southerly Southeast corner of the above cited Tract D of said lease a distance of 249.95 feet and continuing for a total distance of 704.43 feet to an iron rod found for corner at the most Southerly Southwest corner of said Tract B; THENCE N. 00 deg. 36 min. 09 sec. E. a distance of 329.74 feet to an iron rod found for corner; THENCE N. 87 deg. 47 min. 22 sec. W. a distance of 527.20 feet to an iron rod found for corner; THENCE N. 59 deg. 41 min. 48 sec. W. a distance of 3.02 feet to an iron rod found for corner in a chain link fence line; THENCE in a Northwesterly direction along the Northeasterly line of an existing asphalt street along a curve to the right having a central angle of 65 deg. 38 min. 17 sec., a radius of 197.24 feet, a chord bearing of N. 55 deg. 23 min. 15 sec. W., a chord of 213.81 feet, an arc length of 225.96 feet to an iron rod found for corner; THENCE N. 22 deg. 34 min. 06 sec. W. along the Northeasterly line of said street a distance of 340.87 feet to an iron rod found for corner; THENCE in a Northwesterly direction along the Northerly line of said street along a curve to the left having a central angle of 66 deg. 54 min. 09 sec., a radius of 148.09 feet, a chord bearing of N. 56 deg. 01 min. 10 sec. W., a chord of 163.26 feet, an arc length of 172.92 feet to an iron rod found for corner; THENCE N. 89 deg. 28 min. 14 sec. W. along the North line of said street a distance of 879.14 feet to an iron rod found for corner; 3 Exhibit "B" Revised 1990 (cont) TRACT "B" (cont) THENCE N. 00 deg. 43 min. 47 sec. E. a distance of 1000.87 feet to an iron rod found for a corner; THENCE S. 87 deg. 30 min. 36 sec. W. a distance of 106.03 feet to an iron rod found for corner; THENCE along a curve to the right having a central angle of 06 deg. 49 min. 29 sec., a radius of 252.50 feet, a chord bearing of N. 88 deg. 55 min. 53 sec. W., a chord of 30.06 feet, an arc length of 30.08 feet to an iron rod found for corner in the East R.O.W. line of F.M. Highway No. 2101; THENCE N. 02 deg. 00 min. 31 sec. W. along the East R.O.W. line of said highway a distance of 87.93 feet to a concrete monument found for corner at a flare in said R.O.W.; THENCE N. 49 deg. 33 min. 56 sec. W. along said R.O.W. flare a distance of 69.70 feet to a concrete R.O.W. marker found for corner; THENCE in a Northerly direction along the East R.O.W. line of said highway along a curve to the left having a central angle of 01 deg. 07 min. 36 sec., a radius of 11509.16 feet, a chord bearing of N. 02 deg. 52 min. 16 sec. W., a chord of 226.29 feet, an arc length of 226.30 feet to a concrete R.O.W. marker found for corner; THENCE N. 36 deg. 20 min. 23 sec. E. along a flare in said R.O.W. a distance of 70.96 feet to a concrete R.O.W. marker found for corner; THENCE N. 02 deg. 12 min. 49 sec. W. along said flare a distance of 96.96 feet to a concrete R.O.W. marker found for corner; THENCE N. 48 deg. 45 min. 49 sec. W. along said flare a distance of 70.78 feet to a concrete R.O.W. marker found for corner; THENCE in a Northerly direction along the East R.O.W. line of said highway along a curve to the left having a central angle of 00 deg. 28 min. 17 sec., a radius of 11509.16 feet, a chord bearing of N. 05 deg. 14 min. 02 sec. W., a chord of 94.69 feet, an arc length of 94.69 feet to a concrete R.O.W. marker found for corner; THENCE N. 0.5 deg. 07 min. 18 sec. W. along the East R.O.W. line of said highway a distance of 784.09 feet to a concrete R.O.W. marker found for corner; THENCE N. 41 deg. 10 min. 52 sec. E. along a flare in said R.O.W. a distance of 58.48 feet to a concrete R.O.W. marker found for corner; THENCE N. 05 deg. 39 min. 50 sec. W. along said flare a distance of 100.93 feet to a concrete R.O.W. marker found for corner; THENCE N. 43 deg. 53 min. 44 sec. W. a distance of 66.25 feet to a concrete R.O.W. marker found for corner in the East R.O.W. line of F.M. Highway No. 1570; THENCE in a Northerly direction along the East R.O.W. line of said highway along a curve to the left having a central angle of 02 deg. 48 min. 28 sec., a radius of 11409.16 feet, a chord bearing of N. 03 deg. 21 min. 51 sec. W., a chord of 559.03 feet, an arc length of 559.09 feet to concrete R.O.W. marker found for corner; THENCE N. 45 deg. 55 min. 19 sec. E. along a flare in said R.O.W. a distance of 122.72 feet to a concrete R.O.W. marker found for corner; THENCE N. 00 deg. 50 min. 27 sec. E. along said flare a distance of 100.02 feet to a concrete R.O.W. marker found for corner; THENCE N. 44 deg. 07 min. 56 sec. W. along said flare a distance of 137.60 feet to a concrete R.O.W. marker found for corner; 4 Exhibit "B" Revised 199O (cont) TRACT "B" (cont) THENCE in a Northerly direction along the East R.O.W. line of said highway along a curve to the left having a central angle of 01 deg. 18 min. 12 sec., a radius of 11409.16 feet, a chord bearing of N. 00 deg. 11 min. 46 sec. E., a chord of 259.49 feet, an arc length of 259.51 feet to a concrete R.O.W. marker found for corner; THENCE N. 00 deg. 47 min. 09 sec. E. along the East R.O.W. line of said highway a distance of 822.33 feet to the POINT OF BEGINNING and containing 356.723 acres of land. TRACT "C" All that certain lot, tract or parcel of land situated in the City of Greenville, Hunt County, Texas, and being part of the Elisha Brake Survey, Abstract No. 64, Andrew McDonald Survey, Abstract No. 689, Hardin Denney Survey, Abstract No. 244, David Hall Survey, Abstract No. 484, John Manos Survey, Abstract No. 725, F. Thweatt Survey, Abstract No. 1342, and the William Mooney Survey, Abstract No. 694, Hunt County, Texas, and being part of Majors Field and being more particularly described as follows: BEGINNING at an iron rod found for corner at the centerline of intersection of County Road No. 3303 and County Road No. 3304, said point being the Southwest corner of the James C. Warren Survey, Abstract No. 1114, said point also being the Southeast corner of Tract C in the 1977 Lease Agreement between the City of Greenville, Texas, and E-Systems, Inc., as recorded in Volume 810, Page 1, Hunt County Deed Records; THENCE N. 89 deg. 15 min. 32 sec. W. along the centerline of County Road No. 3304 a distance of 1791.20 feet to a nail found for corner; THENCE N. 00 deg. 59 min. 38 sec. E. a distance of 208.00 feet to an iron rod found for corner; THENCE N. 89 deg. 11 min. 53 sec. W. a distance of 422.82 feet to an iron rod found for corner; THENCE S. 00 deg. 08 min. 08 sec. W. a distance of 208.46 foot to a nail found for corner in the centerline of County Road No. 3304; THENCE N. 89 deg. 15 min. 32 sec. W. along the centerline of said county road part-way a distance of 1521.42 feet to an iron rod found for corner; THENCE S. 00 deg. 45 mi. 51 sec. W. along a fence line a distance of 643.21 feet to an iron rod found for corner; THENCE S. 01 deg. 06 min. 49 sec. W. along a fence line a distance of 588.16 feet to an iron rod found for corner at a fence corner post, said point being the most Southerly Southeast corner of the above cited Tract C; THENCE N. 89 deg. 23 min. 04 sec. W. along a fence line a distance of 265.35 feet to an iron rod found for corner at a fence corner post; THENCE S. 89 deg. 51 min. 22 sec. W. along a fence line a distance of 492.02 feet to an iron rod found for corner at a fence corner post; THENCE N. 00 deg. 18 min. 18 sec. E. along a fence line a distance of 651:64 feet to an iron rod found for corner at a fence corner post; 5 Exhibit "B" Revised 1990 (cont) TRACT "C" (cont) THENCE S. 88 deg. 29 min. 17 sec. W. along a fence line a distance of 940.84 feet to an iron rod found for corner at a fence corner post; THENCE N. 00 deg. 11 min. 43 sec. W. along a fence line a distance of 51.06 feet to an iron rod found for corner; THENCE N. 00 deg. 2l min. 32 sec. W. along a fence line a distance of 594.42 feet to an iron rod found for corner at a fence corner post; THENCE S. 89 deg. 14 min. 45 sec. E. a distance of 358.40 feet to an iron rod set for corner, said point being the Southeast corner of Tract B of the above cited lease; THENCE N. 00 deg. 42 min. 54 sec. E. along the East line of said Tract D a distance of 1952.00 feet to a point for corner in the East line of the North-South ramp, said point being the most Southerly Southeast corner of Tract B of said lease, said point also being the most Easterly Northeast corner of said Tract D; THENCE S. 89 deg. 17 min. 06 sec. E. a distance of 249.95 feet to an iron rod found for corner; THENCE N. 00 deg. 42 min. 28 sec. E. a distance of 4931.53 feet to an iron rod found for corner; THENCE S. 89 deg. 17 min. 32 sec. E. a distance of 245.17 feet to an iron rod found for corner; THENCE N. 00 deg. 42 min. 28 sec. E. a distance of 1290.32 feet to an iron rod set for corner in the centerline of County Road No. 3302; THENCE N. 00 deg. 55 min. 57 sec. E. a distance of 762.32 feet to an iron rod found for corner at a fence corner post; THENCE N. 01 deg. 09 min. 17 sec. W. along a fence line a distance of 516.49 feet to an iron rod found for corner at a fence corner post: THENCE S. 88 deg. 55 min. 25 sec. E. along a fence line a distance of 225.69 feet to an iron rod found for corner; THENCE N. 89 deg. 35 min. 42 sec. E. along a fence line a distance of 373.88 feet to an iron rod found for corner; THENCE N. 88 deg. 59 min. 43 sec. E. along a fence line a distance of 371.52 feet to an iron rod set for corner in the centerline of County Road No. 3302; THENCE S. 01 deg. 00 min. 01 sec. W. a distance of 2066.41 feet to a P-K nail found for corner in the centerline of an asphalt road, said point being in the North line of the Andrew McDonald Survey, Abstract No. 689; THENCE S. 89 deg. 18 min. 01 sec. E. along the North line of said McDonald Survey a distance of 338.31 feet to a point for corner; THENCE S. 00 deg. 41 min. 59 sec. W. a distance of 1700.00 feet to a point for corner; THENCE S. 44 deg. 17 min. 32 sec. E. a distance of 4696.87 feet to a point for corner in the West line of the above cited Warren Survey, Abstract No. 1114; THENCE S. 01 deg. 53 min. 35 sec. W. along the West line of said Warren Survey a distance of 444.66 feet to an iron rod found for corner; THENCE S. 00 deg. 42 min. 07 sec. W. along the West line of said Warren Survey along the centerline of County Road No. 3303 a distance of 1960.52 feet to the POINT OF BEGINNING and containing 656.544 acres of land. 6 Exhibit "B" Revised 1990 (cont) TRACT "D" All that certain lot, tract or parcel of land situated in the City of Greenville, Hunt County, Texas, and being part of the C.B. McDonald Survey, Abstract No. 692, and the.E.G. Eliff Survey, Abstract No. 298, Hunt County, Texas, and being part of Majors Field and being more particularly described as follows: BEGINNING at a point in the East line of the North-South ramp, said point being the most Southerly Southeast corner of Tract B of the 1977 Lease Agreement between the City of Greenville and E-Systems, Inc., as recorded in Volume 810, Page 1, Hunt County Deed Records, said point also being the most Easterly Northeast corner of Tract D in said lease; THENCE S. 00 deg. 42 min. 54 sec. W. along the East line of said Tract D a distance of 1952.00 feet to a point for corner, said point being the Southeast corner of the above cited Tract D; THENCE N. 89 deg. 14 min. 45 sec. W. passing an iron rod found for corner at an interior corner of Majors Field at a distance of 358.40 feet and continuing along the South line of Majors Field for a total distance of 1006.45 feet to an iron rod found for corner; THENCE N. 89 deg. 19 min. 42 sec. W. along the South line of Majors Field a distance of 350.47 feet to an iron rod found for corner; THENCE N. 89 deg. 19 min. 10 sec. W. along the South line of said Majors Field a distance of 416.22 feet to an iron rod found for corner; THENCE N. 89 deg. 12 min. 43 sec. W. along the South line of said Majors Field a distance of 461.77 feet to an iron rod found for corner in the Northeasterly R.O.W. line of F.M. Highway No. 2101; THENCE in a Northeasterly direction along a curve to the right having a central angle of 06 deg. 51 min. 24 sec., a radius of 1095.92 feet, a chord bearing of N. 36 deg. 01 min. 32 sec. W. a chord of 131.07 feet, an arc length of 131.15 feet to an iron rod found for corner; THENCE N. 00 deg. 43 min. 47 sec. E. a distance 2710.25 feet to a point for corner, said point being in the North line of an existing asphalt street; THENCE S. 89 deg. 28 min. 14 sec. E. along the North line of said street a distance of 879.14 feet to an iron rod set for corner; THENCE along the North line of said asphalt street along a curve to the right having a central angle of 66 deg. 54 min. 09 sec., a radius of 148.09 feet, a chord bearing of S. 56 deg. 01 min. 10 sec. E., a chord of 163.26 feet, an arc length of 172.92 feet to an iron rod set for corner; THENCE S. 22 deg. 34 min. 06 sec. E. along the Northeasterly line of said street a distance of 340.87 feet to an iron rod found for corner; THENCE along the Northeasterly line of said street along a curve to the left having a central angle of 65 deg. 38 min. 17 sec., a radius of 197.24 feet, a chord bearing of S. 55 deg. 23 min. 15 sec. E., a chord of 213.81 feet, an arc length of 225.96 feet to an iron rod found for corder in a chain link fence; THENCE S. 59 deg. 41 min. 48 sec. E. along and near said fence line a distance of 3.02 feet to an iron rod found for corner; 7 Exhibit "B" Revised 1900 (cont) TRACT "D" (cont) THENCE S. 87 deg. 47 min. 22 sec. E. a distance of 527.20 feet to an iron rod found for corner; THENCE S. 00 deg. 36 min. 09 sec. W. a distance of 329.74 feet to an iron rod found for corner at the most Southerly Southwest corner of Tract B; THENCE S. 89 deg. 17 min. 06 sec. E. a distance of 454.48 feet to the POINT OF BEGINNING and containing 131.210 acres of land. 8 AMENDMENT #5 RECAP OF TRACT "B" ACREAGE & RENT
ACREAGE ------- Basic 1977 Tract "B" 275.63 Acreage Added in Amendment #3 +45.80 Acreage Purchased by E-Systems -12.96 (To Resolve Title Dispute Between City and Local Landowner) Acreage South of Airport Blvd -12.59 Returned to City in Amendment #5 Acreage Added to E-Systems +60.84 Tract "B" Eastern Boundary -------- In Amendment #5 Revised Tract "B" through Amendment #5 356.72 Less Basic Acreage -275.63 -------- Net Increase to Tract "B" Acreage 81.09 Fair Market Value Per Acre Per Year $180.00 -------- Net Increase to Tract "B" Rent $14,596.20 DIVIDED BY 12 -------- Net Increase to Monthly Tract "B" Rent $1,216.35 Amount of Basic Tract "B" Monthly Rent 4,000.00 -------- Revised Tract "B" Monthly Rent $5,216.35
AMENDMENT #4 TO 1977 LEASE AGREEMENT THIS AMENDMENT #4 (the "Amendment") OF AGREEMENT OF LEASE dated as of July 15, 1990, between the CITY OF GREENVILLE, TEXAS, a municipal corporation of the State of Texas (the "Lessor"), and E-SYSTEMS, INC., a Delaware corporation (the "Lessee"); W I T N E S S E T H: WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as Majors Field (the "Airport"); WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of October 1, 1977, as amended by Amendment #1 dated October 15, 1980, Amendment #2 dated October 15, 1980 and Amendment #3 dated October 15, 1981 with respect to certain premises at the Airport (the Lease Agreement and Amendments #1, #2 and #3 in the aggregate herein referred to as the "Lease"); WHEREAS, Lessor owns as part of the Airport approximately 720.02 acres referred in the Lease as the Base Facilities, which is the flight operations area for the public generally; WHEREAS, Industrial Development Corporation Greenville, Texas, (the "Corporation") has been created and has authorized the issuance of $9,350,000 of its airport revenue bonds (the "Series 1990 Bonds") to pay for repairs and improvements to the runways, aprons, and taxiways that are part of Base Facilities as well as necessary drainage facilities to remove water from the Base Facility (the "Project"); and WHEREAS, Lessor and Lessee has agreed to amend the Lease to provide for additional rental sufficient to pay all debt service on the Series 1990 Bonds in consideration for the issuance of the Series 1990 Bonds by the Corporation and in consideration for the continued operation of the Base Facilities by the Lessor. NOW THEREFORE, Lessor and Lessee, for and in consideration of the mutual covenants herein contained, agree to amend the Lease as set forth below. All sections and parts of the Lease not modified by this Amendment remain in full force and affect. The Lease is hereby modified by this Amendment by the addition of Part X and all sections contained therein to read as follows: PART X SECTION 10.1 BASE FACILITIES IMPROVEMENTS The proceeds of the Series 1990 Bonds, less the costs of issuance of the Series 1990 Bonds paid out of such proceeds, will be deposited in the Construction Fund created by and as defined in the Trust Indenture for the Series 1990 Bonds (the "Indenture"), and will be used for the Project. The Project, when completed, will be owned and managed by the Lessor. The Lessee hereby makes an irrevocable election, binding on the Lessee and all successors in interest, not to claim depreciation or an investment credit with respect to any part of the Project. The Lessor and Lessee acknowledge that the Lessee has no option to purchase the Project. Any unexpended funds remaining in the Construction Fund after completion of the Project will be transferred to the Bond Fund created by and as defined in the Indenture, unless such funds are needed to pay arbitrage rebate to the United States pursuant to section 148 of the Internal Revenue Code of 1986. In addition, any eligible funds received by the Lessor from the federal government for use in connection with the Project, including but not limited to the Federal Emergency Management Agency, which are payments received for repairs or improvements as part of the Project, shall be deposited promptly by the Lessor in the Unit Account of the Bond Fund and will offset the Lessee's obligation to pay Additional Rent as more fully set forth in Section 10.2. SECTION 10.2 ADDITIONAL RENT For and in consideration of the Corporation's issuing the Series 1990 Bonds for the Project and for and in consideration of the City's continued operation of the Project, the Lessee unconditionally agrees to pay additional rent ("Additional Rent") while the Series 1990 Bonds are outstanding, in an amount equal to (i) all debt service on the Series 1990 Bonds, plus (ii) all fees and expenses incurred in connection with the issuance, payment and redemption or a Determination of Taxability (as defined in the Indenture) of the Series 1990 Bonds, including arbitrage rebate and the expense of calculating arbitrage rebate, to the extent such fees and expenses are not paid out of Series 1990 Bond proceeds (including investment proceeds), minus (iii) funds on hand in the Unit Account of the Bond Fund created by and as defined in the Indenture which are available for payment of such debt service. Lessee's obligation to the City to pay Additional Rent shall be satisfied by the Lessee transferring the Additional Rent payment owed for each accrual period on the Series 1990 Bonds in immediately available funds by wire transfer to the Unit Account (as defined in the Indenture) at the Corporation's Trustee for the Series 1990 Bonds no later than three business days prior to each debt service payment date on the Series 1990 Bonds. Pursuant to the Indenture to be entered into between the Corporation and the Trustee, the Trustee will send the following information to the Lessee by facsimile transmittal (or by telephone, promptly confirmed by facsimile transmittal no later than five business days prior to each debt service payment date on the Series 1990 Bonds: (i) the amount of the debt service on the Series 1990 Bonds to be paid on the next payment date plus any unpaid fees and expenses incurred in connection with the Series 1990 Bonds for the current accrual period and anticipated fees and expenses for the subsequent accrual period, (ii) funds on hand in the Unit Account of the :Bond Fund available to pay debt service on the next payment date; and (iii) the balance to be paid as Additional Rent by the Lessee. The obligation of the Lessee to make Additional Rent payments is unconditional and independent of any other provision of this Lease, as long as the Indenture remains in effect. 10.3 ASSIGNMENT AND DEFEASANCE The Lessee has no right to assign or delegate its obligations under this Amendment or to terminate the Lease while the Series 1990 Bonds are outstanding. In the event the Lease is terminated for whatever cause, the Lessee shall deposit into escrow cash and governmental obligations certified by an independent accounting firm of national reputation to mature as to principal and interest in such amounts and at such times as will, without further investment or reinvestment, be sufficient to make all principal, premium (if any), and interest payments on the Series 1990 Bonds when due (or when redeemable). Such escrow shall further meet all requirements of section 148 of the Internal Revenue Code of 1986, and the report by the independent accounting firm of national reputation shall certify that the yield on the escrow is less than the yield on the Series 1990 Bonds, as calculated under section 148 of the Code. This Amendment #4 is executed as of the date first shown on page one of this Amendment. ATTEST CITY OF GREENVILLE /s/ Pat Adams /s/ Bill F. Morgan - ----------------- -------------------- City Clerk Mayor APPROVED AS TO FORM: /s/ Diane Callander - -------------------- City Attorney ATTEST: E-SYSTEMS, INC /s/ /s/ - -------------------- --------------------- Assistant Secretary Vice President E-SYSTEMS SERIES 1990 ----------- ----------- DEBT SERVICE SCHEDULE --------------------- ---------------------
DATE PRINCIPAL COUPON INTEREST PERIOD T0TAL FISCAL TOTAL - ---- ---------- ------ ---------- ----------- ------------ 2/1/91 378,035.00 378,035.00 8/1/91 500,000.00 7.000000 347,175.00 847,175.00 1,225,210.00 2/1/92 329,675.00 329,675.00 8/1/92 600,000.00 7.05OOOO 329,675.OO 929,675.00 1,259,350.00 2/1/93 308,525.00 308,525.00 8/1/93 600,000.00 7.100000 308,525.00 308,525.00 1,217,050.00 2/1/94 287,225.00 287,225.00 8/1/94 650,000.00 7.200000 287,225.00 937,225.00 1,224,450.00 2/1/95 263,825.00 263,825.00 8/1/95 700,000.00 7.300000 263,825.00 963,825.00 1,227,650.00 2/1/96 238,275.00 238,275.00 8/1/96 700,000.00 7.400000 238,275.00 938,275.00 1,176,550.00 2/1/97 212,375.00 212,375.00 8/1/97 800,000.00 7.450000 212,375.00 1,012,375.00 1,224,750.00 2/1/98 182,575.00 182,575.00 8/1/98 800,000.00 7.500000 182,575.00 982,575.00 1,165,150.00 2/1/99 152,575.00 152,575.00 8/1/99 900,000.00 7.550000 152,575.00 1,052,575.00 1,205,150.00 2/1/ 0 118,600.00 118,600.00 8/1/ 0 1,000,000.00 7.600000 118,600.00 1,118,600.00 1,237,200.00 2/1/ 1 80,600.00 80,600.00 8/1/ 1 1,000,000.00 7.650000 80,600.00 1,080,600.00 1,161,200.00 2/1/ 2 42,350.00 42,350.00 8/1/ 2 1,100,000.00 7.700000 42,350.00 1,142,350.00 1,184,700.00 ------------ ------------ ------------- 9,350,000.00 5,158,410.00 14,508,410.00 ACCRUED 98,366.25 98,366.25 9,350,000.00 5,060,043.75 14,410,043.75 ------------ ------------- ------------- ------------ ------------- -------------
Dated 7/15/90 with Delivery of 9/6/90 Bond Years 68,515,556 Average Coupon 7.528816 Average Life 7.327867 HIC % 7.528816 % Using 100.0000000
TEXAS COMMERCE BANK EXHIBIT 10.17 AMENDMENT #3 TO 1977 LEASE AGREEMENT THIS AMENDMENT #3 OF AGREEMENT OF LEASE dated as of October 1, 1981, between the CITY OF GREENVILLE, TEXAS, a municipal corporation of the State of Texas (herein referred to as "Lessor"), and E-SYSTEMS, INC., a Delaware corporation (herein referred to as "Lessee"); W I T N E S S E T H: WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as Majors Field (herein referred to as the "Airport"); WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of October 1, 1977, as amended by Amendment #1 and Amendment #2, dated October 15, 1980, with respect to certain premises at the Airport (herein referred to as the "Lease" or "Lease Agreement"); WHEREAS, E-Systems desires to make certain improvements to existing facilities and construct new additional improvements (facilities); and WHEREAS, Lessor has agreed to the use of the Construction Fund to finance improvements to existing facilities more fully described on Exhibit J attached hereto; and WHEREAS, Lessor has agreed to allow E-Systems to construct new additional improvements (facilities), more fully described on Exhibit K attached hereto, utilizing financing provided by E-Systems, Inc.; and WHEREAS; Lessor has agreed to amend this lease as pertains to term and to increase Tract B (Exhibit B) by approximately 45.30 acres as described in Exhibit L attached hereto. NOW, THEREFORE, the parties hereto for and in the consideration of the mutual covenants herein contained agree to amend the 1977 Lease Agreement dated as of October 1, 1977, as amended by Amendment #1 and Amendment #2 on October 15, 1980, as set forth below. All references to parts and section numbers for Part I. shall be a reference to that section number of that part contained in the 1977 Lease Agreement as amended by Amendment #1 and Amendment #2 and said sections are hereby amended in their entirety to provide as set forth below. All sections and parts of the Lease Agreement and Amendment #1 and Amendment #2 thereto, not modified hereby, remain in full force and effect. PART I AIRCRAFT MAINTENANCE PREMISES SECTION 1.1 PREMISES - DEMISE (a) Effective as of the date hereof, Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises, indicated as Tracts A & B on Exhibit A attached hereto, consisting of an area of approximately 580.68 acres, and the improvements thereon, such premises and improvements being herein collectively referred to as the "Maintenance Premises", which are further described in the legal description set forth in Exhibit B, and amended by Exhibit L attached hereto. SECTION 1.2 TERM (a) The initial term of the tenancy created under this Part I. shall commence on October 1, 1977, and.shall expire on October 1, 2017. The parties agree that prior to the expiration of the lease term, they will, in good faith, consider the execution of a new lease agreement,or an amendment to the existing lease, for a like term of years, with respect to any facilities covered by this agreement which, at the expiration of the lease term, are not and will not (during the term of the new lease agreement) be required by the city for the exclusive use of the general public. SECTION 1.3 RENTAL (a) Commencing on the first day of the first month after execution of Amendment #2 and continuing until August 31, 1981, Lessee shall pay Ground Rental for the Maintenance Premises in monthly installments of $725 as Ground Rental and commencing on September 1, 1981, and continuing through the initial term of this Lease October 1, 2017, the sum of $4,000 per month. (b) In the event Lessor shall issue Revenue Bonds and using the proceeds thereof shall reimburse Lessee its costs as approved by Lessor which were incurred in the construction of improvements on the Additional Maintenance Premises, provision for debt service on such Bonds through payment by Lessee or additional rental shall be as provided in Part II. of this Agreement. (c) In the event Lessor shall issue Revenue Bonds and using the proceeds thereof shall reimburse Lessee its costs as approved by Lessor which were incurred in the construction of Engineering Building 113 provision for debt service on such Bonds through payment by Lessee of additional rental shall be as provided in Part VII. of this Agreement. SECTION 1.3 CONT... (d) In the event Lessor shall improve the asphalt overlay of certain ramps, streets, and parking lots and improve the roofs of the premises with foam/diathon within the next three years from the date of this Amendment #2 in an amount estimated to be $1,752,000, then Lessee shall reimburse Lessor for such repairs through payment by Lessee of additional rental as provided in Part VIII. of this Agreement. (e) In the event Lessor shall improve the existing facilities, as described on Exhibit J attached hereto, in an amount estimated to be $775,000. then Lessee shall reimburse Lessor for such expenditures through payment by Lessee of additional rental as provided in Part IX of this agreement. THE FOLLOWING PARTS AND SECTIONS ABE IN ADDITION TO THE 1977 LEASE AGREEMENT AND AMENDMENT #1 AND AMENDMENT #2, THERETO AND ARE INCORPORATED THEREIN BY REFERENCE. ALL PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT AND AMENDMENTS #1 AND #2 THERETO NOT MODIFIED HEREBY REMAIN IN FULL FORCE AND EFFECT. PART II. SECTION 2.1 LEASE OF ADDITIONAL MAINTENANCE PREMISES Effective as of October 1, 1977 (but subject to the provisions of Section 2.17 hereof), the Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises indicated as Building 136B, 108, and 116 on Exhibit E attached hereto, consisting of an area of approximately 103,250 square feet and the improvements thereon or to be constructed thereon such premises and improvements being in this part referred to as "Additional Maintenance Premises" which are further described in the legal description set forth in Exhibit E. The term of the tenancy of this Part II. of this Agreement shall expire on October 1, 2017. At the end of this term, Lessor and Lessee may determine to renew the term of the lease in accordance with Section 1.2 herein. PART VII. SECTION 7.1 LEASE OF ENGINEERING BUILDING 113 Effective as of the date hereof, (but subject to the provisions of Section 7.15 hereof) the Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises indicated on Exhibit F attached hereto, consisting of an area of approximately 16,000 square feet, and the improvements to be constructed hereon, such premises and improvements being in this Part referred to as "Engineering Building" or "Facilities" which is further described in the description set forth in Exhibit G. The initial term of the tenancy created under Part VII. of this Agreement shall expire on October 1, 2017. At the end of this term, Lessor and Lessee may determine to renew the term of the lease in accordance with Section 1.2 herein. PART VIII. SECTION 8.1 FACILITY IMPROVEMENTS Effective as of the date of this Amendment the Lessor hereby leases and rents and Lessee hereby hires and takes for its use those Facility Improvements to the premises more fully described on Exhibit H attached hereto. Such Facility Improvements are generally described as asphalt overlays of certain ramps, roads and parking lots. In addition, such Facility Improvements include the application of foam/diathon to the roofs of existing buildings on the premises. The initial term of the tenancy created under this Part VIII. of this Agreement shall expire on October 1, 2017. At the end of this term, Lessor and Lessee may determine to renew the term of the lease in accordance with Section 1.2 herein. SECTION 8.3 FACILITY IMPROVEMENTS CONSTRUCTION Lessor agrees that from time to time within a three-year period from the date of this Amendment it shall make the Facility Improvements more fully described in Exhibit H attached hereto to the premises. The parties estimate that the total cost of the Facilities Improvements is approximately $1,752,000. Lessor shall not be required to expend funds above this estimated amount. Lessor and Lessee agree that in the event Lessor does not expend the estimated amount, then the Net Rent provided for above shall be reduced by the difference between the actual cost of construction and said estimate. PART IX SECTION 9.1 FACILITY IMPROVEMENTS Effective as of the date of the Amendment the Lessor hereby leases and rents and Lessee hereby hires and takes those Facility Improvements to the premises more fully described on Exhibit J "Description of Modifications to Existing Facilities" and Exhibit K "Description of New Constructed Facilities" attached hereto. Such Facility Improvements, known generally as the E-Systems Greenville Division 1981 Construction Program are specifically; (1) Modifications to Hangar 102, Bay 1 (2) Addition of Mezzanine to Building 116 (3) New 2 story Administration Building designated Building 137 (4) New Large Aircraft Hangar designated Hangar 152. The initial term of the tenancy created under this Part IX. of this Agreement shall expire on October 1, 2017. At the end of this term, Lessor and Lessee may determine to renew the term of the lease in accordance with Section 1.2 herein. SECTION 9.2 NET RENT For and in consideration of Lessor's adding the Facility Improvements under this Part IX. and Lessee's enjoyment of additional rights pursuant to the provisions of this Part IX. cumulative of and in addition to all other rentals, fees or payments for which Lessee is obligated to pay Lessor under Part I. of this Agreement. Lessee further agrees to pay Lessor additional rentals known as "Net Rent" as follows: Commencing on January 1, 1982, the Net Rent shall be $25,000 per month with a like installment due and payable on the same day of each month thereafter through May 1, 1983. SECTION 9.2 CONT... Lessor and Lessee agree that all payments received by Lessor pursuant to this Part IX. shall be deposited in the Airport Construction Fund and that Lessor and Lessee will meet each year to evaluate the need for any adjustment in the amount of payments in order that such payments are sufficient to fund all Facility Improvements covered by Part IX of this agreement. SECTION 9.3 FACILITY IMPROVEMENTS CONSTRUCTION Lessor agrees that within an eighteen (18) month period from the date of this Amendment it shall make the Facility Improvements, as described in Exhibits J and K attached hereto, to the premises. The parties estimate that the total cost of the Facilities Improvements is approximately $3,800,000. of which $775,000 is to be paid for from the Construction Fund, the balance being financed by E-Systems. Lessor and Lessee agree that in the event Lessor exceeds or does not expend the estimated amount from Construction Funds ($775,000), then the Net Rent provided for above shall be adjusted accordingly and said adjustment be reflected in the monthly installments beginning 1 January 1983. SECTION 9.4 TITLE TO FACILITIES IMPROVEMENTS AND LESSOR The parties hereby confirm and agree that title to the Facilities Improvements (or any portion thereof) which may be constructed on or after the date of this Amendment is vested in Lessor subject to Lessee's possessory rights and that title to any such facilities (or any portions thereof) which may be constructed or completed after the date of the Agreement shall vest in Lessor as the same are affixed to the land, subject to such possessory rights of Lessee. SECTION 9.5 CONSTRUCTION OF FACILITIES IMPROVEMENTS CONDEMNATION OF FACILITIES IMPROVEMENTS The provisions of Section 1.18 or 1.20 shall control where all or substantially all of the Facilities Improvements are (1) destroyed by an insured casualty or (2) taken under color of governmental authority in the exercise of the power of eminent domain. SECTION 9.6 PROVISIONS OF PART I. MADE APPLICABLE Except as to the terms of the Lease and renewals thereof (contained in Section 9.1) all of the provisions of Part I. of this Agreement shall also be applicable to the Facilities Improvements and for the purposes of Part I. the same shall also be considered a Maintenance Facilities thereunder upon completion of the Facilities Improvements whichever shall first occur. SECTION 9.7 CONSTRUCTION FUND All payments received by Lessor under this Part IX. shall be deposited in a Construction Fund with the City's depository bank. Disbursements from the Construction Fund and investment of moneys therein, pending the use thereof for authorized purposes, shall be governed by an escrow agreement by and between the City and the depository bank. The mayor is hereby authorized and directed to execute an appropriate escrow agreement, which shall be subject to approval by the City Attorney and the Lessee, which agreement shall be in customary terms and: (1) not be in conflict with any provisions of this Agreement; and SECTION 9.7 CONT... (2) provide: (a) funds may be disbursed only for the purpose of paying the cost of construction and acquisition of the Additional Maintenance Premises and Facilities Improvements until all such costs have been paid, and then as provided in this instrument. (b) funds may be disbursed upon approval of the same by a representative of the Lessor and Lessee; that the representative of the Lessor shall be the person acting as the City Manager of the City of Greenville, Texas. (3) no change order may be executed, during the construction of the project, which increases the amount of any contract to be paid by the City unless the same has been approved by the City Council; nor shall any payment be made under any contract until such contract has been approved by the City Council. SECTION 9.8 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION CHANGES, CONTRACTS (a) The facilities Improvements shall be acquired, constructed, installed, fabricated and equipped in accordance with plans and specifications approved by the City and the Lessee. Lessee shall prepare final plans and specifications of the Facilities Improvements, which shall be submitted by Lessee to the City for approval, and construction shall be substantially in accordance with such plans and specifications as may be approved by the City with such changes as may be reasonably requested by Lessee and approved by the City. (b) Upon completion of the final plans and specifications of the Facilities Improvements and approval of the same, bids will be taken by the City for construction, acquisition, and/or fabrication of the Facilities Improvements based on such plans and specifications. Following the receipt of bids from responsible bidders, the City and Lessee will consider and approve such bids, and contracts will then be awarded by the City to install, construct, fabricate and equip the Facilities. Lessee may, with the City's prior approval, enter into contracts for the design work and for the preparation of the preliminary and final plans and specifications for the Facilities Improvements prior to the time that proceeds from the sale of the Bonds are available. SECTION 9.8 CONT... (c) Whenever approval of either the City or Lessee is required in this Section 9.8, such approval shall not be unreasonably withheld by either the City or the Lessee; provided, however, nothing herein shall be construed as requiring the City to undertake any such project. (d) Contracts relating to the construction, acquisition, equipping, fabrication or installation (or purchases in connection therewith) of the Facilities Improvements shall include appropriate provisions for expediting the work and for performance and payment bonds so as to assure completion by specified performance dates and to protect the Facilities Improvements against liens, such bonds to name the City as the beneficiary thereof. (e) All necessary approvals from governmental agencies shall be obtained prior to acquiring, constructing, fabricating, equipping or installing the Facilities, and such improvements shall be acquired, constructed, fabricated, equipped or installed in compliance with all state and local laws, ordinances and regulations applicable thereto. Upon completion of the Facilities Improvements, all required occupancy permits and authorizations from appropriate authorities contemplated by Lessee shall be obtained by Lessee. All changes, alterations, extras or additions (hereinafter in this subsection (e) called "changes") to or from and contracts or purchase order executed or entered into pursuant to the provisions of this Part IX. shall be approved in advance by the parties hereto. All requests, approvals and agreements required shall be in writing and signed by a duly designated representative of the party making such request, granting such approval or entering into such agreement. All changes to the Facilities Improvements may be made after consultation with and approval by the Lessee. SECTION 9.8 CONT... This Amendment #3 is executed as of the date first shown on page one of this Amendment. ATTEST: CITY OF GREENVILLE /s/ Irene Wilson /s/ William F. Elkins - ---------------------------- ---------------------------- City Clerk Mayor APPROVED AS TO FORM: /s/ D. Adami - ---------------------------- City Attorney ATTEST: E-SYSTEMS, INC. /s/ Joe D. Reynolds /s/ A. L. Lawson - ---------------------------- ---------------------------- Assistant Secretary Vice President EXHIBIT J "Description of Modifications to Existing Facilities" Modifications to existing Facilities referenced in Amendment #3 to the 1977 Lease Agreement consists of two separate projects; - Modifications to Hangar 102, Bay 1, and; - Addition of Mezzanine to Building 116 The modifications to Hangar 102, Bay 1 consist of the addition of a nosewell and enlargement of the tailwell. These modifications will enable this Bay to house KC-135 size aircraft. The addition of a mezzanine to Building 116 will add approximately 45,000 square feet to that facility. The original design and construction of Building 116 contemplated the addition of subject mezzanine at some future date. The mezzanine will include a covered overhead walkway to Hangar 102 and an outside freight elevator. EXHIBIT K "Description of New Constructed Facilities" New Constructed Facilities referenced in Amendment #3 to the 1977 Lease Agreement consists of two separate projects; - New 2 Story Administration Building Designated Building 137, and; - New Large Aircraft Hangar Designated Hangar 152 Building 137 will be a Two-Story Office Building of 20,000 square feet each floor for a total of 40,000 square feet of floor space. This building will be located due West of Building 136, adjacent to Building 140, on what is presently parking lot space. The New Large Aircraft Hangar (Hangar 152) will be located due West and adjacent to Hangar 150 and be of the same general design. This Hangar will be sized to house two 727 T-Tail Type Aircraft or one 747 Type Aircraft with the tail outside. EXHIBIT L Beginning at a point being the Southwest corner of the intersection of Seventh Street and Avenue "D", said corner being an inside corner of Majors Field's Western boundary line as described in said Warranty Deed from Hunt County, Texas to the City of Greenville, Texas, recorded in Volume 643, Page 496 in the Deed Records of Hunt County, Texas. Thence East 1330 feet; Thence South 1500 feet; Thence West 1330 feet; Thence North 1500 feet to the point of beginning and containing 45.7989 acres of land, more or less. AMENDMENT #2 TO 1977 LEASE AGREEMENT THIS AMENDMENT #2 OF AGREEMENT OF LEASE dated as of October 15, 1980, between the CITY OF GREENVILLE, TEXAS, a municipal corporation of the State of Texas (herein referred to as "Lessor"), and E-SYSTEMS, INC., a Delaware corporation (herein referred to as "Lessee"); W I T N E S S E T H: WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as Majors Field (herein referred to as the "Airport"); WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of October 1, 1977, as amended by Amendment #1 dated October 15, 1980, with respect to certain premises at the Airport (herein referred to as the "Lease" or "Lease Agreement"); WHEREAS, E-Systems desires to have Lessor construct additional improvements on said premises; and WHEREAS, Lessor has agreed to construct said improvements, provided that an adjustment in the Net Rent is made and the Ground Rental of the premises is increased to $4,000 per month. NOW, THEREFORE, the parties hereto for and in the consideration of the mutual covenants herein contained agree to amend the 1977 Lease Agreement dated as of October 1, 1977, as amended by Amendment #1 on October 15, 1980, as set forth below. All references to parts and sections numbers for Part I. shall be a reference to that section number of that part contained in the 1977 Lease Agreement as amended by Amendment #1 and said sections are hereby amended in their entirety to provide as set forth below. All sections and parts of the Lease Agreement and Amendment #1 thereto, not modified hereby, remain in full force and effect. PART I. AIRCRAFT MAINTENANCE PREMISES SECTION 1.3 RENTAL (a) Commencing on the first day of the first month after execution of this amendment and continuing until August 31, 1981, Lessee shall pay Ground Rental for the Maintenance Premises in monthly installments of $725 as Ground Rental and commencing on September 1, 1981, and continuing through the initial term of this Lease (August 31, 1991), the sum of $4,000 per month. (b) In the event Lessor shall issue Revenue Bonds and using the proceeds thereof shall reimburse Lessee its costs as approved by Lessor which were incurred in the construction of improvements on the Additional Maintenance Premises, provision for debt service on such Bonds through payment by Lessee of additional rental shall be as provided in Part II. of this Agreement. (c) In the event Lessor shall issue Revenue Bonds and using the proceeds thereof shall reimburse Lessee its costs as approved by Lessor which were incurred in the construction of Engineering Building 113 provision for debt service on such Bonds through payment by Lessee of additional rental shall be as provided in Part VII. of this Agreement. (d) In the event Lessor shall improve the asphalt overlay of certain ramps, streets, and parking lots and improve the roofs of the premises with foam/diathon within the next three years from the date of this Amendment #2 in an amount estimated to be $1,752,000, then Lessee shall reimburse Lessor for such repairs through payment by Lessee of additional rental as provided in Part VIII. of this Agreement. SECTION 1.21 MISCELLANEOUS OPERATION PROVISIONS (a) With the prior written approval of the Lessor, Lessee may erect, maintain or display signs of advertising at or on the exterior parts of the Maintenance Premises or in or on the Leased Premises so as to be visible outside the Maintenance Premises. Exterior signs affecting public safety and security shall be subject to approval by Lessee and the Lessor. If the Lessor has not given approval, as aforesaid upon receipt of notice the Lessee shall remove, obliterate or paint out any and all advertising, signs, posters and similar devices placed by the Lessee on the Maintenance Premises. In the event of a failure on the part of the Lessee so to remove, obliterate or paint out unapproved signs affecting public safety and to restore the necessary work and the Lessee shall pay the cost thereof to the Lessor on demand. (b) The Lessee shall maintain such obstruction lights and landing lights as the Lessor may install, and Lessor shall furnish and install the bulbs and furnish the electricity necessary for the operation thereof, and Lessee shall operate the same in accordance with the requirements of F.A.A. The Lessor hereby - 2 - directs that all said lights shall, until further notice, be operated for a period commencing thirty (30) minutes before sunset and ending thirty (30) minutes after sunrise (as sunset and sunrise may vary from day to day throughout each year) and for such other periods as may be directed or requested by the control tower of the Airport. In addition, Lessee shall also provide and maintain fire protection and safety equipment at the Maintenance Facilities and all other equipment of every kind and nature required by any law, rule, order, ordinance or resolution of any governmental authority having jurisdiction over the Airport. (c) Except to the extent required for the performance of the obligations or the exercise of rights of the Lessee hereunder, nothing contained in this agreement shall grant to the Lessee any rights whatsoever in the air space above the Maintenance Premises in excess of a height set forth in the plans and specifications for the Maintenance Premises. (d) All personal property and all property and installations (including trade fixtures) removable without material damage to the Maintenance Premises, which are installed by Lessee in or on the Maintenance Premises, shall be deemed to be and remain the property of the Lessee. All such property and installations may at Lessee's option be removed by Lessee from the Maintenance Premises at any time during the term of this Agreement, and, unless otherwise agreed in writing by the parties, shall be removed by Lessee at or before the expiration of other termination of the term of this Agreement provided that any damage to the Maintenance Premises caused by said removal shall be repaired by Lessee so as to return the premises to the Lessor in the same or similar condition as when entered by Lessee, reasonable wear and tear excepted. Any such property remaining on the Maintenance Premises beyond thirty (30) days thereafter shall be deemed to be abandoned by Lessee. (e) All water, gas, oil and mineral rights in and under the soil are expressly reserved by the Lessor. (f) Title to all existing permanent improvements on the Maintenance Premises and title to any permanent buildings or permanent structures hereafter constructed on such Maintenance Premises shall immediately vest in the Lessor as a part of the Airport. (g) Lessee agrees to restrict the use of the gun/shooting range located and situated on the southeast end of the Maintenance Premises to duly appointed policemen and security staff who are on duty and need to shoot qualifying rounds for the retention of their positions. Lessee agrees to use its best efforts to relocate said range to an area compatible with airport operations. At such time as this is accomplished, Lessee agrees to permanently and completely close the existing range. - 3 - (h) Lessee agrees that the area located at the South end of the South aircraft parking ramp will not be used as a storage area for obsolete equipment. Additionally, Lessee agrees that remaining equipment shall be relocated and rearranged so as to present an orderly appearance. (i) Lessee agrees to relocate its Southerly boundary fence (portable type) Northward an adequate distance to facilitate comfortable parking of the general public's aircraft. It is hereby understood between Lessor and Lessee that should Lessee need any of this area to directly serve new aircraft servicing buildings, Lessee may, after reasonable notice, move the fence southward to the extent necessary for such facilities. SECTION 1.22 ADDITIONAL PROVISIONS FOR OPERATIONS Lessee agrees to operate and maintain that portion of said airport facility located and situated within the area described in Exhibits A and C (herein called Base Facilities) in conformity with each and all of the provisions and requirements set forth and referred to in Paragraphs 6 and 22 of Part V of Federal Aviation Administration Form 5100-100, the same being and composing a part of the grant agreement entered into by and between Lessor and the United States of America, and which provides, among other things, for a grant of funds pursuant to Airport Development and Aid Program Project No. 7-48-0098-01 for the construction of certain improvements to said Base Facility, and reference to which being here made for all purposes as if the same were copied in their entirety herein, accepting hereby the same responsibilities and undertakings as Lessor assumes upon the execution of said grant agreement. Under this agreement, Lessee has been given certain authority and responsibilities in connection with the operation and maintenance of the facilities within the area described in Exhibits A and C. However, the parties hereto recognize that it is the basic responsibility of Lessor to comply with its operational and maintenance responsibilities pursuant to its obligations under the Federal Grant Agreement and surplus property deeds. Therefore, the parties agree that Lessee's rights hereunder are subject to the rights of Lessor and Lessor may direct the minimum procedures to be followed by Lessee or itself assume such responsibilities. It is understood and agreed that Lessee shall indemnify and hold harmless Lessor, and each and all of the officials, officers, agents, servants and employees of Lessor, from and against all claims and causes of action, damages, losses and expenses, including all costs of court and attorney's fees incidental thereto, arising out of or resulting from the undertakings - 4 - specified and referred to in the preceding paragraphs hereof by Lessee, any subcontractor thereof, anyone directly or indirectly employed by either of them, or anyone whose acts, errors or omissions any of them may be liable, which are caused in whole or in part by any error, omission or act of any of them. In a like manner, it is understood and agreed that Lessor shall indemnify and hold harmless Lessee, and each and all of the officers, agents, servants and employees of Lessee, from and against all claims and causes of action, damages, losses and expenses, including all costs of court and attorney's fees incidental thereto, arising out of or resulting from the operations of Lessor upon said Airport Facilities, or anyone directly or indirectly employed it, or anyone whose acts, errors or omissions any of them may be liable, which are caused in whole or in part by any error, omission or act of any of them; excepting, however, any of those acts, errors or omissions set forth and specified in the preceding paragraph hereof. In connection with the obligations assumed by Lessee in the first paragraph of this Section, it is understood and agreed that in the event Lessor permits or agrees to permit third parties (other than those owning or operating aircraft exempted by said ADAP grant and Lessee's customers or guests) regular use (defined as aircraft parking by tenants on the airport or otherwise for in excess of three hours on any four days during any calendar month or four aircraft touchdowns from flight during any calendar month) of any facility within the area described in Exhibits A and C, Lessor shall impose (and, periodically, based on subsequent experience, adjust the amount of) uniform use fees which are sufficiently large to offset and reasonably anticipated increases in maintenance costs attributable to such third party use (but in no event above the levels which are competitive with those charged by similar airports in North and Central Texas for similar airport use). In determining the amount of such use fees, Lessor shall have the right of examining relevant portions of Lessee's books and records, and such examination may only be conducted by Lessor's Director of Finance or a Certified Public Accountant (as designated by Lessor) having no conflict of interest with any such third party. It is understood and agreed that Lessor will use all due diligence (and Lessee will cooperate with Lessor as needed) in seeking and obtaining federal and state assistance to perform major renovation and/or upgrading of facilities on said tract provided local matching funds are made available by Lessor's Governing Body or are made available to said Governing Body by others. Lessee shall have the responsibility for collecting any use fees charged hereunder and depositing the same in the Construction Fund. - 5 - It is further agreed that in case a building, buildings or other improvements are located on the land described in Exhibits A and B, the provisions of this paragraph shall control if the same are destroyed or damaged by fire, the elements or other disaster and for which insurance coverage is in effect as provided for in this Lease, or for which a third party shall have provided insurance coverage, Lessor, at the option of Lessee, will authorize the replacement or repair of said buildings or improvements, the same to be paid for out of the proceeds of the insurance as aforesaid, and the monthly rental will be proportionately abated with respect to the buildings or improvements, which Lessee is deprived of use for and during the period of disuse and pending their repair or replacement. Should buildings or other improvements be destroyed as aforesaid so as to make the premises, as a whole, unsuitable for Lessee's continued occupancy, Lessee may at such time cancel the herein Lease and thereafter all rights to Lessee's possession thereof shall at once cease and this lease shall terminate as to both parties. It is further agreed that Lessor will consider assuming the maintenance of Tract C, insofar as the same involves painting, striping, poisoning and mowing, Lessee will assist Lessor in the updating of the airport layout plan required under the provisions of Paragraph 25 of Part V of said FAA Form 5100-100, and will not make or permit the making of any changes or alterations in said airport or any of its facilities other than in conformity with such airport layout plan as so approved by the Federal Aviation Administration, if such changes or alterations might adversely affect the safety, utility or efficiency of said airport. SECTION 1.23 PROVISIONS FOR TESTING The provisions of this Section shall be subordinate to the provisions of any existing or future agreement entered into between the Lessor and the United States to obtain Federal aid for the improvement or operation and maintenance of the airport. It is specifically understood and agreed that nothing herein contained shall be construed as granting or authorizing the granting of an exclusive right within the meaning of Section 308a of the Federal Aviation Act. The Lessor reserves the right to take any action it considers necessary to protect the aerial approaches of the airport against obstruction, together with the right to prevent the Lessee from erecting, or permitting to be erected, any building or other structures on the airport which, in the opinion of the Lessor, would limit the usefulness of the airport or constitute a hazard to aircraft. Lessee shall have the right to utilize the public air opera- - 6 - tions area in said Base Facilities in conjunction with the public, generally, for flight operations, aeronautical testing, electronic testing and other aviation related activities subject, however, to the same regulations, requirements and limitations lawfully imposed upon the public. In conjunction with its normal operations, Lessee shall have the right to temporarily obstruct for aircraft electronic testing or aircraft launch purposes, one of the runways or the North or South portion of the North-South parallel taxiway in said Base Facilities provided that during such periods the tower is manned and operating and provided the runway or taxiway is appropriately marked as obstructed, safety requirements of FAA and good practice are implemented, and (in the case of a runway) an alternate runway is available for aircraft traffic. Lessee agrees to remove obstructions at all times said runway is not needed for launching purposes. Lessor agrees to use its best efforts to obtain governmental assistance in funding construction to extend the parallel taxiway to the physical ends of the North-South runway, including holding and launch pads at each end. At such time as the aforementioned improvements are completed, Lessee agrees to keep the parallel taxiway area free from obstructions and until such time Lessee agrees to mark and/or light such obstructions in accordance with FAA recommendations. Lessor shall not perform or suffer performance of any act on land in the Base Facilities owned or controlled by Lessor which would unreasonably interfere, or can be reasonably expected to interfere with, Lessee's said electronic or aviation operations in said Base Facilities. Lessor shall utilize said Tract only in a manner compatible with normal airport uses. THE FOLLOWING PARTS AND SECTIONS ARE IN ADDITION TO THE 1977 LEASE AGREEMENT AND AMENDMENT #1 THERETO AND ARE INCORPORATED THEREIN BY REFERENCE. ALL PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT AND AMENDMENT #1 THERETO NOT MODIFIED HEREBY REMAIN IN FULL FORCE AND EFFECT. PART VIII. SECTION 8.1 FACILITY IMPROVEMENTS Effective as of the date of this Amendment the Lessor hereby leases and rents and Lessee hereby hires and takes for its use those Facility Improvements to the premises more fully described on Exhibit H attached hereto. Such Facility Improvements are generally described as asphalt overlays of certain ramps, roads and parking lots. In addition, such Facility Improvements include the application of foam/diathon to the roofs of existing buildings on the premises. - 7 - The initial term of the tenancy created under this Part VIII. of this Agreement shall expire on August 31, 1991. Lessee shall have the option to renew such term for a period, during the time that the property tenancy created in Part I. of this Agreement is in effect ending August 31, 2006. During such renewal period, the Ground Rent specified in Section 1.3 shall also be the Ground Rent for the Facility Improvements covered by this Part VIII. of this Agreement. Lessee shall not be deemed to have exercised the foregoing option unless notice of the exercise of the option has been received not less than sixty (60) days before the expiration of the initial term and thereafter such notice has been received not less than sixty (60) days before any extension under said option. SECTION 8.2 NET RENT For and in consideration of Lessor's adding the Facility Improvements under this Part VIII. and Lessee's enjoyment of additional rights pursuant to the provisions of this Part VIII. cumulative of and in addition to all other rentals, fees or payments for which Lessee is obligated to pay Lessor under Part I. of this Agreement. Lessee further agrees to pay Lessor additional rentals known as "Net Rent" as follows: 1. A monthly rental of $30,000 per month commencing on the effective date of this Amendment with a like installment due on the same day of each month thereafter through December l, 1980. 2. Commencing on January 1, 1981, the Net Rent shall be $60,000 per month with a like installment due and payable on the same day of each month thereafter through December 1, 1981. 3. Commencing on January 1, 1982, the Net Rent shall be $35,000 per month with a like installment due and payable on the same day of each month thereafter through September 1, 1983. Lessor and Lessee agree that all payments received by Lessor pursuant to this Part VIII. shall be deposited in the Airport Construction Fund and that Lessor and Lessee will meet each year to evaluate the need for any adjustment in the amount of both payments in order that such payments are sufficient to fund all Facility Improvements and to retire all special purpose airport improvements bonds issued in 1966 through 1969 by the end of the term of this Lease, August 31, 1991. Lessor and Lessee shall take into consideration the appropriate Interest and Sinking Fund of the Lessor including its earnings and the earnings of the Airport Construction Fund. - 8 - SECTION 8.3 FACILITY IMPROVEMENTS CONSTRUCTION Lessor agrees that from time to time within a three-year period from the date of this Amendment it shall make the Facility Improvements more fully described in Exhibit H attached hereto to the premises. The parties estimate that the total cost of the Facilities Improvements is approximately $1,752,000. Lessor shall not be required to expend funds above this estimated amount. Lessor and Lessee agree that in the event Lessor does not expend the estimated amount, then the Net Rent provided for above shall be reduced by the difference between the actual cost of construction and said estimate. This reduction shall first be applied pro rata to the installment payments due for the period of January 1, 1982 through September 1, 1983. Should further reduction be required, then the reduction shall be applied pro rata to the monthly installments due for the period of January 1, 1981 through December 1981. Should further reductions be required, then such reduction shall be applied pro rata to the installments due from the effective date of this Amendment through December 1, 1980. SECTION 8.4 TITLE TO FACILITIES IMPROVEMENTS AND LESSOR The parties hereby confirm and agree that title to the Facilities Improvements (or any portion thereof) which may be constructed on or after the date of this Amendment is vested in Lessor subject to Lessee's possessory rights and that title to any such facilities (or any portions thereof) which may be constructed or completed after the date of this Agreement shall vest in Lessor as the same are affixed to the land, subject to such possessory rights of Lessee. SECTION 8.5 CONSTRUCTION OF FACILITIES IMPROVEMENTS, CONDEMNATION OF FACILITIES IMPROVEMENTS The provisions of Section 1.18 or 1.20 shall control where all or substantially all of the Facilities Improvements are (1) destroyed by an insured casualty or (2) taken under color of governmental authority in the exercise of the power of eminent domain. SECTION 8.6 PROVISIONS OF PART I. MADE APPLICABLE Except as to the terms of the Lease and renewals thereof (contained in Section 8.1) all of the provisions of Part I. of - 9 - this Agreement shall also be applicable to the Facilities Improvements and for the purposes of Part I. the same shall also be considered as Maintenance Facilities thereunder upon completion of the Facilities Improvements whichever shall first occur. SECTION 8.7 CONSTRUCTION FUND All payments received by Lessor under this Part VIII. shall be deposited in a Construction Fund with the City's depository bank. Disbursements from the Construction Fund and investment of moneys therein, pending the use thereof for authorized purposes, shall be governed by an escrow agreement by and between the City and the depository bank. The mayor is hereby authorized and directed to execute an appropriate escrow agreement, which shall be subject to approval by the City Attorney and the Lessee, which agreement shall be in customary terms and: (1) not be in conflict with any provisions of this Agreement; and (2) provide: (a) funds may be disbursed only for the purpose of paying the cost of construction and acquisition of the Additional Maintenance Premises and Facilities Improvements until all such costs have been paid, and then as provided in this instrument. (b) funds may be disbursed upon approval of the same by a representative of the Lessor and Lessee; that the representative of the Lessor shall be the person acting as the City Manager of the City of Greenville, Texas. (3) no change order may be executed, during the construction of the project, which increases the amount of any contract to be paid by the City unless the same has been approved by the City Council; nor shall any payment be made under any contract until such contract has been approved by the City Council. SECTION 8.8 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION CHANGES, CONTRACTS (a) The Facilities Improvements shall be acquired, constructed, installed, fabricated and equipped in accordance with - 10 - plans and specifications; approved by the City and the Lessee. Lessee shall prepare final plans and specifications of the Facilities Improvements, which shall be submitted by Lessee to the City for approval, and construction shall be substantially in accordance with such plans and specifications as may be approved by the City with such changes as may be reasonably requested by Lessee and approved by the City. (b) Upon completion of the final plans and specifications of the Facilities Improvements and approval of the same, bids will be taken by the City for construction, acquisition, and/or fabrication of the Facilities Improvements based on such plans and specifications. Following the receipt of bids from responsible bidders, the City and Lessee will consider and approve such bids, and contracts will then be awarded by the City to install, construct, fabricate and equip the Facilities. Lessee may, with the City's prior approval, enter into contracts for the design work and for the preparation of the preliminary and final plans and specifications for the Facilities Improvements prior to the time that proceeds from the sale of the Bonds are available. (c) Whenever approval of either the City or Lessee is required in this Section 8.8, such approval shall not be unreasonably withheld by either the City or the Lessee; provided, however, nothing herein shall be construed as requiring the City to undertake any such project. (d) Contracts relating to the construction, acquisition, equipping, fabrication or installation (or purchases in connection therewith) of the Facilities Improvements shall include appropriate provisions for expediting the work and for performance and payment bonds so as to assure completion by specified performance dates and to protect the Facilities Improvements against liens, such bonds to name the City as the beneficiary thereof. (e) All necessary approvals from governmental agencies shall be obtained prior to acquiring, constructing, fabricating, equipping or installing the Facilities, and such improvements shall be acquired, constructed, fabricated, equipped or installed in compliance with all state and local laws, ordinances and regulations applicable thereto. Upon completion of the Facilities Improvements, all required occupancy permits and authorizations from appropriate authorities contemplated by Lessee shall be obtained by Lessee. All changes, alterations, - 11 - extras or additions (hereinafter in this subsection (e) called "changes") to or from and contracts or purchase orders executed or entered into pursuant to the provisions of this Article VIII. shall be approved in advance by the parties hereto. All requests, approvals and agreements required shall be in writing and signed by a duly designated representative of the party making such request, granting such approval or entering into such agreement. All changes to the Facilities Improvements may be made after consultation with and approval by the Lessee. This Amendment #2 is executed as of the date first shown on page one of this Amendment. ATTEST: CITY OF GREENVILLE /s/ Irene Wilson /s/ William F. Elkins - ---------------------------- ---------------------------- City Clerk Mayor APPROVED AS TO FORM: /s/ Debra Adami - ---------------------------- City Attorney ATTEST: E-SYSTEMS, INC. /s/ Joe D. Reynolds /s/ A. L. Lawson - ---------------------------- ---------------------------- Assistant Secretary Vice President THE STATE OF TEXAS ) ) COUNTY OF HUNT ) BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this day personally appeared A. L. Lawson of E-SYSTEMS, INC., known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be the Vice-President of E-SYSTEMS, INC., and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated as the act and deed of E-SYSTEMS, INC. GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 2nd day of February, 1981. /s/ Betty English ------------------------------- Notary Public, State of Texas THE STATE OF TEXAS ) ) COUNTY OF HUNT ) BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this day personally appeared WILLIAM F. ELKINS, of the City of Greenville, Texas, known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be the Mayor of the City of Greenville, Texas, and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated as the act and deed of the city of Greenville, Texas. GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 2nd day of February, 1981. /s/ Irene Wilson -------------------------------- Notary Public, State of Texas AMENDMENT #1 TO 1977 LEASE AGREEMENT THIS AMENDMENT #1 OF AGREEMENT OF LEASE dated as of October 15, 1980 between the CITY OF GREENVILLE, TEXAS, a municipal Corporation of the State of Texas (herein referred to, as "Lessor"), and E-SYSTEMS, INC., a Delaware corporation (herein referred to as "Lessee"); W I T N E S S E T H: WHEREAS, Lessor owns and operates an airport in Hunt County, Texas known as Majors Field (herein referred to as the "Airport"); WHEREAS, Lessor and Lessee have entered into a Lease Agreement as of October 1, 1977, with respect to certain premises at the Airport (herein referred to as the "Lease" or "Lease Agreement"; WHEREAS, E-Systems desires to have Lessor construct additional improvements on said premises and extend the initial term of the Lease; WHEREAS, Lessor has agreed to construct said improvements and to extend the term of said Lease provided that the ground rental of the premises is increased to 4,000 per month. NOW, THEREFORE, the Parties hereto, for and in the consideration of the mutual covenants herein contained agree to amend the 1977 Lease Agreement dated as of October 1, 1977 as set forth below. All references to parts and section numbers for Parts I. and II. shall be a reference to that section number of that part contained in the 1977 Lease Agreement and said sections are hereby amended in their entirety to provide as set forth below. All sections and parts of the Lease Agreement not modified hereby remain in full force and effect. PART I. AIRCRAFT MAINTENANCE PREMISES SECTION 1.2 TERM The initial term of the tenancy created under this Part I. shall commence on October 1, 1977 and shall expire on August 31, 1991. Lessee shall have the option to renew such term for three consecutive five-year terms on the same terms and conditions, except for such right of renewal and except that during each such renewal term Lessee shall pay the ground rental only as provided in Section 1.3 hereof. Lessee shall not be deemed to have exercised the foregoing option unless notice of the exercise of the option has been received not less than sixty (60) days before the expiration of the initial term and thereafter such notice has been received not less than sixty (60) days before the expiration of any extension of the term of this Lease under said option. SECTION 1.3 RENTAL (a) Commencing on November 1, 1977 and continuing until December 31, 1980, Lessee shall pay Ground Rental for the Maintenance Premises in monthly installments of $30,725 as Ground Rent, and thereafter from January 1, 1981 through August 31, 1991 (and any Lease extensions) the Lessee shall, pay as Ground Rental for the Maintenance Premises in monthly installments of $725 as Ground Rent. (b) In the event Lessor shall issue revenue bonds and using the proceeds thereof, shall reimburse Lessee its costs as approved by Lessor which were incurred in the construction of improvements on the additional maintenance premises, provision for debt service on such bonds through payment by Lessee of additional rental shall be as provided in Part II. of this Agreement. (c) In the event Lessor shall issue revenue bonds and using the proceeds thereof shall reimburse Lessee its costs as approved by Lessor which were incurred in the construction of Engineering Building 113, provision for debt service on such bonds through payment by Lessee of additional rental shall be as provided in, Part VII. of this Agreement. PART II. SECTION 2.1 LEASE OF ADDITIONAL MAINTENANCE PREMISES Effective as of October 1, 1977 (but subject to the provisions of Section 2.17 hereof), the Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises indicated as Building 136B, 108 and 116 on Exhibit E attached hereto, consisting of an area of approximately 108,250 square feet and the improvements thereon or to be constructed thereon such premises and improvements being in this part referred to as "Additional Maintenance Premises" which are further described in the legal description set forth in Exhibit E. The initial term of the tenancy under this Part II. of this Agreement shall expire on August 31, 1991 Lessee shall have the option to renew such term for a period, during the - 2 - time that the property tenancy created in Part I. of this Agreement is in effect, ending August 31, 2006. During such renewal period, the ground rent specified in Section 1.3 shall also be the ground rent for the property covered by Part II. of this Agreement. Lessee shall not be deemed to have exercised the foregoing option unless notice of exercise of the option has been received not less than sixty (60) days before the expiration of the initial term and thereafter such notice has been received not less than sixty (60) days before any extension under said option. THE FOLLOWING PARTS AND SECTIONS ARE IN ADDITION TO THE PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT AND ARE INCORPORATED THEREIN BY REFERENCE. ALL PARTS AND SECTIONS OF THE 1977 LEASE AGREEMENT NOT MODIFIED HEREBY REMAIN IN FULL FORCE AND EFFECT. PART VII. SECTION 7.1 LEASE OF ENGINEERING BUILDING 113 Effective as of the date hereof, (but subject to the provisions of Section 7.15 hereof) the Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises indicated on Exhibit F attached hereto, consisting of an area of approximately 16,000 square feet, and the improvements to be constructed thereon, such premises and improvements being in this Part referred to as "Engineering Building" or "Facilities" which is further described in the description set forth in Exhibit G. The initial term of the tenancy created under Part II. of this Agreement shall expire on August 31, 1991. Lessee shall have the option to renew such term for a period, during the time that the property tenancy created in Part I. of this Agreement is in effect, ending August 31, 2006. During such renewal period, the Ground Rent specified in Section 1.3 shall also be the Ground Rent for the property covered by Part VII. of this Agreement. Lessee shall not be deemed to have exercised the foregoing option unless notice of the exercise of the option has been received not less than sixty (60) days before the expiration of the initial term and thereafter such notice has been received not less than sixty (60) days before any extension under said option. SECTION 7.2 ENGINEERING BUILDING The Engineering Building consists of that land and improvements and structures to be located on the land described in Exhibit F subject to the provisions of Section 7.15 hereof, the parties mutually agree that Lessor shall proceed to issue and deliver its Revenue Bonds in the principal sum of $1,000,000 to - 3 - provide for the cost of the construction of the improvements which constitute the Engineering Building. The proceeds of the sale of such Bonds shall be employed in the manner sat forth in this Part and under the provisions of the ordinance authorizing such Bonds (hereafter called Bond Ordinance) it being the intent of the parties that said proceeds shall be used in accomplishing financing of the intended Facilities including all improvements related or incidental thereto, as contemplated by the plans and specifications heretofore approved by Lessor and Lessee, including, further, reasonable items for contingencies, architectural and engineering fees, expenses of issuance of Bonds, fees of the fiscal agent retained to consult with the parties and arrange for the sale of the Bonds. SECTION 7.3 ACCEPTANCE OF COVENANTS It is understood that upon the authorization of the issuance of Bonds, the Lessor, by approving the Bond Ordinance shall signify not only acceptance and final approval of these presents but also complete acceptance, awareness and final approval of the terms and conditions of said Bond Ordinance and the Bonds therein prescribed. By its acceptance Lessee acknowledges that the covenants of the Bond Ordinance constitute contractual arrangements between Lessor and the purchasers of the Bonds. It is further understood that Lessor, the purchasers of the Bonds and all others concerned in any manner with their issuance and the securities supporting them may rely upon certified copy of said resolution of Lessee's Board of Directors as conclusive evidence of Lessee's approval and acceptance hereof and the terms and conditions of said Bond Ordinance and the Bonds therein prescribed. Based upon such approvals of Lessee, Lessor agrees to do all things required by law and these presents to issue the Bonds and make delivery thereof to the purchasers in accordance with the terms of sale as promptly as practicable. Lessee understands that upon delivery of the Bonds to the purchasers the requirements for payment of Net Rent provided in Section 7.5 hereof shall be effective as specified without acknowledgement or other action on the part of Lessee or Lessor. SECTION 7.4 BOND PROCEEDS A. The proceeds from the sale of the Bonds shall be deposited in the Series 1980 Construction Fund (hereinafter referred to as "Construction Fund"), except the (1) accrued interest which shall be deposited in the Interest and Sinking Fund and $ -O- shall be deposited in the Reserve Fund. From the bond proceeds Lessor shall make payments as required for outlays in the acquisition and construction of the Engineering Building including redemption, payment and discharge of interim financing obligations. All items for which Lessee may seek reimbursement - 4 - and all such further expenditures required to complete the Engineering Building and make payment therefor shall be approved for payment by the City Council of Lessor only upon approval and recommendation for payment by Lessor's City Manager. B. Any and all amounts which may remain from the proceeds of the sale of the Bonds after all the aforementioned obligations have been discharged thereby shall be used, to the nearest multiple of $5,000, for the purchase and redemption of Bonds of said Series in the open market or, of no bonds available at a reasonable price any remaining proceeds shall be transferred into the Interest and Sinking Fund provided for in said Bond Ordinance. 7.5 NET RENT A. For and in consideration of Lessor's performance of its obligations hereunder and Lessee's enjoyment of its rights pursuant to the provisions hereof, cumulative of and in addition to all other rentals, fees or payments for which Lessee is obligated to Lessor under Part I. of this Agreement, Lessee further agrees to pay Lessor additional rentals known as "Net Rent" as follows: (1) On or before the 15th day of January 1981, and on or before the 15th day of each month thereafter, a sum of money equal to (a) one-sixth of the interest installment next to become due on the Bonds; and (b) one-twelfth of the amount of principal to become due on the next succeeding principal maturity date; and (c) the amount, if any, required to be deposited in the Reserve Fund by Section 14 of the Bond Ordinance. (2) On the first day of the month next preceeding an interest payment date, the Lessor shall render a bill for charges as may be imposed on Lessor by the paying agent or agents performing such services under such Bonds and any other expense necessary and incident to the payment thereof and such amount shall be paid by the Lessee within 15 days. For the convenience of the parties a schedule of Bond requirements referred to in subparagraph (1) above is to be attached hereto and marked "Attachment B" when Bonds are issued as contemplated by Section 7.2 hereof. It is provided, however, if at any time Lessor or any successor to Lessor, with its own funds or with funds available to it from sources other than Net Rent, shall prepay and retire or make cash provision for the payment and retirement of any or all of the Bonds, or shall deliver to the holders of the Bonds or any part thereof other and different Bonds of the Lessor or of its successor in exchange for such Bonds so that no payment of principal and interest shall be due - 5 - on all or such part of the Bonds, Lessee shall, nevertheless, make payments of Net Rent under this Section at the same times and in the same amounts as would be payable under such Section if the Bonds were still due and outstanding and were bearing interest in the normal course of their maturities. SECTION 7.6 PAYMENT OF RENTAL A. Net Rent shall be paid without further notice or billing. The Lessee shall in no way be responsible for the application by Lessor of such Net Rent made by Lessee. B. Lessee may tender Lessor Bonds of the issue herein referred to (provided all unmatured interest coupons are attached) for application on amounts otherwise required to be paid by Lessee as Net Rent under the provisions hereof. In such event, Lessor shall cancel such tendered Bonds and credit Lessee (i) for the face value of such Bonds in each of the billings which would otherwise reflect amounts needed to retire the principal thereof had they remained outstanding and (ii) for all interest which would have accrued on such tendered Bonds to maturity had they remained outstanding. C. It is the intention of the parties that the Net Rent payable by Lessee shall be equal to the amount necessary to enable Lessor to establish and maintain a Reserve Fund and to enable Lessor to retire the Bonds as they mature, together with interest thereon as it accrues, and together with the expenses related thereto, at no cost to Lessor and it is acknowledged by Lessee that the Bonds will be purchased in reliance upon the unconditional obligation of the Lessee to pay Net Rent once such Bonds are issued and become outstanding; that regardless of any other provision in this Agreement, Lessee shall on the dates indicated on Attachment B make payments to the Lessor in the amount of such Net Rent until the Bonds have been paid and retired, and no default by the Lessor shall excuse performance by the Lessee of this obligation. It is provided, however, that nothing contained in this Section shall be construed to release the Lessor from the performance of any of the agreements on its part contained in this Lease, and in the event the Lessor shall fail to perform any of such agreements, the Lessee may institute such action against the Lessor as the Lessee may deem necessary to compel performance or recover its damages for nonperformance and may pursue any other lawful remedy, so long as such action shall not do violence to the agreement of Lessee to pay the Net Rent hereunder in the amounts and at the time stated. SECTION 7.7 APPLICATION OF NET RENT TO PAYMENT OF BONDS A. Lessor agrees to provide a special fund for the Bonds - 6 - into which all payments received from Lessee as Net Rent (under Sinking Fund and the Reserve Fund as required by the Bond Ordinance and used for no purpose other than for the payment, security, retirement and redemption of such Bonds, and interest thereon, or bonds issued on a parity therewith in accordance with the terms and provisions of the Bond Ordinance. All sums received from the purchasers of the Bonds as accrued interest thereon to date of delivery shall be placed in the Interest and Sinking Fund and applied in reduction of payments to be made with respect to the first semiannual interest installment on the Bonds. Subject to the provisions of paragraphs B and C of Section 7.6 hereof, any and all proceeds from the sale of the Bonds which may remain unexpended upon final completion of the Engineering Building and payment of all proper costs incidental thereto, shall be transferred to and deposited in the Interest and Sinking Fund and applied in reduction of next monthly rental payment or payments otherwise required of Lessee following such transfer of funds. B. Any and all payments received by Lessor from Lessee as Net Rent shall be irrevocably pledged to and shall be deposited in the Interest and Sinking Fund established by the Bond Ordinance. Any and all payments received as Reserve Fund payments shall be deposited in the Reserve Fund. C. It is agreed that the official depository of Lessor shall be the custodian of the Interest and Sinking Fund and that prior to each principal and interest maturity date it shall be the duty of Lessor to withdraw from said fund and place with the paying agent bank money sufficient in the amount to pay the principal and interest installments which will be due on such maturity date. SECTION 7.8 SECURITY FOR FUNDS All amounts deposited into the Interest and Sinking Fund and Reserve Fund for the payment and security of Bonds and additional bonds shall be kept separate and apart from all other City funds and continuously secured by valid pledge of direct obligations of or obligations unconditionally guaranteed by the United States of America having a par value, or market value when less than par, exclusive of accrued interest, at all times at least equal to the amount of money deposited in said fund to the extent the same are not covered by F.D.I.C. insurance or secured as trust fund deposits. All sums of money deposited in said funds shall be held as a trust fund for the benefit of the holders of the Bonds and additional bonds, the beneficial interest in which shall be regarded as existing in such bondholders. SECTION 7.9 TITLE TO FACILITIES IN LESSOR - 7 - The parties hereby confirm and agree that title to the Engineering Building (or any portion thereof) which may be constructed on or before the date of this Agreement is vested in Lessor subject to Lessee's possessory rights and that title to any such facilities (or any portions thereof) which may be constructed or completed after the date of this Agreement shall vest in Lessor as the same are affixed to the land, subject to such possessory rights of Lessee. SECTION 7.10 DESTRUCTION OF PREMISES, CONDEMNATION OF PREMISES During the time any Bonds or obligations issued by the City payable from any revenues obtained by reason of this Agreement (herein sometimes referred to as "Additional Bonds") are outstanding then as to the Engineering Building, the provisions of this Section (and not Section 1.18 or 1.20) shall control where all or substantially all of the Engineering Building are (1) destroyed by an insured casualty or (2) taken under color of governmental authority in the exercise of the power of eminent domain. Where this Section applies, the Leasee may elect whether the insurance or condemnation proceeds will be applied (1) to the reconstruction or relocation of the Engineering Building or (2) applied to the payment and retirement of Bonds or Additional Bonds provided that if such proceeds and the amount then on hand in the funds created for the benefit and payment of the Bonds and Additional Bonds are not sufficient to finally pay such obligations, the Leasee shall forthwith pay the deficiency into the Interest and Sinking Fund created for the security of the Bonds and Additional Bonds. In no event shall the destruction of or condemnation of all or any part of the Engineering Building or any other event cause a change or reduction in the obligation of the Leasee to pay Net Rent in an amount adequate to pay the principal of, interest on, the Reserve Fund requirements and the fees of the paying agent with respect to the Bonds and Additional Bonds. SECTION 7.11 PROVISIONS OF PART I. MADE APPLICABLE Except as to the terms of the lease and renewals thereof (contained in Section 7.1) and the provisions relating to insurance and condemnation (as contained in Section 2.11) - which provisions shall always control as to the Engineering Building while Bonds are outstanding, all of the provisions of Part I. of this Agreement shall also be applicable to the Engineering Building and for the purposes of Part I., the same shall also be considered as Maintenance Facilities thereunder upon completion of the Engineering Building or their occupancy by the Lessee, whichever shall first occur. - 8 - SECTION 7.12 CONSTRUCTION FUND All proceeds of Bonds or additional bonds not required by the ordinance authorizing their issuance or the other provisions of Part VII. of this Agreement to be deposited in some other fund or funds, shall be deposited in the Construction Fund with the City's depository bank. Disbursements from the Construction Fund and investment of moneys therein, pending the use thereof for authorized purposes, shall be governed by an escrow agreement by and between the City and the depository bank. With respect to the Bonds, the Mayor is hereby authorized and directed to execute an appropriate escrow agreement, which shall be subject to approval by the City Attorney and the Lessee, which agreement shall be in customary terms and: (1) not be in conflict with any provisions of the Bond Ordinance or this Agreement; and (2) provide: (a) funds may be disbursed only for the purpose of paying the cost of construction and acquisition of the Engineering Building until the costs to be provided by the bond proceeds have been paid, and then as provided in this instrument and the Bond Ordinance. (b) funds may be disbursed upon approval of the same by a representative of the Lessor and Lessee; that the representative of the Lessor shall be the person acting as the City Manager of the City of Greenville, Texas. (3) no change order may be executed, during the construction of the project, which increases the amount of any contract to be paid by the City unless the same has been approved by the City Council; nor shall any payment be made under any contract until such contract has been approved by the City Council. SECTION 7.13 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION, CHANGES, CONTRACTS (a) The Engineering Building Facilities shall be acquired, constructed, installed, fabricated and equipped in accordance with plans and specifications approved by the City and the Lessee. Lessee shall prepare final plans and specifications of the Facilities, which shall be submitted by Lessee to the City for approval, and construction shall be substantially in accordance with such plans and specifications as may be approved by the - 9 - City with such changes as may be reasonably requested by Lessee and approved by the City. (b) Upon completion of the final plans and specifications of the Facilities and approval of the same, bids will be taken by the City for construction, acquisition, and/or fabrication of the Facilities based on such plans and specifications. Following the receipt of bids from responsible bidders, the City and Lessee will consider and approve such bids, and contracts will then be awarded by the City to install, construct, fabricate and equip the Facilities. Lessee may, with the City's prior approval, enter into contracts for the design work and for the preparation of the preliminary and final plans and specifications for the Facilities prior to the time that proceeds from the sale of the Bonds are available. (c) Whenever approval of either the City or Lessee is required in this Section 7.13, such approval shall not be unreasonably withheld by either the City or the Lessee; provided, however, nothing herein shall be construed as requiring the City to undertake any such project. (d) Contracts relating to the construction, acquisition, equipping, fabrication or installation (or purchases in connection therewith) of the Facilities shall include appropriate provisions for expediting the work and for performance and payment bonds so as to assure completion by specified performance dates and to protect the Facilities against liens, such bonds to name the City as the beneficiary thereof. (e) All necessary approvals from governmental agencies shall be obtained prior to acquiring, constructing, fabricating, equipping or installing the Facilities, and such improvements shall be acquired, constructed, fabricated, equipped or installed in compliance with all state and local laws, ordinances and regulations applicable thereto. Upon completion of the Facilities, all required occupancy permits and authorizations from appropriate authorities contemplated by Lessee shall be obtained by Lessee. All changes, alterations, extras or additions (hereinafter in this subsection (e) called "changes") to or from and contracts or purchase orders executed or entered into pursuant to the provisions of this Article VI. shall be approved in advance by the parties hereto. All requests, approvals and agreements required shall be in writing and signed by a duly designated representative of the party making such request, granting such approval or entering into such agreement. All changes to the Facilities may be made after consultation with and approval by the Lessee. (f) It is expressly agreed and understood that the City will not and shall not be required to expend any of the proceeds of the Bonds for any purposes, or in any amounts which are contrary to the terms of the Bond Ordinance. - 10 - SECTION 7.14 INSUFFICIENCY IN FUNDS In the event the proceeds from the sale of the Bonds are insufficient to pay Construction Costs in full, then the Lessee shall pay the amount of the insufficiency. SECTION 7.15 EFFECTIVENESS OF PART VII. This Part VII. shall be effective from and after the date the Revenue Bonds (contemplated in Section 7.2 hereof) are sold by the Lessor. In the event additional facilities are to be hereafter constructed (as contemplated by Section 2.14) the approval of the Lessee of the interest rates and other terms and conditions thereof shall be approved by the Vice President of the Lessee. ATTEST: CITY OF GREENVILLE /s/ Irene Wilson /s/ William F. Elkins - ---------------------------- ---------------------------- City Clerk Mayor APPROVED AS TO FORM: /s/ Debra Adami - ---------------------------- City Attorney ATTEST: E-SYSTEMS, INC. /s/ Joe D. Reynolds /s/ A. L. Lawson - ---------------------------- ---------------------------- Assistant Secretary Vice President - 11 - STATE OF TEXAS ) COUNTY OF HUNT ) BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this day personally appeared A. L. Lawson of E-SYSTEMS, INC., known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be the VICE PRESIDENT of E-SYSTEMS, INC., and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated as the act and deed of E-SYSTEMS, INC. GIVEN UNDER MY HAND AND SEAL of office this the 2nd day of February, 1981. [SEAL] /s/ Betty English ---------------------------- Notary Public in and for Hunt County, Texas STATE OF TEXAS ) COUNTY OF HUNT ) BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this day personally appeared William F. Elkins of the City of Greenville, Texas, known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be the Mayor of the City of Greenville, Texas, and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated as the act and deed of the City of Greenville, Texas. GIVEN UNDER MY HAND AND SEAL of office this the 3rd day of February, 1981. [SEAL] /s/ Irene Wilson ---------------------------- Notary Public in and for Hunt County, Texas - 12 - 1977 LEASE AGREEMENT THIS AGREEMENT OF LEASE dated as of October 1, 1977, between the CITY OF GREENVILLE, TEXAS, a municipal corporation of the State of Texas (herein referred to as "Lessor"), and E Systems, Inc., a Delaware Corporation (herein referred to as "Lessee"); W I T N E S S E T H: WHEREAS, Lessor owns and operates an airport in Hunt County, Texas, known as Majors Field (herein referred to as the "Airport") WHEREAS, Lessee is engaged in the business of aircraft maintenance and modification, including the design, manufacture and installation of communication, navigation and guidance systems for commercial, military and publicly owned aircraft; and WHEREAS, Lessor and Lessee have heretofore entered into certain leases (which are described in Section 6.6) with respect to certain premises at the Airport which are consolidated, restated and amended by this instrument; and WHEREAS, it is the intention of the parties that title to any improvements heretofore or hereafter constructed by Lessee on such lease premises shall vest in Lessor as the same are affixed to the land and that possession thereof shall revert to Lessor at the expiration or earlier termination of the several and separate tenancies created under this agreement; and NOW, THEREFORE, the parties hereto, for and in consideration of the mutual covenants herein contained, agree with respect to the several and separate tenancies hereinafter more particularly identified as follows: PART I AIRCRAFT MAINTENANCE PREMISES SECTION 1.1 PREMISES - DEMISE (a) Effective as of the date hereof, Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises, indicated as Tracts A & B on Exhibit A attached hereto, consisting of an area of approximately 534.88 acres, and the improvements thereon, such premises and improvements being herein collectively referred to as the "Maintenance Premises", which are further described the legal description set forth in Exhibit B. (b) Effective as of the date hereof, Lessor hereby leases and rents and Lessee hereby hires and takes for its non-exclusive use those certain premises indicated as Tract C on Exhibit A attached hereto, consisting of approximately 720.02 acres, and the improvements thereon, such premises and improvements being the runways, aprons, and taxiways being herein collectively referred to as Base Facilities and further described in the description set forth in Exhibit C. -1- (c) The Maintenance Premises and the Base Facilities are collectively referred to as the Premises. The term Airport includes the Premises as well as other properties located upon the land within the boundaries set forth in Exhibit D. SECTION 1.2 TERM The initial term of the tenancy created under this Part I shall commence on the date hereof and expire on August 31, 1981. Lessee shall have the option to renew such term for three consecutive five year terms on the same terms and conditions, except for such right of renewal and except that during each such renewal term Lessee shall pay ground rental only, as provided in Section 1.3 hereof. Lessee shall not be deemed to have exercised the foregoing option unless notice of the exercise of the option has been received not less than sixty (60) days before the expiration of the initial term and hereafter such notice has been received not less than sixty (60) days before any extension under said option. SECTION 1.3 GROUND RENTAL (a) Commencing on the first day of the month immediately following the execution hereof by both parties, and continuing until December 31, 1980, Lessee shall pay ground rental for the Maintenance Premises in monthly installments of $30,725 as Ground Rent, and thereafter from January 1, 1981 through August 31, 1981 (and any lease extensions) the Lessee shall pay as ground rental for the Maintenance Premises in monthly installments of $725 as Ground Rent. (b) In the event Lessor shall issue revenue bonds and using the proceeds thereof shall reimburse Lessee its costs, as approved by Lessor, which were incurred in the construction of improvements on the Additional Maintenance premises, provision for debt service on such bonds through payment by Lessee of additional rental shall be as provided in Part II of this Agreement. SECTION 1.4 USE OF PREMISES AND AIRPORT Lessee shall have the exclusive use (subject to the provisions hereof) of the Maintenance Premises and the non-exclusive use of the Base Facilities. SECTION 1.5 LESSEE'S IMPROVEMENTS Lessee shall have the right to construct additional maintenance facilities on land described in Exhibit B in accordance with the plans and specifications approved by Lessor, as are appropriate for the use thereof for the purposes authorized under Section 1.4, above, including aircraft hangar and maintenance facilities and aircraft and vehicular parking areas. -2- SECTION 1.6 ACCESS TO PREMISES Lessee shall have full and unrestricted access to and egress from the Maintenance Premises for Lessee, aircraft owned by Lessee, its employees, passengers, guests, patrons, invitees, suppliers of materials and furnishers of service, its or their equipment, vehicles, machinery and other property without charge to Lessee or such other enumerated parties except for such charges to be paid by Lessee as are expressly provided for in this Part I. SECTION 1.7 ASSIGNMENT AND SUBLETTING (a) No assignment or subletting pursuant to this Section 1.7 shall release Lessee from its obligations under this Part I. Lessee shall have the right to assign its rights and interest under this Part I to any parent, subsidiary, affiliated or successor corporation. The consent of Lessor thereto shall not be required but due notice thereof shall be given Lessor within 60 days after any such assignment is executed. The Lessee may assign or sublet to any party (not a parent, subsidiary, affiliated or successor corporation) of the Maintenance Premises only with the written consent of the Lessor. Such consent shaLl not be arbitrarily withheld. (b) Any corporation affiliated with, subsidiary of or successor to Lessee shall have the right to use the Maintenance Premises in the same manner and to the same extent as Lessee without the payment of any additional rental, fees or charges to Lessor therefor. SECTION 1.8 RULES AND REGULATIONS Lessor may adopt and enforce reasonable rules and regulations, which Lessee agrees to observe and obey, with respect to the use of the Base Facilities, which shall provide for the safety of those using the same; provided that such rules and regulations shall be consistent with safety and with rules, regulations and orders of the Federal Aviation Administration with respect to aircraft operations at the Base Facilities and provided further that such rules and regulations shall not be inconsistent with the provisions of this Agreement. SECTION 1.9 NOTICES Notices provided for in this Agreement shall be sufficient if sent by registered or certified mail, postage prepaid, addressed, if to Lessor, to City of Greenville, Attention: City Manager, P. O. Box 1049, Greenville, Texas 75401; and if to Lessee, to E Systems, Inc., Attention: General Manager, P. O. Box 1056, Greenville, Texas 75401, or to such other respective addresses as the parties may designate in writing from time to time. -3- SECTION 1.10 QUIET ENJOYMENT, USE Upon and subject to the other terms and provisions hereof and unless a material default shall have occurred hereunder, the Lessee shall be suffered and permitted to have peaceful possession and quiet enjoyment of the Premises for any lawful purpose, incident and related to the Lessee's business operations. SECTION 1.11 INGRESS AND EGRESS (a) As to all Premises hereunder, the Lessee and its officers, employees, invitees, guests, and suppliers of materials and furnishers of services, shall have the right of free and uninterrupted ingress and egress between the Premises and any public street or roadway outside the Airport by means of the roadways leading to and from the Airport. The use of such roadways within the Base Facilities shall be subject to the reasonable rules and regulations of the Lessor now in effect or which may hereafter be promulgated, for the safe and efficient operation of the Base Facilities. In any event the Lessee and its officers, employees, guests, invitees, suppliers of materials and furnishers of services shall have at all times free and unrestricted and uninterrupted vehicular ingress and egress to and from the Maintenance Premises. (b) The Lessor may, at any time, temporarily or permanently, close, or consent to, or request the closing of, any such roadway and any other area within the Base Facilities presently or hereafter used as such, so long as a reasonably equivalent means of ingress and egress, as provided above, remains available to Lessee. Lessee hereby releases and discharges the Lessor, its successors and assigns, of and from any and all claims, demands or causes of action Lessee may have against the Lessor by reason of the exercise of any of the powers reserved to the City under this subsection. SECTION 1.12 UTILITY SERVICES RELATED TO THE MAINTENANCE PREMISES (a) Included in the Construction Costs of the Maintenance Premises shall be all amounts necessary to provide connection costs to Lessor owned and operated utility services (electric, water and sewer) to the Maintenance Premises. Lessee will provide at no cost to the Lessor all other utilities required or desired for the Maintenance Premises. Lessee will pay all bills for water, light, heat, electricity, sewer, gas and other utility services used on the Maintenance Premises during the term of this Agreement. Charges for Lessor owned and operated utilities shall be at the same rates which are charged other customers in the same classification as Lessee. (b) No failure to furnish, or no delay or interruption in, any utility service or services, whether such service or services shall be supplied by the Lessor or by others, shall relieve or be construed to relieve the Lessee of any of its obligations hereunder, or shall be construed to be an eviction by the Lessor, or shall constitute grounds for any diminution or abatement of the Ground Rent or the Net Rent payable under this Agreement, or grounds for any claim by the Lessee for damages, consequential or otherwise, except when resulting from the willful failure of -4- the Lessor to furnish or suppLy such services, if any (except where the Lessee is in default in the payment of rentals). It is provided, however, that nothing herein shall diminish or abate the requirement herein that Net Rent shall be paid unconditionally. (c) Nothing in this Agreement shall be construed as limiting the right of the Lessor to disconnect or discontinue utility service or services if Lessee fails to pay the established rates and charges (as contemplated by the paragraph (a) of this Section) but such remedy shall be in addition to other remedies provided herein. SECTION 1.13 CARE, MAINTENANCE AND REPAIRS OF PREMISES (a) The Lessee shall at all times keep in a clean and orderly condition and appearance of the Maintenance Premises, and all of the Lessor's fixtures, equipment and personal property which are located in or upon any part thereof. (b) The Lessee shall paint, repair, replace or rebuild all or any part of the Maintenance Premises, interior or exterior, structural or non-structural, which may be damaged or destroyed. The Lessee shall have the right to apply available insurance proceeds to such purposes as contemplated by Section 1.18 or Section 1.19 hereof. (c) Additionally the Lessee shall take good care of the Maintenance Premises; shall maintain the same at all times in good condition; shall make all repairs and replacements inside and outside, ordinary or extraordinary, structural or otherwise which repairs and replacements by the Lessee shall be in first class quality; and shall pay promptly the costs and expenses of such repairs, replacements and maintenance. SECTION 1.14 SERVICES TO AIRPORT USERS, DISCRIMINATION The Lessee, in its operation of the Maintenance Premises or in the use of any portion of the Premises or in exercise of any privileges under this Agreement, shall not on the grounds of race, creed, color or national origin discriminate or permit discrimination against any person or group of persons in any manner whatsoever. SECTION 1.15 GOVERNMENTAL REQUIREMENTS, CITY REGULATIONS (a) The Lessee shall comply with any applicable Federal Aviation Regulations, as the same may be amended from time to time, and any other present or future laws, rules, regulations, orders or directions of the United States of America, or the State of Texas, which from time to time may be applicable to the Lessee's operations hereunder. -5- (b) The Lessee shall procure from all governmental authorities having jurisdiction of the operations of the Lessee hereunder, all licenses, franchises, certificates, permits and other authorization which may be necessary for the conduct of such operations, and it shall comply with all laws and lawful ordinances, and governmental rules, regulations and orders during the term of this Agreement which from time to time may be applicable to the Lessee's operations on the Maintenance Premises. (c) The Lessee covenants and agrees to observe and obey (and to require its officers and employees to observe and obey and to exercise its best efforts to require guests and invitees and those doing business with it to observe and obey) the reasonable rules and regulations of the Lessor (including amendments and supplements thereto) governing the conduct and operations of the Lessee and others on the Base Facilities, and such future reasonable rules and regulations as may, from time to time during the term hereof, be promulgated by the Lessor for reasons of safety, health, sanitation and other order; provided that any such rules and regulations shall not be inconsistent with the provisions of this Agreement or with the rules and regulations of the Federal Aviation Administration. The obligation of the Lessee to exercise its best efforts to require such observance on the part of its guests, invitees and business visitors shall apply only while such persons are on the Base Facilities. (d) With respect to the Base Facilities, any license, franchise, certificates, permits or other authorizations shall be obtained in the name of the Lessor. SECTION 1.16 PROHIBITED ACTS (a) The Lessee shall commit no nuisances (as defined in Article 4477-1, Section 2, V.A.C.S.) on the Premises, and shall not do or permit to be done anything which may result in the creation or commission or maintenance of a nuisance thereon. (b) The Lessee shall not permit a lien or liens to become attached to the remainder interests of the Lessor, or upon the leasehold intent of the Lessee, without the consent of the Lessor, or suffer or permit a lien or liens for taxes to be imposed or attached thereto, unless Lessee is contesting in good faith the tax or claim that is the basis of the lien, in which event Lessee shall dissolve the lien or stay or prevent its foreclosure by bond or other appropriate legal procedure. The City shall cooperate with the Lessee in the protest or defense of any unjust claim or levy of tax upon the Lease Premises or the leasehold interest of the Lessee. SECTION 1.17 INSURANCE RELATING TO MAINTENANCE PREMISES (a) During the acquisition, construction, fabrication and installation period and until the Maintenance Premises or any part thereof are occupied, the Lessor shall provide, or cause to be provided, builder's risk insurance as to all items of construction and all other insurance as to other items required and reasonably obtainable with responsible insurers to insure against risks of loss or damage to such facilities, so as to protect the interest of the Lessor, the Lessee, contractors and suppliers therein. During such period the Lessor shall also maintain, or cause the contractors or suppliers to maintain, liability insurance, which shall comply with the requirements of paragraph iii, below. -6- Immediately prior to occupancy of all or any part of the Maintenance Premises, the Lessee shall obtain and thereafter maintain or cause to be maintained, with responsible insurers, the following kinds and the following amounts of insurance, with such variations as shall reasonably be required to conform to applicable standard or customary Texas insurance provision, to wit: (i) with respect to every structure and the contents and fixtures thereof constituting part of the Maintenance Premises, multi-risk insurance on each structure and its fixtures and contents, covering direct physical loss or damage (including the cost of removal of debris) to such structure and its fixtures and contents, in such amount and of such character as, under the terms and provisions thereof, will provide a recovery, in the event of the occurrence of any loss or damage from an insured cause, equal to the full amount of loss or damage on a replacement cost basis up to the amount reasonably obtainable as the maximum probable loss or damage (including the cost of removal of debris) to such structure and its fixtures and contents from any such cause; provided, however, that Lessee's insurance may contain a co-insurance clause providing for coverage of not less than eighty per cent (80%) of such replacement cost and a deductible not exceeding One Hundred Thousand Dollars ($100,000) respecting any one casualty. The risks to be insured against pursuant to this paragraph are the risks against direct physical damage or loss from fire and so-called extended coverage periods to the extent such coverage is reasonably obtainable; (ii) on all other structures to become part of the Maintenance Premises during the construction or reconstruction thereof by the Lessee, such builder's risk insurance as is customarily carried by others with respect to similar construction or reconstruction, but the Lessee shall not be required to maintain any such insurance to the extent that such insurance is carried by contractors for the benefit of the Lessee and the Lessor; (iii) public and other liability insurance of such character and amount as shall be reasonably adequate to insure the Lessor and the Lessee against risks to which the Lessor and/or the Lessee may reasonably be or become subject in the operation, construction or reconstruction of the Maintenance Premises, but the Lessee shall not be required to maintain any such insurance to the extent that such insurance is carried for its benefit by any licensee or other person operating, occupying or using any part of the Maintenance Premises or by contractor. Initially, such insurance shall provide coverage of not less than Five Hundred Thousand Dollars ($500,000) for injury to or death of a person or persons in any one occurrence and not less than One Hundred Thousand Dollars ($100,000) for damage to property in any one accident, with a deductible for such occurrence or accident in a reasonable amount at Lessee's option; and (iv) such workmen's compensation or employer's liability insurance as may be customarily carried or required by law and such other insurance as is customarily carried by others engaged in business similar to Lessee. -7- (b) All policies evidencing insurance maintained or caused to be maintained by the Lessee with respect to the Maintenance Premises shall be issued by the home office of the insurer(s) or by a duly authorized agent of the insurer(s) and shall name the Lessor and the Lessee as insureds, as their interest shall appear, and shall be deposited with the Lessee but subject to inspection and examination by the Lessor. Any such insurance may be written in blanket policies issued to Lessee covering other property and operations so long as the Maintenance Premises are specifically stated to be covered in such policies. All proceeds from claims shall be paid directly to the Lessee. The Lessor shall have the right and is hereby authorized in its own name to demand and sue, collect and receive claims and moneys hereunder if Lessee fails to do so. The net proceeds of any and all such insurance required by paragraph (i) and (ii) of subsection (a), above, shall be applied as prescribed in Section 1.18 below. SECTION 1.18 DAMAGE, DESTRUCTION, DISPOSITION OF INSURANCE PROCEEDS (a) In the event the Maintenance Premises or a substantial part thereof are damaged or destroyed by an insured casualty, the following provisions shall be applicable: (i) the Lessee shall have the right to determine whether the Maintenance Premises should be reconstructed or repaired. If the Lessee elects not to reconstruct or repair the Maintenance Premises, any insurance proceeds shall be paid to and retained by the Lessor and this Part I of the Agreement and all unaccrued obligations thereunder shall thereupon be terminated. If the Lessee elects to reconstruct or repair the Maintenance Premises and if the insurance proceeds are sufficient to reconstruct or repair the Maintenance Premises or if the insurance proceeds are insufficient and the Lessee agrees to bear and pay the deficiency, the insurance proceeds and the amount paid by the Lessee shall be applied to the repair or restoration of the Maintenance Premises, in accordance with the original plans and specifications, together with any alterations or modifications made or agreed upon prior to the casualty, or in accordance with new or modified plans and specifications, the alternative to be determined by the Lessee. If the said proceeds are in excess of the amount necessary for repair or restoration, any such excess shall be paid to and retained by the Lessee. (ii) Before any reconstruction or repair under this Section, Lessee shall submit plans and specifications to the Lessor for approval and construction shall be substantially in accordance therewith subject to such changes as may be reasonably requested by Lessee and approved by the Lessor. The Lessor reserves the right specifically to approve the contractor and/or the architect/engineer selected by the Lessee for such reconstruction or repair work. (iii) in the event the Maintenance Premises are damaged by an insured casualty, but the destruction is not all or substantially all of the Maintenance Premises, then the insurance proceeds shall be applied by the Lessor to the reconstruction and repair of the premises and the Lessee agrees to bear and -8- pay the deficiency. The Premises shall be repaired or restored in accordance with the original plans and specifications, together with any alterations or modifications made or agreed upon by the parties hereto. If the proceeds of insurance are in excess of the amount required for such repair or restoration, any excess shall be paid to and be retained by the Lessee. SECTION 1.19 MISCELLANEOUS INSURANCE COVENANTS (a) The Lessee shall, no later than the first day of January in each year during the term hereof, file or cause to be filed with the Lessor a certificate stating in reasonable detail the insurance with respect to the Maintenance Facilities then in effect pursuant to the requirements of Section 1.17 hereof or otherwise, and with respect to each policy the name of the insurer, the amount, policy number, premium, the expiration date, and the hazards covered thereby, and that the premium thereof has been paid; and whether the Lessee is then maintaining or causing to be maintained insurance conforming in all respects with the requirements of Section 1.17 hereof. (b) Any appraisal or adjustment of any loss, claim or damage under any policy of insurance with respect to the Maintenance Premises, and any settlement or payment of proceeds under any such policy which may be agreed upon between the Lessee and any insurer, shall be evidenced by a certificate of the Lessee filed with the Lessor, approving such appraisal, adjustment, settlement or payment as required and satisfactory in the interests of the Lessor and the Lessee. (c) Lessee's obligation under this Section shall not effect its right to carry additional insurance solely for its own account (d) In the event the Lessee fails to maintain or cause to be maintained the full insurance coverage required by this Agreement, the Lessor may (but shall be under no obligation to) obtain the required insurance coverage and pay the premiums for the same; and all amounts so advanced therefor by the Lessor shall become an additional obligation of the Lessee to the Lessor, which amounts, together with interest thereon at the rate of 10% per annum for the date of payment thereof, the Lessee agrees to pay upon demand. SECTION 1.20 CONDEMNATION (a) In the event that title to or use of the Lease Premises or a substantial part thereof is taken under color of governmental authority and there are no bonds or additional bonds outstanding then the provisions of this Section shall govern. In the event there are bonds or additional bonds outstanding at the time title to or use of lease premises or a substantial part thereof is taken, under color of governmental authority, then the provisions of Section 2.11 shall apply. -9- (b) In the event this Section is applicable, than the Lessee may: (i) request that the Maintenance Premises be rebuilt elsewhere and agree to pay any deficiency not covered by the condemnation proceeds as Ground Rent, or if such proceeds are in excess of the amount necessary for such purpose, any such excess shall be paid to the Construction Fund. The rebuilding of the Maintenance Premises shall be in accordance with the original plans and specifications, together with alterations or modifications made or agreed upon prior to the taking, or in accordance with new or modified plans and specifications, the alternative to be determined by the Lessee. In the event of rebuilding under this paragraph, the Ground Rent shall abate as to any of the Leased Land rendered useless by the taking, as of the time of the taking, and the parties shall appropriately amend the description of the Leased Land and the new Ground Kent shall become effective as of the date the Lessee is given beneficial use of the rebuilt Maintenance Premises. (ii) or cancel the lease, in which event, all Condemnation proceeds shall be paid to the Lessor. (c) Tn the event that title to or use of less than a substantial part of the Leased Premises is taken by the power of eminent domain (that is, if the primary use of the Maintenance Premises is not substantially impaired by deletion of the part taken) the Lessee shall determine whether any rebuilding is necessary. Any condemnation proceeds not used for the purpose of rebuilding shall be applied until exhausted in reduction of the Ground Rent payable hereunder. (d) Section 2.14 hereof shall apply to any rebuilding under this Section, to the same extent as it applies to new construction undertaken by the Lessor. SECTION 1.21 MISCELLANEOUS OPERATION PROVISIONS (a) With the prior written approval of the Lessor, Lessee may erect, maintain or display signs of advertising at or on the exterior parts of the Maintenance Premises or in or on the Leased Premises so as to be visible outside the Maintenance Premises. Exterior signs affecting public safety and security shall be subject to approval by Lessee and the Lessor. If the -10- Lessor has not given approval, as aforesaid upon receipt of notice the Lessee shall remove, obliterate or paint out any and all advertising, signs, posters and similar devices placed by the Lessee on the Maintenance Premises. In the event of a failure on the part of the Lessee so to remove, obliterate or paint out unapproved signs affecting public safety and to restore the necessary work and the Lessee shall pay the cost thereof to the Lessor on demand. (b) The Lessee shall maintain such obstruction lights and landing lights as the Lessor may install, and Lessor shall furnish and install the bulbs and furnish the electricity necessary for the operation thereof, and Lessee shall operate the same in accordance with the requirements of F.A.A. The Lessor hereby directs that all said lights shall, until further notice, be operated for a period commencing thirty (30) minutes before sunset and ending thirty (30) minutes after sunrise (as sunset and sunrise may vary from day to day throughout each year) and for such other periods as may be directed or requested by the control tower of the Airport. In addition, Lessee shall also provide and maintain fire protection and safety equipment at the Maintenance Facilities and all other equipment of every kind and nature required by any law, rule, order, ordinance or resolution of any governmental authority having jurisdiction over the Airport. (c) Except to the extent required for the performance of the obligations or the exercise of rights of the Lessee hereunder, nothing contained in this Agreement shall grant to the Lessee any rights whatsoever in the air space above the Maintenance Premises in excess of a height set forth in the plans and specifications for the Maintenance Premises. (d) All personal property and all property and installations (including trade fixtures) removable without material damage to the Maintenance Premises, which are installed by Lessee in or on the Maintenance Premises, shall be deemed to be and remain the property of the Lessee. All such property and installations may at Lessee's option be removed by Lessee from the Maintenance Premises at any time during the term of this Agreement, and, unless otherwise agreed in writing by the parties, shall be removed by Lessee at or before the expiration or other termination of the term of this Agreement provided that any damage to the Maintenance Premises caused by said removal shall be repaired by Lessee so as to return the premises to the Lessor in the same or similar condition as when entered by Lessee, reasonable wear and tear excepted. Any such property remaining on the Maintenance Premises beyond thirty (30) days thereafter shall be deemed to be abandoned by Lessee. (e) All water, gas, oil and mineral rights in and under the soil are expressly reserved by the Lessor. (f) Title to all existing permanent improvements on the Maintenance Premises and title to any permanent buildings or permanent structures hereafter constructed on such Maintenance Premises shall immediately vest in the Lessor as a part of the Airport. -11- SECTION 1.22 ADDITIONAL PROVISIONS FOR OPERATIONS Lessee agrees to operate and maintain that portion of said airport facility located and situated within the area described in Exhibits A and C (herein called Base Facilities) in conformity with each and all of the provisions and requirements set forth and referred to in paragraphs 6 and 22 of Part V of Federal Aviation Administration Form 5100-100, the same being and composing a part of the grant agreement entered into by and between Lessor and the United States of America, and which provides, among other things, for a grant of funds pursuant to Airport Development and Aid Program Project No. 7-48-0098-01 for the construction of certain improvements to said Base Facility, and reference to which being here made for all purposes as if the same were copied in their entirety herein, accepting hereby the same responsibilities and undertakings as Lessor assumes upon the execution of said grant agreement. It is understood and agreed that Lessee shall indemnify and hold harmless Lessor, and each and all of the officials, officers, agents, servants and employees of Lessor, from and against all claims and causes of action, damages, losses and expenses, including all costs of court and attorney's fees incidental thereto, arising out of or resulting from the undertakings specified and referred to in the preceding paragraph hereof by Lessee, any subcontractor thereof, anyone directly or indirectly employed by either of them, or anyone whose acts, errors or omissions any of them may be liable, which are caused in whole or in part by any error, omission or act of any of them. In a like manner, it is understood and agreed that Lessor shall indemnify and hold harmless Lessee, and each and all of the officers, agents, servants and employees of Lessee, from and against all claims and causes of action, damages, losses and expenses, including all costs of court and attorney's fees incidental thereto, arising out of or resulting from the operations of Lessor upon said Airport Facilities, or anyone directly or indirectly employed by it, or anyone whose acts, errors or omissions any of them may be liable, which are caused in whole or in part by any error, omission or act of any of them; excepting, however, any of those acts, errors or omissions set forth and specified in the preceding paragraph hereof. In connection with the obligations assumed by Lessee in the first paragraph of this Section, it is understood and agreed that in the event Lessor permits or agrees to permit third parties (other than those owning or operating aircraft exempted by said ADAP grant and Lessee's customers or guests) regular use (defined as aircraft parking by tenants on the airport or otherwise for in excess of three hours on any four days during any calendar month or four aircraft touchdowns from flight during any calendar month) of any facility within the area described in Exhibit A and C, Lessor shall impose (and, periodically, based on subsequent experience, adjust the amount of) uniform use fees which are sufficiently large to offset and reasonably anticipated increases in maintenance costs attributable to such third party use (but in no event above the levels which are competitive with those charged by similar airports in North and Central Texas for similar airport use). In determining the amount of such use fees, -12- Lessor shall have the right of examining relevant portions of Lessee's books and records, and such examination may only be conducted by Lessor's Director of Finance or a Certified Public Accountant (as designated by Lessor) having no conflict of interest with any such third party. It is understood and agreed that Lessor will use all due diligence (and Lessee will cooperate with Lessor as needed) in seeking and obtaining federal and state assistance to perform major renovation and/or upgrading of facilities on said tract provided local matching funds are made available by Lessor's Governing Body or are made available to said Governing Body by others. Lessee shall have the responsibility for collecting any use fees charged hereunder and depositing the same in the Construction Fund. It is further agreed that in case a building, buildings or other improvements are located on the land described in Exhibits A and B, the provisions of this paragraph shall control if the same are destroyed or damaged by fire, the elements or other disaster and for which insurance coverage is in effect as provided for in this Lease, or for which a third party shall have provided insurance coverage, Lessor, at the option of Lessee, will authorize the replacement or repair of said buildings or improvements, the same to be paid for out of the proceeds of the insurance as aforesaid, and the monthly rental will be proportionately abated with respect to the buildings or improvements, which Lessee is deprived of use for and during the period of disuse and pending their repair or replacement. Should buildings or other improvements be destroyed as aforesaid so as to make the premises, as a whole, unsuitable for Lessee's continued occupancy, Lessee may at such time cancel the herein Lease and thereafter all rights to Lessee's possession thereof shall at once cease and this lease shall terminate as to both parties. Lessee will assist Lessor in the updating of the airport layout plan required under the provisions of Paragraph 25 of Part V of said FAA Form 5100-100, and will not make or permit the making of any changes or alterations in said airport or any of its facilities other than in conformity with such airport layout plan as so approved by the Federal Aviation Administration, if such changes or alterations might adversely affect the safety, utility or efficiency of said airport. SECTION 1.23 PROVISIONS FOR TESTING The provision of this Section shall be subordinate to the provisions of any existing or future agreement entered into between the Lessor and the United States to obtain Federal aid for the improvement or operation and maintenance of the airport. It is specifically understood and agreed that nothing herein contained shall be construed as granting or authorizing the granting of an exclusive right within the meaning of Section 308a of the Federal Aviation Act. The Lessor reserves the right to take any action it considers necessary to protect the aerial approaches of the airport against obstruction, together with the right to prevent the Lessee from erecting, or permitting to be erected, any building or other structures on the airport which, in the opinion of the Lessor, would limit the usefulness of the airport or constitute a hazard to aircraft. -13- Lessee shall have the right to utilize the public air operations area in said Base Facilities in conjunction with the public, generally, for flight operations, aeronautical testing, electronic testing and other aviation related activities subject, however, to the same regulations, requirements and limitations lawfully imposed upon the public. In conjunction with its normal operations, Lessee shall have the right to temporarily obstruct for aircraft electronic testing or aircraft launch purposes, one of the runways or the south portion of the North-South parallel taxiway in said Base Facilities, (the North portion of this taxiway is permanently blocked) provided that during such periods the tower is manned and operating and provided the runway or taxiway is appropriately marked as obstructed, safety requirements of FAA and good practice are implemented, and (in the case of a runway) an alternate runway is available for aircraft traffic. Lessor shall not perform or suffer performance of any act on land in the Base Facilities owned or controlled by Lessor which would unreasonably interfere, or can be reasonably expected to interfere with, Lessee's said electronic or aviation operations in said Base Facilities. Lessor shall utilize said Tract only in a manner compatible with normal airport uses. SECTION 1.24 ADDITIONAL COVENANTS The Lessee for itself, its successors in interest, and assigns, as a part of the consideration hereof, does hereby covenant and agree as a covenant running with the land that in the event facilities are constructed, maintained, or otherwise operated on the said property described in this lease for a purpose for which a Department of Transportation program or activity is extended or for another purpose involving the provision of similar services or benefits, the lessee shall maintain ad operate such facilities and services in compliance with all other requirements imposed pursuant to Title 49, Code of Federal Regulations, Department of Transportation Subtitle A, Office of the Secretary, Part 21, Nondiscrimination in Federally-assisted programs of the Department of Transportation-Effectuation of Title VI of the Civil Rights Act of 1964, and as said Regulations may be amended. The Lessee for itself, its successors in interest, and assigns, as a part of the consideration hereof, does hereby covenant and agree as a covenant running with the land that (1) no person on the grounds of race, color, or national origin shall be excluded from participation in, denied the benefits of, or be otherwise subjected to discrimination in the use of said facilities, (2) that in the construction of any improvements on, over, or under such land and the furnishing of services thereon, no person on the grounds of race, color, or national origin shall be excluded from participation in, denied the benefits of, or otherwise be subjected to discrimination, (3) that the Lessee shall use the premises in compliance with all other requirements imposed by or pursuant to Title 49, Code of Federal Regulations, Department of Transportation, Subtitle A, Office of the Secretary, Part 21, Nondiscrimination in Federally-assisted programs of the Department of Transportation-Effectuation of Title VI of the Civil Rights Act of 1964, and as said Regulations may be amended. -14- That in the event of breach of any of the above nondiscrimination covenants. City of Greenville shall have the right to terminate the lease and to re-enter and repossess said land and the facilities thereon, and hold the same as if said lease had never been made or issued. Neither FAA approval of nor FAA consent to this lease shall be construed as a waiver or in abrogation of any right or power of the Federal Government under any existing or future lease, deed or other agreement of any kind, nor shall such action by FAA be construed as no more than a finding of no objection under then-current FAA policies, and shall not bar later action by the FAA to enforce, or have the airport owner enforce, FAA policies affecting the airport. It is further understood that such approval or other consent action by the FAA creates no contractual relationship between Lessee herein and the FAA. -15- PART II SECTION 2.1 LEASE OF ADDITIONAL MAINTENANCE PREMISES Effective as of the date hereof, (but subject to the provisions of Section 2.17 hereof) the Lessor hereby leases and rents and Lessee hereby hires and takes for its exclusive use those certain premises indicated as building 136B, 108 and 116 on Exhibit E attached hereto, consisting of an area of approximately 108,250 square feet, and the improvements thereon or to be constructed thereon, such premises and improvements being in this Part referred to as "Additional Maintenance Premises" which are further described in the legal description set forth in Exhibit E. The initial term of the tenancy created under Part II of this Agreement shall expire on August 31, 1989. Lessee shall have the option to renew such term for a period, during the time that the property tenancy created in Part I of this Agreement is in effect, ending August 31, 1996. During such renewal period, the Ground Rent specified in Section 1.3 shall also be the Ground Rent for the property covered by Part II of this Agreement. Lessee shall not be deemed to have exercised the foregoing option unless notice of the exercise of the option has been received not less than sixty (60) days before the expiration of the initial term. SECTION 2.2 ADDITIONAL MAINTENANCE PREMISES The Additional Maintenance Premises consist of that additional land, improvements and structures located or to be located on the land described in Section 2.1 subject to the provisions of Section 2.17 hereof, the parties mutually agree that Lessor shall proceed to issue and deliver its Revenue Bonds in the principal sum of $2,100,000 to provide for the cost of the construction of the improvements which constitute a part of the Additional Maintenance Premises. The proceeds of the sale of such Bonds shall be employed in the manner set forth in this Part and under the provisions of the ordinance authorizing such Bonds (hereafter called Bond Ordinance) it being the intent of the parties that said proceeds shall be used in accomplishing a complete financing of the intended Facilities including all improvements related or incidental thereto, as contemplated by the plans and specifications heretofore approved by Lessor and Lessee, including, further, reasonable items for contingencies, architectural and engineering fees, expenses of issuance of Bonds, fees of the fiscal agent retained to consult with the parties and arrange for the sale of the Bonds. -16- SECTION 2.3 ACCEPTANCE OF COVENANTS It is understood that upon the authorization of the issuance of Bonds, the Lessor, by approving the Bond Ordinance shall signify not only acceptance and final approval of these presents but also complete acceptance, awareness and final approval or the terms and conditions of said Bond Ordinance and the Bonds therein prescribed. By its acceptance Lessee acknowledges that the covenants of the Bond Ordinance constitute contractual arrangements between Lessor and the purchasers of the Bonds. It is further understood that Lessor, the purchasers of the Bonds and all others concerned in any manner with their issuance and the securities supporting them may rely upon certified copy of said resolution of Lessee's Board of Directors as conclusive evidence of Lessee's approval and acceptance hereof and the terms and conditions of said Bond Ordinance and the Bonds therein prescribed. Based upon such approvals of Lessee, Lessor agrees to do all things required by law and these presents to issue the Bonds and make delivery thereof to the purchasers in accordance with the terms of sale as promptly as practicable. Lessee understands that upon delivery of the Bonds to the purchasers the requirements for payment of Net Rent provided in Section 2.5 hereof shall be effective as specified without acknowledgement or other action on the part of Lessee or Lessor. SECTION 2.4 BOND PROCEEDS A. The proceeds from the sale of the Bonds shall be deposited in the Construction Fund, except the accrued interest which shall be deposited in the Interest and Sinking Fund and $ -0- shall be deposited in the Reserve Fund. From the bond proceeds Lessor shall make payments as required for all outlays in the acquisition and construction of the Additional Maintenance Premises including redemption, payment and discharge of interim financing obligations. All items for which Lessee may seek reimbursement and all such further expenditures required to complete the Additional Maintenance Premises and make payment therefor shall be approved for payment by the City Council of Lessor only upon approval and recommendation for payment by Lessors' Director of Community Development. B. Any and all amounts which may remain from the proceeds of the sale of the Bonds after all the aforementioned obligations have been discharged thereby shall be used, to the nearest multiple of $5,000, for the purchase and redemption of Bonds of said Series in the open market, of no bonds available at a reasonable price and any remaining proceeds shall be transferred into the interest and Sinking Fund provided for in said Bond Ordinance. -17- SECTION 2.5 NET RENT A. For and in consideration of Lessor's performance of its obligations hereunder and Lessee's enjoyment of its rights pursuant to the provisions hereof, cumulative of and in addition to all other rentals, fees or payments for which Lessee is obligated to Lessor under Part I of this agreement, Lessee further agrees to pay Lessor, additional rentals known as "Net Rent" as follows: (1) On or before the 15th day of January, 1978, and on or before the 15th day of each month thereafter, a sum of money equal to (a) one-sixth of the interest installment next to become due on the Bonds; and (b) one-twelfth of the amount of principal to become due on the next succeeding principal maturity date; and (c) the amount, if any, required to be deposited in the Reserve Fund by Section 14 of the Bond Ordinance. (2) On the 1st day of the month next preceding an interest payment date, the Lessor shall render a bill for charges as may be imposed on Lessor by the paying agent or agents performing such services under such Bonds and any other expense necessary and incident to the payment thereof and such amount shall be paid by the Lessee within 15 days. For the convenience of the parties a schedule of Bond requirements referred to in subparagraph (1) above is to be attached hereto and marked "Attachment A" when Bonds are issued as contemplated by Section 2.2 hereof. It is provided, however, if at any time Lessor or any successor to Lessor, with its own funds or with funds available to it from sources other than Net Rent, shall prepay and retire or make cash provision for the payment and retirement of any or all of the Bonds, or shall deliver to the holders of the Bonds or any part thereof other and different Bonds of the Lessor or of its successor in exchange for such Bonds so that no payment of principal and interest shall be due on all or such part of the Bonds, Lessee shall, nevertheless, make payments of Net Rent under this Section at the same times and in the same amounts as would be payable under such Section if the Bonds were still due and outstanding and were bearing interest in the normal course of their maturities. SECTION 2.6 PAYMENT OF RENTAL A. Net Rent shall be paid without further notice or billing. The Lessee shall in no way be responsible for the application by Lessor of such Net Rent made by Lessee. B. Lessee may tender Lessor Bonds of the issue herein referred to (provided all unmatured interest coupons are attached) for application on amounts otherwise required to be paid by Lessee as Net Rent under the provisions hereof. In such event, Lessor shall cancel such tendered Bonds and credit Lessee (i) for the face value of such Bonds in each of the billings which would otherwise reflect amounts needed to retire the principal thereof had they remained outstanding and (ii) for all interest which would have accrued on such tendered Bonds to maturity had they remained outstanding. -18- C. It is the intention of the parties that the Net Rent payable by Lessee shall be equal to the amount necessary to enable Lessor to retire the bonds as they mature, together with interest thereon as it accrues, and together with the expenses related thereto, at no cost to Lessor and it is acknowledged by Lessee that the Bonds will be purchased in reliance upon the unconditional obligation of the Lessee to pay Net Rent once such Bonds are issued and become outstanding; that regardless of any other provision in this Agreement, Lessee shall on the dates indicated on Attachment A make payments to the Lessor in the amount of such Net Rent until the Bonds have been paid and retired, and no default by the Lessor shall excuse performance by the Lessee of this obligation. It is provided, however, that nothing contained in this Section shall be construed to release the Lessor from the performance of any of the agreements on its part contained in this Lease, and in the event the Lessor shall fail to perform any of such agreements, the Lessee may institute such action against the Lessor as the Lessee may deem necessary to compel performance or recover its damages for nonperformance and may pursue any other lawful remedy, so long as such action shall not do violence to the agreement of Lessee to pay the Net Rent hereunder in the amounts and at the time stated. SECTION 2.7 APPLICATION OF NET RENT TO PAYMENT OF BONDS A. Lessor agrees to provide a special fund for the Bonds into which all payments received from Lessee as Net Rent (under Section 2.5 hereof) shall be deposited (in the Bond Fund and the Reserve Fund) as required by the Bond Ordinance and used for no purpose other than for the payment, security, retirement and redemption of such Bonds, and interest thereon, or bonds issued on a parity therewith in accordance with the terms and provisions of the Bond Ordinance. All sums received from the purchasers of the Bonds as accrued interest thereon to date of delivery shall be placed in the Interest and Sinking Fund and applied in reduction of payments to be made with respect to the first semiannual interest installment on the Bonds. Subject to the provisions of paragraphs B and C of Section 2.6 hereof, any and all proceeds from the sale of the Bonds which may remain unexpended upon final completion of the Additional Maintenance Premises and payment of all proper costs incidental thereto, shall be transferred to and deposited in the Interest and Sinking Fund and applied in reduction of next monthly rental payment or payments otherwise required of Lessee following such transfer of funds. B. Any and all payments received by Lessor from Lessee as Net Rant shall be irrevocably pledged to and shall be deposited in the Bond Fund and Reserve Fund as required by the Bond Ordinance C. It is agreed that the official depository of Lessor shall be the custodian of the Interest and Sinking Fund and that prior to each principal and interest maturity date it shall be the duty of Lessor to withdraw from said fund and place with the paying agent bank money sufficient in the amount to pay the principal and interest installments which will be due on such maturity date. -19- SECTION 2.8 SECURITY FOR FUNDS All amounts deposited into the Interest and Sinking Fund and Reserve Fund for the payment and security of Bonds and additional bonds shall be kept separate and apart from all other City funds and continuously secured by valid pledge of direct obligations of or obligations unconditionally guaranteed by the United States of America having a par value, or market value when less than par, exclusive of accrued interest, at all times at least equal to the amount of money deposited in said fund to the extent the same are not covered by F.D.I.C. insurance or secured as trust fund deposits. All sums of money deposited in said funds shall be held as a trust fund for the benefit of the holders of the Bonds and additional bonds the beneficial interest in which shall be regarded as existing in such bondholders. SECTION 2.9 PUBLIC NATURE OF ADDITIONAL MAINTENANCE PREMISES The Additional Maintenance Premises herein referred to are recognized by the parties and are hereby declared to be acquired and shall be used for public and governmental purposes and as matters of public necessity as contemplated by and defined in the Texas "Municipal Airport Act", the Bonds herein referred to shall therefore relate to public projects and facilities to be owned by City and to be operated on its behalf. SECTION 2.10 TITLE TO FACILITIES IN LESSOR The parties hereby confirm and agree that title to all the Additional Maintenance Premises (or any portion thereof) which may be constructed on or before the date of this agreement is vested in Lessor subject to Lessee's possessory rights and that title to any such facilities (or any portions thereof) which may be constructed or completed after the date of this agreement shall vest in Lessor as the same are affixed to the land, subject to such possessory rights of Lessee. -20- SECTION 2.11 DESTRUCTION OF PREMISES, CONDEMNATION OF PREMISES During the time any Bonds or obligations issued by the City payable from any revenues obtained by reason of this Agreement (herein sometimes referred to as "Additional Bonds") are outstanding then as to the Additional Maintenance Premises, the provisions of this Section (and not Section 1.18 or 1.20) shall control where all or substantially all of the Additional Maintenance Premises are (1) destroyed by an insured casualty or (2) taken under color of governmental authority in the exercise of the power of eminent domain. Where this Section applies, the Lessee may elect whether the insurance or condemnation proceeds will be applied (1) to the reconstruction or relocation of the Additional Maintenance Facilities or (2) applied to the payment and retirement of Bonds or Additional Bonds provided that if such proceeds and the amount then on hand in the funds created for the benefit and payment of the Bonds and Additional Bonds are not sufficient to finally pay such obligations, the Lessee shall forthwith, pay the deficiency into the Bond Fund created for the Security of the Bonds and Additional Bonds. In no event shall the destruction of or condemnation of all or any part of the Additional Maintenance Premises or any other event cause a change or reduction in the obligation of the Lessee to pay Net Rent in an amount adequate to pay the principal of, interest on, the Reserve Fund requirements and the fees of the paying agent with respect to the Bonds and Additional Bonds. -21- SECTION 2.12 PROVISIONS OF PART I MADE APPLICABLE Except as to the terms of the lease and renewals thereof (contained in Section 2.1) and the provisions relating to insurance and condemnation (as continued in Section 2.11) - which provisions shall always control as to the Additional Maintenance Facilities while Bonds are outstanding, all of the provisions of Part I of this agreement shall also be applicable to the Additional Maintenance Facilities and for the purposes of Part I, the same shall also be considered as Maintenance Facilities thereunder upon completion of the Additional Maintenance Facilities or their occupancy by the Lessee, whichever shall first occur. SECTION 2.13 CONSTRUCTION FUND All proceeds of Bonds or additional bonds not required by the ordinance authorizing their issuance or the other provisions of Part II of this agreement to be deposited in some other fund or funds, shall be deposited in the Construction Fund with the City's depository bank. Disbursements from the Construction Fund and investment of moneys therein, pending the use thereof for authorized purposes, shall be governed by an escrow agreement by and between the City and the depository bank. With respect to the Bonds, the mayor is hereby authorized and directed to execute an appropriate escrow agreement, which shall be subject to approval by the City Attorney and the Lessee, which agreement shall be in customary terms and: (1) not be in conflict with any provisions of the Bond Ordinance or this agreement; and (2) provide: (a) funds may be disbursed only for the purpose of paying the cost of construction and acquisition of the Additional Maintenance Premises until all such costs have been paid, and then as provided in this instrument and the Bond Ordinance. (b) funds may be disbursed upon approval of the same by a representative of the Lessor and Lessee; that the representative of the Lessor shall be the person acting as the Director of Community Development of the City of Greenville, Texas. (3) no change order may be executed, during the construction of the project, which increases the amount of any contract to be paid by the City unless the same has been approved by the City Council; nor shall any payment be made under any contract until such contract has been approved by the City Council. -22- SECTION 2.14 CONSTRUCTION OF ADDITIONAL FACILITIES (a) Lessor may hereafter issue revenue bonds to reimburse Lessee for all outlays made by Lessee and approved by Lessor in connection with providing the improvements and related facilities, provided, however, that such bonds shall be issued only upon terms satisfactory to both Lessor and Lessee. (b) If and when Lessee desires additional facilities or improvements to be acquired and financed by the Lessor, Lessor and Lessee shall consult with a view to agreeing upon mutual satisfactory terms for such revenue bonds, including interest rate and arrangements assuring application of the proceeds thereof. Upon receiving a proposal satisfactory to it for the sale of such bonds, Lessor will inform Lessee of its terms, including the proposed effective interest rate thereon. Within 3 hours thereafter (Saturday and Sunday excepted), Lessee will advise Lessor in writing of its acceptance or rejection of such proposal. In the event Lessee accepts such proposal, Lessor shall, subject to the execution and delivery of a supplementary agreement as referred to in (c) below, thereupon take such action as is required to authorize the issuance of such bonds and shall proceed with the sale thereof in accordance with the terms of said proposal. It is contemplated that bonds will be sold in an amount sufficient to cover the cost of designing, engineering and constructing the aforesaid improvements, expenses of issuance of bonds, legal fees, fee of the Fiscal Agent retained to consult with the parties and arrange for the placement of the bonds, and, at Lessee's election, such additional amounts as may be required to anticipate and satisfy such reserve requirements as may be required under the terms of the bond ordinance. In the event Lessor and Lessee shall be unable to obtain or agree upon mutually satisfactory financing arrangements, and, as a consequence, revenue bonds are not issued and sold by Lessor for such purpose, the cost of designing, engineering and constructing the aforesaid improvements, shall, be and remain the sole obligation of Lessee. (c) Subject to obtaining mutually satisfactory financing arrangements for the sale of revenue bonds as aforesaid, Lessor and Lessee shall mutually agree upon, execute and deliver an amendatory agreement supplementary hereto which shall set forth (i) Lessee's obligations in respect to payment of additional rental to Lessor (which shall be in addition to all other payments herein prescribed or heretofore provided for in previous agreements) related to requirements for the payment of principal and interest on said bonds, to satisfying any reserve requirements in connection therewith and, in addition, to meeting or causing to be met such other obligation as may be required on the part of Lessee under such ordinance as may be adopted by the City Council of the City of Greenville in respect to such bonds and (ii) Lessor's obligations in respect to the issuance, sale and delivery of said bonds and the application of the proceeds thereof, and, in addition, such other obligations as may be required on the part of Lessor under said ordinance. Such rent is sometimes referred to in this agreement as Net Rent. (d) The provisions of paragraph (b) and (c) hereof shall apply to any project which is to be financed in whole or in part by the City. -23- SECTION 2.15 PLANS AND SPECIFICATIONS, APPROVALS, CONSTRUCTION, CHANGES, CONTRACTS (a) The Facilities shall be acquired, constructed, installed, fabricated and equipped in accordance with plans and specifications approved by the City and the Lessee. Lessee shall prepare final plans and specifications of the Facilities, which shall be submitted by Lessee to the City for approval, and construction shall be substantially in accordance with such plans and specifications as may be approved by the City with such changes as may be reasonably requested by Lessee and approved by the City. (b) Upon completion of the final plans and specifications of the Facilities and approval of the same, bids will be taken by the City for construction, acquisition, and/or fabrication of the Facilities based on such plans and specifications. Following the receipt of bids from responsible bidders, the City and Lessee will consider and approve such bids, and contracts will then be awarded by the City to install, construct, fabricate and equip the Facilities. Lessee may, with the City's prior approval, enter into contracts for the design work and for the preparation of the preliminary and final plans and specifications for the Facilities prior to the time that proceeds from the sale of the Bonds are available. (c) Whenever approval of either the City or Lessee is required in this Section 3.2, such approval shall not be unreasonably withheld by either the City or the Lessee; provided, however, nothing herein shall be construed as requiring the City to undertake any such project. (d) Contracts relating to the construction, acquisition, equipping, fabrication or installation (or purchases in connection therewith) of the Facilities shall include appropriate provisions for expediting the work and for performance and payment bonds so as to assure completion by specified performance dates and to protect the Facilities against liens, such bonds to name the City as the beneficiary thereof. (e) All necessary approvals from governmental agencies shall be obtained prior to acquiring, constructing, fabricating, equipping or installing the Facilities, and such improvements shall be acquired, constructed, fabricated, equipped or installed in compliance with all state and local laws, ordinances and regulations applicable thereto. Upon completion of the Facilities, all required occupancy permits and authorizations from appropriate authorities contemplated by Lessee shall be obtained by Lessee. All changes, alterations, extras or additions [hereinafter in this subsection (e) called "changes"] to or from and contracts or purchase orders executed or entered into pursuant to the provisions of this Article II shall be approved in advance by the parties hereto. All requests, approvals and agreements required shall be in writing and signed by a duly designated representative of the party making such request, granting such approval or entering into such agreement. All changes to the Facilities may be made after consultation with and approval by the Lessee. (f) It is expressly agreed and understood that the City will not and shall not be required to expend any of the proceeds of the Bonds for any purposes, or in any amounts which are contrary to the terms of the Bond Ordinance. SECTION 2.16 INSUFFICIENCY IN FUNDS In the event the proceeds from the sale of the Bonds are insufficient to pay Construction Costs in full, then the Lessee shall pay the amount of the insufficiency. -24- SECTION 2.17 EFFECTIVENESS OF PART II This Part II shall be effective from and after the date the Revenue Bonds (contemplated in Section 2.2 hereof) are sold by the Lessor. In the event additional facilities are to be hereafter constructed (as contemplated by Section 2.14) the approval of the Lessee of the interest rates and other terms and conditions thereof shall be approved by the Vice President of the Lessee. -25- PART III REPRESENTATIONS SECTION 3.1 REPRESENTATIONS BY THE CITY The City makes the following representations as the basis for the undertakings on its part herein contained: (a) The City is a duly and lawfully incorporated and existing municipal corporation of the State of Texas having the power to enter into the transaction contemplated by this Agreement and to carry out its obligations hereunder, and by proper action of the City's governing body has been authorized to execute and deliver this Agreement; and (b) The City has good title to the Leased Land. SECTION 3.2 REPRESENTATIONS BY LESSEE The Lessee makes the following representations as the basis for its undertakings herein contained: (a) It is a corporation duly incorporated under the laws of the State of Delaware; is in good standing under its Certificate of Incorporation or Charter and the laws of said State; is duly authorized to do business in the State of Texas; has the power to enter into this Agreement without violating the terms of any other agreement to which it may be a part; and by proper corporate action has been duly authorized to execute and deliver this Agreement; and (b) It will operate the Base Facilities on behalf of the City for the public purposes for which the same were acquired or constructed and are to be operated hereunder, upon and subject to the control and jurisdiction of the City in accordance with the terms hereof. -26- PART IV EVENT OF DEFAULT AND REMEDIES SECTION 4.1 EVENTS OF DEFAULT DEFINED The following shall be "events of default as to the Lessee" under this Agreement and the term "events of default as to the Lessee" shall mean, whenever it is used in this Agreement, any one or mare of the following events: (a) Failure by the Lessee to pay when due or cause to be paid when due either the Ground Rent or the Net Rent, or both, required to be paid under Article V hereof. (b) Failure by the Lessee to observe and perform any covenant, condition or agreement on its part to be observed or performed other than as referred to in subsection (a), next above, for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, given to the Lessee by the City, unless the City shall agree in writing to an extension of such time prior to its expiration. (c) The Leased Premises shall be abandoned, deserted or vacated by the Lessee or any lien shall be filed against the Leased Premises or any part thereof in violation of this Agreement and shall remain unreleased for a period of sixty (60) days from the date of such filing unless within said period the Lessee is contesting in good faith the validity of such lien. (d) The dissolution or liquidation of the Lessee or the filing by the Lessee of a voluntary petition in bankruptcy, or failure by the Lessee within sixty (60) days to lift any execution, garnishment or attachedment of such consequence as will impair its ability to carry on its operations at the Facilities, or the adjudication of the Lessee as a bankrupt, or general assignment by the Lessee for the benefit of its creditors, or the entry by the Lessee into an agreement of composition with its creditors, or the approval by a court of competent jurisdiction of a petition applicable to the Lessee in any proceedings for its reorganization instituted under the provisions of the general bankruptcy act, as amended, or under any similar act which may hereafter be enacted. The term "dissolution or liquidation of the Lessee," as used in this subsection, shall not be construed to include the cessation of the corporate existence of the Lessee resulting either from a merger or consolidation of the Lessee into or with another corporation or a dissolution or liquidation of the Lessee following a transfer of all or substantially all of its assets as an entirety, under the conditions permitting such actions contained in Section 1.7 hereof. SECTION 4.2 REMEDIES ON DEFAULT Whenever any event of default as to the Lessee referred to in Section 5.1 hereof shall have happened and be subsisting, the City may take any one or more of the following remedial steps as against the Lessee: (a) The City may re-enter and take possession of the Leased Premises without terminating this Agreement and sublease (or operate as sublessee) the Facilities for the Account of the Lessee, holding the Lessee liable for the difference between the rents and other amounts payable by the Lessee hereunder and the rents and other amounts payable by such sublessee in such subleasing or, if operated by the City, the difference between the net revenues received from such operations and the rents and other amount payable by Lessee hereunder. -27- (b) The City may terminate this Agreement, exclude the Lessee from possession of the Leased Premises and use its best efforts to lease the same to another party for the account of the Lessee, holding the Lessee liable for all rents and other amounts due under this Agreement and not paid by such other party. (c) The City may take whatever other action at law or in equity as may appear necessary or desirable, to collect the rent then due and thereafter to become due, or to enforce performance and observance of any obligation, agreement or covenant of the Lessee under this Agreement. SECTION 4.3 NO REMEDY EXCLUSIVE No remedy herein conferred upon or reserved to the City is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement, or hereafter existing under law or in equity. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the City to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, unless such notice is herein expressly required or is required by law. SECTION 4.4 AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES In the event there should be a default under any of the provisions of this Agreement and the City should determine the services of an attorney are required or the City incurs other expenses for the collection of rent or the enforcement of performance or observance of any obligation or agreement on the part of Lessee, the Lessee agrees that it will on demand therefor pay to the City the reasonable, just and necessary fee of such attorneys and other reasonable expenses so incurred. SECTION 4.5 NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER In the event any covenant contained in this Agreement should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. -28- PART V TERMINATION BY LESSEE SECTION 5.1 WHILE BONDS OUTSTANDING As provided in this Agreement, Net Rent is not subject to termination by Lessee while any Bonds are outstanding and not fully and finally paid. SECTION 5.2 TERMINATION FOR OTHER PURPOSES As to the payment of Ground Rent, and as to all rental after all the Bonds are fully and finally paid, Lessee may terminate this Agreement upon the occurrence of any one or more of the following reasons: (a) If Lessee shall be prevented from using the Facilities for: (i) A period longer than thirty (30) consecutive days, resulting from any condition at the Airport not due to the fault of Lessee; or (ii) A period longer than ninety (90) consecutive days, resulting from a permanent injunction issued by any court of competent jurisdiction; or (iii) A period longer than ninety (90) consecutive days, resulting from any order, rule or regulation of the Federal Aviation Administration, or other governmental agency having jurisdiction over the operations of Lessee, with which Lessee is unable to comply at reasonable cost or expense. (b) The City shall fail to perform any of its obligations under this Agreement within twenty (20) days after receipt of notice of default hereunder from Lessee (except where fulfillment of its obligation required activity over a period of time and the City shall commence to perform whatever may be required for fulfillment within twenty (20) days after the receipt of notice and continue such performance without interruption, except for causes beyond its control). Upon the occurrence of any of the foregoing events, or at any time thereafter during the continuance of any such condition, Lessee may, by twenty (20) days, written notice terminate this Agreement, such termination to be effective upon the date set forth in such notice and to have the same effect as if the term hereof had expired on that date, subject, as aforesaid, to the provisions of Section 5.1 hereof. No waiver by Lessee of any default on the part of the City in the performance of any of the terms, covenants or conditions hereof to be performed, kept or observed by the City shall be or be construed to be a waiver by Lessee of any other or subsequent default in the performance of any of said terms, covenants and conditions. -29- PART VI SECTION 6.1 ADDITIONS. EXTENSIONS AND MODIFICATIONS OF FACILITIES, REFUNDING BONDS (a) The Lessee shall not, without the prior written approval of the City, erect or permit to bc erected any structures or make (1) any improvements, alterations, modifications, additions, or repairs which require a change in the foundation of a building or structure or (2) replacements of any structure built on the Maintenance Premises, except as specifically provided herein; nor shall it install or permit to be installed any fixtures (other than fixtures, removable without material damage to the Maintenance Premises, any such damage to be immediately repaired by the Lessee and which fixtures Lessee shall be entitled to remove) without such written approval. (b) In the event the Lessee shall, for the purpose of achieving interest-cost savings or otherwise, consider it desirable to issue Refunding Bonds for the purpose of refunding or refinancing all or any part of the Bonds at the time outstanding, the City agrees to issue the Refunding Bonds thus requested, provided (i) such Refunding Bonds are at the time permitted by the laws of the State of Texas; (ii) they can be issued with the interest tax-exempt under the Laws of the United States; (iii) their issuance can be accomplished without violating any provisions of the Bonds or the rights of the holders thereof. The City expressly agrees not to issue any Refunding Bonds without the consent and approval of the Lessee. SECTION 6.2 REFUNDING BONDS The City and the Lessee acknowledge that as economic conditions change it may become necessary or desirable to issue Bonds for the purpose of refunding or refinancing of any part or all of the Bonds from time to time outstanding. Accordingly, the City agrees to reserve the right to issue Bonds for such purposes in the Bond Ordinance, and the same may be issued hereafter, subject to the terms of Section 6.1(b) hereof. SECTION 6.3 FORMAL APPROVALS BY LESSEE (a) With respect to the approvals herein required of the Lessee, Lessee shall furnish to the City a certificate signed by its Secretary or an Assistant Secretary, under the seal of the corporation, and such certificate shall set forth the officers or representatives of Lessee who are authorized to grant such approvals -30- and to bind the Lessee thereto; and the City and all third parties affected by any such approvals, including the holders of Bonds, may rely upon any writing purporting to grant such approvals signed by any officer or representative thus certified as being conclusively binding upon Lessee, and any such writing shall itself constitute conclusive evidence that any and all corporate actions necessary to be taken with respect to the matter thus approved by such officer or representative shall be conclusively presumed to have been so taken by the corporation, and that the approval therein given has been authorized by the corporation. (b) Whenever herein the approval of Lessee is required in connection with additional bonds, the same shall be deemed to mean the complete ordinance, except for rate of interest, award provisions and the terms of sale and any other matters deferred until the date of sale as contemplated by Section 2.17, Section 2.3 (last sentence of the first paragraph) governs the Bonds. SECTION 6.4 REMEDIES AGAINST CONTRACTORS AND SUBCONTRACTORS AND SURETIES Lessee shall participate in the planning, design and the award of any contracts for the construction of the Facilities. Tn the event of default of any contractor or subcontractor under any contract made by it in connection with the construction of the Facilities, the City will promptly proceed, either separately or in conjunction with others, to exhaust the remedies of the City against the contractor or subcontractor so in default and against the surety of each for the performance of such contract. The City agrees to advise the Lessee of the steps it intends to take in connection with any such default. Any amounts recovered by way of damages, refunds, adjustments or otherwise in connection with the foregoing prior to the completion of any construction, shall be made a part of the funds available for the payment of the Construction Costs. If any such recoveries are made after the completion of any construction in connection with the Facilities, the amounts recovered shall be applied in accordance with Sections 2.4(3) hereof. SECTION 6.5 NOTICES Notices provided for in this Agreement shall be sufficient if sent by registered or certified mail, postage prepaid, addressed, if to the City - Mayor & City Council, Greenville, Texas. P.O. Box 1049, Greenville, Texas 75401, Attention: City Manager, or to such other addresses and person as it may direct in writing; and if to Lessee - E-Systems, Inc., Aircraft System Group, P.O. Box 1056, Greenville, Texas 75401, Attention: General Manager, or to such other address and person as it may direct in writing. Notices shall be deemed completed when mailed unless otherwise herein required. -31- SECTION 6.6 PRIOR AGREEMENTS CANCELLED The following lease agreements heretofore entered by and between the Lessor (or its predecessor companies) and the City are hereby canceled: The Primary Lease Agreement executed on the 28th day of February, 1951, effective as of April 1, 1951, with Lessee's predecessor company, Texas Engineering and Manufacturing Company (hereinafter referred to as the "Primary Lease"); and Amendment No. 1, effective July 23, 1951; Amendment No. 2, effective August 21, 1951; Amendment No. 3, effective September 21, 1951; Amendment No. 4, effective July 1, 1953; Amendment No. 5, effective September 1, 1953; Amendment No. 6, effective December 1 1954; Amendment No. 7, effective June 30, 1955; Amendment No. 8, effective December 6, 1956; Amendment No. 9, effective September 1, 1958; Amendment No. 10, effective July 1, 1959; Amendment No. 11, effective May 1, 1961; Amendment No. 12, effective August 1, 1962; Amendment No. 13, effective April 1, 1964; Amendment No. 14, effective November 1, 1964; Amendment No. 15, effective July 1, 1965; Amendment No. 16, effective August 1, 1966; Amendment No. 17, effective May 1, 1967; Amendment No. 18, effective July 1, 1968; Amendment No. 19, effective July 1, 1969; Amendment No. 20, effective November 1, 1974; Amendment No. 21, effective December 18, 1974; Amendment No. 22, effective January 10, 1975; and Amendment No. 23, effective April 9, 1976, Agreement of Lease dated May 8, 1975 and recorded in Volume 764, pages 528-534 of the Deed Records of Hunt County, Texas by and between Lessor and Lessee three additional tracts of land adjacent to the real property leased to Lessee under the Primary Lease was also leased to Lessee; and it is provided however, that any payment of Ground Rent under such Leases made prior to the execution of this document by Lessee shall discharge any obligation to make a Ground Rent payment under the provisions of this agreement; that the rental is the same and is to be collected by the City only once; that the execution of this contract and the cancellation of the prior contract are to be simultaneous and with respect to rental, the date of the contract as set forth in the preceding contract is not controlling on the question of Ground Rent between the date of this contract and its execution. Net Rent is due on the dates specified herein. This Agreement is executed as of the date shown on page one of this Agreement. CITY OF GREENVILLE By /s/ Kenneth Linden ---------------------------- ATTEST: Mayor /s/ Irene Wilson - ------------------------------ City Clerk APPROVED AS TO FORM /s/ Debra Adami - ------------------------------ City Attorney E-SYSTEMS, INC. By /s/ A. L. Lawson ---------------------------- Vice President ATTEST: /s/ J. D. Reynolds - ------------------------------ Assistant Secretary -32- THE STATE OF TEXAS ) ) COUNTY OF HUNT ) BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this day personally appeared ___________________________, of E SYSTEMS, INCORPORATED, known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be the VICE PRESIDENT of E SYSTEMS, INCORPORATED and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated as the act and deed of E SYSTEMS, INCORPORATED. GIVEN UNDER MY HAND AND SEAL OF OFFICE this the ____ day of________________________, 1977. ______________________________ Notary Public in and for Hunt County, Texas (Notary Seal) THE STATE OF TEXAS ) ) COUNTY OF HUNT ) BEFORE ME, the undersigned authority in and for Hunt County, Texas, on this day personally appeared _______________________, of the City of Greenville, Texas, known to me to be the person whose name is subscribed to the foregoing instrument and known to me to be the Mayor of the City of Greenville, Texas and acknowledged to me that he executed the same for the purposes and consideration therein expressed and in the capacity therein stated s the act and deed of the City of Greenville, Texas. GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the _____ day of __________________________, 1977. ______________________________ Notary Public in and for Hunt County, Texas (Notary Seal) -33- EXHIBIT B Being all that certain tract and parcel of land located and situated within the County of Hunt and State of Texas, being out of and a part of the A. Essary Survey, Abstract Number 296, William Andrews Survey, Abstract Number 4, Andrew McDonald Survey, Abstract Number 689, Hardin Denny Survey, Abstract Number 244, E. G. Eliff Survey, Abstract Number 298, C. B. McDonald Survey, Abstract Number 692 and S. McBride Survey, Abstract Number 717 and more particularly described as follows: Tract A per Exhibit A BEGINNING at the most Eastern Northeast corner of Majors Field, said point being the Northeast corner of a 117.67 acre tract of land described ln warranty deed from W. C. Mellaw to the City of Greenville, Texas, being recorded in Volume 414, Page 402 in the Deed Records of Hunt County, Texas; THENCE 50"26'W, 1936 feet along the Eastern boundary line of Majors Field to a point for a corner; THENCE S47"27'W, 810.4 feet along said boundary line to a point for a corner: THENCE S1"14'W, 1150 feet along said boundary line to a point for a corner; THENCE N45"00'W, 4960 feet along a line to a point for a corner; THENCE North, 1700 feet along a line to a point in the Northern boundary line of Majors Field for a corner; THENCE East, 1240 feet along said Northern boundary line of Majors Field to a point for a corner; THENCE South, 876.64 feet along said boundary line to a point for a corner; THENCE East, 1887.5 feet along said boundary line to a point for a corner: THENCE South, 693.06 feet along said boundary line to a point for a corner; THENCE East, 1015.5 feet along said boundary line to the POINT OF BEGINNING and containing 259.26 acres of land, more or less. Tract B BEGINNING at a point in the Eastern right-of-way of F.M. 1570 and Western boundary line of Majors Field, said point being 279 feet S1"08'W from F. M. 1570 Highway Station Number 123+06.4 and a Northwest corner of a 225.9 acre tract of land described in warranty deed from Hunt County, Texas to the City of Greenville, Texas, being recorded In Volume 643, Page 496 in the Deed Records of Hunt County, Texas, said point also being the Southwest corner of a tract of land being occupied by a City of Greenville electrical sub-station and sewer pump station; THENCE East, 850 feet along the Southern boundary line of said electrical sub-station and sewer pump station tract of land to its Southeast corner for a corner; THENCE N1"08'E, 427 feet along the Eastern boundary line of said electrical substation and sewer pump station tract of land to its Northeast corner for a corner, said corner being an inside corner of Majors Field's Northern boundary line; THENCE North, 349.2 feet along the Northern boundary line of Majors Field to a point for a corner: THENCE East, 880.2 feet along said boundary line to a point for a corner; THENCE S30"00'E, 2180 feet along a line to a point for a corner, said point lying in the Eastern boundary line of the North/South Ramp; THENCE South, 4302.3 feet along the Eastern boundary line of said Ramp to a point for a corner; THENCE West, 485 feet along a line to a point in the Western boundary line of said Ramp for a corner, said point being the Northeast corner of the General Aviation Apron; Exhibit B Page 2 THENCE North, 375 feet along said Western boundary line of said Ramp to its intersection with the Northern boundary line of Ninth Street for a corner; THENCE West, 550 feet along said Northern boundary line of Ninth Street to its intersection with the Eastern boundary line of Avenue "A" for a corner; THENCE North, 1500 feet along the Eastern boundary line of Avenue "A" to its intersection with the Southern boundary line of Seventh Street for a corner; THENCE West, 1330 feet along the Southern boundary line of Seventh Street to the Southwest corner of the intersection of Seventh Street and Avenue "D", said corner being an inside corner of Majors Field's Western boundary line as described in said warranty deed from Hunt County, Texas to the City of Greenville, Texas, recorded in Volume 643, Page 496 in the Deed Records of Hunt County, Texas; THENCE S88"15'W, 106 feet along said boundary line to a point for a corner; THENCE in a Northwesterly direction 30.1 feet along said boundary line and a curve to the right having a radius of 252.5 feet and a central angle of 6"49'48" to its intersection with the Eastern right-of-way line of F.M. 2101 for a corner; THENCE in a Northerly direction along the Eastern right-of-way line of said F.M. 2101 the following: N1"45'W, 88.2 feet; N46"45'W, 71.3 feet; Northwesterly 223 feet along a curve to the left having a radius of 11,509.2 feet and a central angle of 1"6'36"; N41"08'E, 71.3 feet; N3"52'W, 100 feet; N48"52'W, 71.3 feet; Northwesterly 94.1 feet along a curve to the left having a radius of 11,509.2 feet and a central angle of 0"28'6"; N4"50'W, 783.6 feet; N40"10'E, 59.3 feet; N4"50'W, 100 feet; N43"52'W, 66 feet; Northeasterly 559.2 feet along a curve to the right having a radius of 11,409.2 feet and a central angle of 2"48'3"; N46"08'E, 123.1 feet; N1"08'E, 100 feet; N43"52'W, 137.2 feet; Northwesterly 255.6 feet along a curve to the right having a radius of 11,405.2 feet and a central angle of 1"18'14" to its intersection with the Eastern right-of-way line of F.M. 1570; THENCE N1"08"E, 830.7 feet along said right-of-way line of F.M. 1570 to the POINT OF BEGINNING and containing 275.63 acres of land, more or less. EXHIBIT C Being all that certain tract and parcel of land located and situated within the County of Hunt and State of Texas, being out of and a part of the William Andrews Survey, Abstract Number 4, Joseph Prewitt Survey, Abstract Number 852, Elisha Brake Survey, Abstract 64, Andrew McDonald Survey, Abstract Number 689, Hardin Denny Survey, Abstract Number 244, John Manos Survey, Abstract Number 725, David Hall Survey, Abstract Number 484, William Mooney Survey, Abstract Number 694, F. Thweatt Survey, Abstract Number 1342, E. G. Eliff Survey, Abstract Number 298, and S. McBride Survey, Abstract Number 717 and more particularly described as follows: BEGINNING at the most Northern Northeast corner of Tract B per Exhibit A, said corner being an inside corner of Majors Field's Northern boundary line, said corner also being 349.2 feet North and 1578.1 feet East of the most Northern Northwest corner of a 225.9 acre tract of land described in warranty deed from Hunt County, Texas to the City of Greenville, Texas, being recorded in Volume 643, Page 496 in the Deed Records of Hunt County, Texas; THENCE North, 180.8 feet along the Northern boundary line of Majors Field to a point for a corner; THENCE East, 761.9 feet along said boundary line to a point for a corner; THENCE South, 176.3 feet along said boundary line to a point for a corner; THENCE East, 672 feet along said boundary line to a point for a corner; THENCE North, 1251.4 feet along said boundary line to a point for a corner; THENCE East. 971.4 feet along said boundary line to a point for a corner; THENCE South, 1979 feet along said boundary line to a point for a corner; THENCE East, 430 feet along said boundary line to a point for a corner, said point being the most Northern Northwest corner of Tract A per Exhibit A; THENCE South, 1700 feet along a line to a point for a corner; THENCE S45"00'E, 4960 feet along a line to a point in the Eastern boundary line of Majors Field for a corner; THENCE S1"14'W, 77.5 feet along the Eastern boundary of Majors Field to a point for a corner; THENCE in a Southwesterly direction 2144.7 feet along said boundary line to a point in the Southern boundary line of said Majors Field for a corner; THENCE West, 1749.5 feet along the Southern boundary line of Majors Field to a point for a corner; THENCE North, 188 feet along said boundary line to a point for a corner; THENCE West, 423.4 feet along said boundary line to a point for a corner; THENCE South, 188 feet along said boundary line to a point for a corner; THENCE West, 1517 feet along said boundary line to a point for a corner; THENCE South, 1248 feet along said boundary line to a point for a corner; THENCE West, 750 feet along said boundary line to a point for a corner; THENCE North, 648 feet along said boundary line to a point for a corner; THENCE West, 927.44 feet along said boundary line to a point for a corner; THENCE North, 600 feet along said boundary line to a point for a corner; Exhibit C Page 2 THENCE East, 343.64 feet along a line to its intersection with the Eastern boundary line of the North/South Ramp projected for a corner; THENCE North, 6254.3 feet along said projected line of said Ramp and the Eastern boundary line of said Ramp to a point for a corner; THENCE N30"00'W, 2180 feet along a line to the POINT OF BEGINNING and containing 720.02 acres of land, more or less. EXHIBIT D Being Tracts A, B, C, and D per Exhibit A and being all that certain tract and parcel of land located and situated within the County of Hunt and State of Texas, being out of and a part of the A. Essary Survey, Abstract Number 296, William Andrews Survey, Abstract Number 4, Joseph Prewitt Survey, Abstract Number 852, Elisha Brake Survey, Abstract Number 64, Andrew McDonald Survey, Abstract Number 689, Hardin Denny Survey, Abstract Number 244, John Manos Survey, Abstract Number 725, David Hall Survey, Abstract Number 484, William Mooney Survey, Abstract Number 694, F. Thweatt Survey, Abstract Number 1342, R. Barker Survey, Abstract Number 107, E. G. Eliff Survey, Abstract Number 298, C. B. McDonald Survey, Abstract Number 692 and S. McBride Survey, Abstract Number 717 and more particularly described as follows: BEGINNING at a point in the Eastern right-of-way of F. M. 1570 and Western boundary line of Majors Field, said point being 279 feet S1"08'W from F. M. 1570 Highway Station Number 123+06.4 and a Northwest corner of a 225.9 acre tract of land described in warranty deed from Hunt County, Texas to the City of Greenville, Texas, being recorded in Volume 643, Page 496 in the Deed Records of Hunt County, Texas, said point also being the Southwest corner of a tract of land being occupied by a City of Greenville electrical sub-station and sewer pump station; THENCE East, 850 feet along the Southern boundary line of said electrical sub-station and sewer pump station tract of land to its Southeast corner for a corner; THENCE N1"08'E, 427 feet along the Eastern boundary line of said electrical sub-station and sewer pump station tract of land to its Northeast corner for a corner, said corner being an inside corner of Majors Field's Northern boundary line; THENCE North, 349.2 feet along the Northern boundary line of Majors Field to a point for a corner; THENCE East, 880.2 feet along said boundary line to a point for a corner; THENCE North, 180.8 feet along said boundary line to a point for a corner; THENCE East, 761.3 feet along said boundary line to a point for a corner; THENCE South, 176.3 feet along said boundary line to a point for a corner; THENCE East, 672 feet along said boundary line to a point for a corner; THENCE North, 1251.4 feet along said boundary line to a point for a corner; THENCE East, 971.4 feet along said boundary line to a point for a corner; THENCE South, 1979 feet along said boundary line to a point for a corner; THENCE East, 1670 feet along said boundary line to a point for a corner; THENCE South, 876.64 feet along said boundary line to a point for a corner; THENCE East, 1887.5 feet along said boundary line to a point for a corner; THENCE South 693.06 feet along said boundary line to a point for a corner; THENCE East, 1015.5 feet along said boundary line of Majors Field to a point in the Eastern boundary line of said Majors Field for a corner; THENCE S0"26'W, 1936 feet along the Eastern boundary line of Majors Field to a point for a corner; THENCE S47"27'W, 810.4 feet along said boundary line to a point for a corner; THENCE S1"4'W, 1227.5 feet along said boundary line to a point for a corner; THENCE in a Southwesterly direction 2144.7 feet along said boundary line to a point in the Southern boundary line of said Majors Field for a corner; THENCE West, 1749.5 feet along the Southern boundary line of Majors Field to a point for a corner; Exhibit D Page 2 THENCE North, 188 feet along said boundary line to a point for a corner; THENCE West, 423.4 feet along said boundary line to a point for a corner; THENCE South, 188 feet along said boundary line to a point for a corner; THENCE West, 1517 feet along said boundary line to a point for a corner; THENCE South, 1248 feet along said boundary line to a point for a corner; THENCE West, 750 feet along said boundary line to a point for a corner; THENCE North, 648 feet along said boundary line to a point for a corner; THENCE West 927.44 feet along said boundary line to a point for a corner; THENCE North, 600 feet along said boundary line to a point for a corner; THENCE West 1956.46 feet along said boundary line to a point for a corner, said corner lying in the Eastern right-of-way line of F.M. 2101 and the Western boundary line of Majors Field; THENCE in a Northwesterly direction, 133 feet along a curve to the right having a radius of 1145.92 feet and a central angle of 6''39', to a point for a corner said curve being said Eastern right-of-way line of F.M. 2101 and Western boundary line of Majors Field; THENCE North 3740.9 feet along said Western boundary line of Majors Field to a point for a corner; THENCE S88"15'W, 106 feet along said boundary line to a point for a corner; THENCE in a Northwesterly direction 30.1 feet along said boundary line and a curve to the right having a radius of 252.5 feet and a central angle of 6"49'48" to its intersection with the Eastern right-of-way line of F.M. 2101 for a corner; THENCE in a Northerly direction along the Eastern right-of-way line of said F.M. 2101 the following: N1"45'W, 88.2 feet; N46"45'w, 71.3 feet; Northwesterly 223 feet along a curve to the left having a radius of 11,509.2 feet and a central angle of 1"'36"; N41"08'E, 71.3 feet; N3"52'W, 100 feet; N48"52'W, 71.3 feet; Northwesterly 34.1 feet along a curve to the left having a radius of 11,509.2 feet and a central angle of 0"28'6"; N4"50'W, 783.6 feet; N40"10'E, 59.3 feet; N4"50'W, 100 feet; N43"52'W, 66 feet; Northeasterly 559.2 feet along a curve to the right having a radius of 11,409.2 feet and a central angle of 2"48'30'; N46"08'E, 123.1 feet; N1"08'E, 100 feet; N43"52'W, 137.2 feet; Northwesterly 259.6 feet along a curve to the right having a radius of 11,409.2 feet and a central angle of 1"18'14" to its intersection with the Eastern right-of-way line of F.M. 1570; THENCE N1"08'E, 830.7 feet along said right-of-way line of F.M. 1570 tb the POINT OF BEGINNING and containing 1422.41 acres of land, more or less. EXHIBIT E FIELD NOTES Being all that certain tracts and parcels of land located and situated within the County of Hunt and State of Texas, being out of a part of the A. Essary Survey, Abstract Number 296, William Andrews Survey, Abstract Number 4, Andrew McDonald Survey, Abstract Number 689, C. B. McDonald Survey, Abstract Number 692 and S. McBride Survey, Abstract Number 717 and more particularly described as follows: TRACT I (BUILDING 136-B) BEGINNING at a point 1195.98 feet East and 69.5 feet South of the intersection of the center line of 3rd Street and the East boundary line of F.M. 1570; THENCE East 150 feet for a corner; THENCE South 125 feet for a corner; THENCE West 150 feet for a corner; THENCE North 125 feet to the POINT OF BEGINNING and containing 18,750 square feet of land. TRACT II (BUILDING 116) BEGINNING at a point 1602.75 feet East and 1510.10 feet S O degrees 03' 20"W of the intersection of the center line of 3rd Street and the East boundary line of F.M. 1570; THENCE S 89 degrees 56'40" E, 240 feet for a corner; THENCE S 0 degrees 03'20"W, 300 feet for a corner; THENCE N 89 degrees 56'40"W, 240 feet for a corner; THENCE N 0 degrees 03'20"E, 300 feet to the POINT OF BEGINNING and containing 72,000 square feet of land. TRACT III (BUILDING 108) BEGINNING at a point 1850.28 feet East and 330 feet South of the intersection of the center line of 3rd Street and the East boundary line of F.M. 1570; THENCE South 125 feet for a corner; THENCE West 140 feet for a corner; THENCE North 125 feet for a corner; THENCE East 140 feet of the POINT OF BEGINNING and containing 17,500 square feet of land. EX-10 9 EX-10_N EXHIBIT 10N E-SYSTEMS, INC. 1988 EMPLOYEE STOCK OPTION PLAN as amended This 1988 Stock Option Plan adopted by the Board of Directors of E-Systems, Inc. on December 16, 1987, and amended August 29, 1990. W I T N E S S E T H: 1. Purpose. The Plan is to provide key employees with a proprietary interest in the Company through the granting of options to purchase shares of the Company and the granting of awards of shares of the Company to key employees subject to certain restrictions, as more specifically hereinafter set forth, for the following purposes: (a) to increase the interest in the Company's welfare of those key employees who share primary responsibility for the management, growth and protection of the business of the Company; (b) to furnish an incentive to such employees to continue their services for the Company; and (c) to provide a means through which the Company may attract able persons to enter its employment. 2. Administration. The Plan shall be administered by the Compensation and Benefits Committee ("Committee") composed of members of the Board. The Committee, which shall consist of three members unless otherwise set a greater number by the Board, shall be appointed and vacancies shall be filled by the Board. The Committee shall keep minutes of its activities. 3. Participants. The Committee shall determine from time to time those key employees of the Company or of any Subsidiary corporation of the Company to whom options or stock awards are to be granted and the number of shares optioned or granted to each such employee. Such employees upon the grant of options or award of shares to them shall become participants in the Plan. 4. Restrictions on Eligibility. No option shall be granted to or award made to: (a) any director of the Company who is not an employee of the Company or any of its Subsidiary corporations; or (b) any person who is the beneficial owner of 5% or more of the total combined voting power or value of all classes of stock of the Company or a Subsidiary corporation; or who upon exercise of the option granted or award of the stock awarded would become the beneficial owner of 5% or more of such combined voting power or value of all classes of stock of the Company. 5. Shares Subject to the Plan. The Committee from time to time may provide for options and awards of common stock under this Plan not in excess of an aggregate of 3,500,000 shares of the Common Stock of the Company. These shares shall be made available from either the authorized but unissued Common Stock of the Company or treasury stock held by the Company. Other than shares that have been subject to Stock Appreciation Rights hereunder, any shares that by reason of the expiration of an option or otherwise are no longer subject to purchase pursuant to an option granted, or are no longer subject to delivery under an award made, under the Plan may be reoffered under the Plan. 6. Allotment of Shares. The Committee shall determine the number of shares of Common Stock to be offered from time to time by grant of options or awards to key employees of the Company or its Subsidiary corporations. The selection of an employee as a participant in any grant of options or awards under the Plan shall not be deemed to either entitle such employee to, or to disqualify such employee from, any participation in any other grant of options or awards under the Plan. 7. Grant of Options and Awards. The Committee shall be responsible for and authorized to grant options and awards under the Plan. The grant of options and awards shall be evidenced by agreements containing such terms and provisions as are approved by the Committee, but not more favorable than the terms of the Plan. The Company shall execute such agreements upon instruction from the Committee. Stock Appreciation Rights may be granted from time to time with respect to any options granted under the Plan, as an alternative method of exercise of any option. All provisions, terms and conditions of the E-Systems, Inc. Stock Appreciation Rights Plan ("SAR Plan") adopted January 30, 1979 and approved and ratified by the stockholders on April 18, 1979, and as amended, are incorporated herein by reference. For purposes of such incorporation by reference, the "Stock Option Plan" as defined in the SAR Plan shall be deemed to include this Plan. 8. Option and Award Price. The price of the common stock with respect to which an option or award is granted pursuant to this plan shall be determined by the Committee on the date of grant or award. The exercise price of each option shall be the fair market value of the shares on the date of option grant. The consideration for a restricted stock award shall be nominally $1.00 per share. The Committee shall also determine the fair market value of the stock on the date of grant, and shall set forth the determination in its minutes; provided if the stock is listed on a recognized securities exchange, the fair market value will be taken as the reported average price of the stock on such exchange on the date of grant of the option or award, or if no sale of the stock shall have been reported on such date of grant, on the next preceding day when a sale was reported. 9. Stock Option Exercise Period. The option period shall commence on the date the Committee authorizes the grant of an option. The Committee may provide any period of time for exercising an option, provided that no option shall be for a period of more than 10 years from the date of grant of the option by the Committee. The Committee may provide for the exercise of options in installments and upon such terms, conditions and restrictions as may be determined by the Committee. 10. Rights in Event of Death of Optionee. If a participant dies prior to termination of his or her rights to exercise an option in accordance with the provisions of the stock option agreement without having exercised his or her option as to all shares covered thereby, the Committee may provide that the option may be exercised by the participant's estate or a person who acquired the right to exercise the option by bequest or inheritance or by reason of the death of the participant, vesting the right to all unexercised shares as of the date of the participant's death; provided the period during which the option may be so exercised shall not continue beyond the earlier of 10 years from the date of grant of the option or two years from the date of the participant's death. 11. Special Provisions with Respect to Restricted Stock Awards. The following special restrictions apply to the award of shares by the Committee: (a) Shares of common stock awarded pursuant to this Plan shall be issued and registered in the name of the employee participant and placed in escrow. The participant may not voluntarily dispose of such award shares prior to the earliest of the following events: (i) the participant's retirement under any retirement plan of the Company or a subsidiary corporation; (ii) the participant's death; (iii) in extraordinary cases, with the consent of the Committee, delivery of such shares to the participant following the participant's termination of employment prior to retirement or death; or (iv) expiration of the period of time specified in the award, not to exceed ten years. (b) The Committee may, but need not, at the time of making of an award, or at any subsequent time prior to expiration of the restrictions set forth in subparagraph (a) above, impose additional restrictions on voluntary disposition and release from escrow of the shares awarded pursuant to this Plan, including, without limitation, permitting disposition and release of shares only in installments over a period of years. (c) In order to administer restrictions required or permitted on the release and delivery of award shares to a participant the certificates evidencing such shares awarded hereunder, although issued in the name of the participant, shall be held in escrow by an escrow agent appointed from time to time by the Company, subject to delivery to the participant or to the Company at such times and in such amounts as shall be directed by the Committee under the terms of this Plan or the agreement of award with the participant. A participant's acceptance of an award of shares pursuant to the Plan shall constitute such participant's irrevocable power of attorney to the escrow agent to cause the transfer and delivery to the Company of any such award shares which the Committee shall direct to be so transferred and delivered pursuant to the provisions of this Plan or of the award agreement with the participant. (d) Unless otherwise provided by the Committee, the voting rights on restricted shares shall belong to each participant with respect to those share awards held in escrow. Dividends, if any, on shares held in escrow shall be paid to each participant unless the Committee provides otherwise at the time of making the award. 12. Payments and Withholding Tax. (a) As to option shares, full payment for shares purchased upon exercise of an option shall be made at the time of exercise. Any federal, state or local taxes required to be paid by or withheld from the employee at the time of exercise shall also be paid or withheld prior to delivery of any shares upon such exercise. The exercise price of an option may be paid by delivering shares of the Company's Common Stock valued at current market prices in exchange for additional shares upon exercise of an employee's option. Payment may also be made by delivering a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price and, if applicable, any required federal, state and local taxes required to be collected by, or withheld by, the Company in connection with such exercise. No participant shall have any rights as a stockholder until such shares are issued upon exercise of the options. (b) Provision for or payment by the participant of any state, federal or local withholding taxes attributable to the exercise of an option or delivery of any award shares shall be made in a manner satisfactory to the Company. The Committee in its sole discretion may permit a participant to elect to have the Company withhold, or to tender back to the Company, the number of shares necessary to satisfy the payment of any taxes required to be paid by reason of the exercise of an option or the delivery of any award shares. (c) As to award shares, upon the satisfaction of any conditions for delivery to the employee otherwise set forth in the Plan or in the share award agreement with the participant, shares will be delivered to the participant only upon payment by him to the Company of the amount of any withholding tax which may be imposed thereon under the provisions of the Internal Revenue Code as then in effect or any law of any other taxing jurisdiction requiring payment of any such taxes or withholding tax. Should such participant fail to make the required payment within 30 days following the date of removal of restrictions on the delivery of such shares, such participant shall be deemed to have instructed the escrow agent to sell for such participant's account at the best price reasonably obtained as many of the shares deliverable to such participant as may be necessary to obtain the amount of the required tax payment and the balance of such shares shall then be delivered to the participant. 13. Issuance of Shares. The provisions governing options granted and shares awarded under this Plan shall be evidenced in an appropriate agreement with each participant and shall set forth such terms, conditions, restrictions and agreements as the Committee may provide; however, no such agreement shall conflict with the terms of this Plan and, in the event of any such conflict, the provisions of this Plan shall be deemed to control. 14. Capital Adjustments. The number of shares authorized in the aggregate for this Plan shall be adjusted, and the number of shares of common stock covered by each outstanding option or award granted by this Plan and the option price (where app1icable) thereof shall be subject to an equitable adjustment, as determined by the Committee, to reflect any stock dividend, stock split, or share combination, or to reflect any exchange of shares, recapitalization, merger, consolidation, reorganization, liquidation, or the like, of or by the Company. 15. Nonassignability. The options and awards granted pursuant to this Plan shall not be transferable (other than by will or by the laws of dissent and distribution) assigned, pledged or hypotheticated in any way whether by operation of law or otherwise, or be subject to execution, attachment or similar process. Upon any attempt to so transfer, assign, pledge, hypotheticate, or upon the levy by reason of any attachment or similar process, contrary to the provisions hereof, of any option or award, such option or award shall immediately become null and void. During a participant's lifetime options shall be exercisable only by, and awards deliverable only to, him or her. 16. Termination of Options Rights and Awards. The Committee may provide for the termination of options and the revocation of share awards in the case of a participant's termination of employment with the Company or a Subsidiary corporation for cause for defalcation, theft, embezzlement, falsification of records with intent to defraud or any act involving moral turpitude or crime constituting a felony. Upon such termination of employment, the participant's rights to exercise any options granted pursuant to this Plan or to receive any shares awarded pursuant hereto shall cease. In the case of award shares the Committee shall direct the escrow agent to return all forfeited shares to the Company. 17. Interpretation. The Committee shall interpret this Plan and shall prescribe such rules and regulations in connection with the operation of the Plan as it shall determine to be necessary or advisable for the administration hereof consistent with the purposes herein contained. The Committee shall have the power and authority to rescind, amend and modify its rules and regulations. 18. Amendment or Discontinuation. This Plan may be amended, altered or discontinued by the Company without approval of the shareholders, except the Board of Directors shall not have the power or authority to change the employees or class of employees who are eligible to participate in the Plan, increase the aggregate number of shares which may be issued under options and awards or materially increase the benefits accruing to participants under the Plan. In the event any law, rule or regulation issued or promulgated by the Internal Revenue Service, New York Stock Exchange, Securities and Exchange Commission or other governmental agency requires the Plan to be amended, the Plan will be amended at the time and all options and awards granted and outstanding will be subject to such amendment. 19. Effect of the Plan. Neither the adoption of this Plan nor any action of the Board or Committee shall be deemed to give any officer or employee any right to be granted an option or award with respect to the Common Stock of the Company or to any other rights whatsoever except as may be evidenced by a stock option agreement or share award agreement and any amendment thereto, duly executed on behalf of the Company, and then only to the extent and on terms and conditions expressly set forth therein. 20. Term. Unless sooner terminated by action of the Board, this Plan shall terminate December 15, 1997 and no options or awards may be granted pursuant hereto after such date. 21. Definitions. For purposes of this Plan, unless the context requires otherwise, the following words shall have the meanings indicated: (a) "Plan" shall mean this 1988 Employee Stock Option Plan as amended from time to time in accordance with the terms thereof. (b) "Company" shall mean E-Systems, Inc. and its successors and assigns. (c) "Board" shall mean the Board of Directors of E-Systems, Inc. and its successors and assigns. (d) "Committee" shall mean the Compensation and Benefits Committee appointed by the Board and described in Paragraph 2., Administration, of this Plan. (e) "Common Stock" shall mean the $1.00 par value common stock of the Company subject to the right of the Company to change the authorized number of shares of such class and to provide no par or change in par value for such stock. (f) "Subsidiary corporation" shall mean any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of the granting of the option or making of the award hereunder, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 23. Effectiveness of the Plan. This Plan shall be subject to approval and ratification on or before the next regular or special stockholders' meeting of the Company by the vote of the holders of the majority of the shares of stock of the Company present or represented at the meeting to which the Plan is submitted. Subject to such approval and ratification, the Plan is effective at once. Options and awards may be granted under the Plan prior to such approval and ratification, but each such option or award granted shall be subject to the approval and ratification of the Plan by the stockholders. If the Plan shall not be so approved and ratified, all options and awards granted shall be of no effect. The date of the grant of any option or award granted prior to such approval and ratification by the stockholders shall be determined for all purposes as if the option or award had not been subject to such approval and ratification; however, no option granted may be exercised and no award made may be delivered to a participant prior to such approval and ratification. EX-11 10 EXHIBIT 11 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- PRIMARY Average shares outstanding............................................... 33,476 32,538 32,132 Net effect of dilutive stock options based on the treasury stock method using average market price.............................................. 565 403 591 -------- -------- -------- Total.............................................................. 34,041 32,941 32,723 Net Income (Loss)........................................................ $121,866 $(69,491) $109,538 -------- -------- -------- -------- -------- -------- Per Share Amount......................................................... $ 3.58 $ (2.11) $ 3.35 -------- -------- -------- -------- -------- -------- FULLY DILUTED Average shares outstanding............................................... 33,476 32,538 32,132 Net effect of dilutive stock options based on the treasury stock method using the year end price, if higher than average market price........... 595 799 591 -------- -------- -------- Total.............................................................. 34,071 33,337 32,723 Net Income (Loss)........................................................ $121,866 $(69,491) $109,538 -------- -------- -------- -------- -------- -------- Per Share Amount......................................................... $ 3.58 $ (2.08) $ 3.35 -------- -------- -------- -------- -------- --------
43 EX-21 11 EXH-21 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following table contains a list of all significant subsidiaries of the Registrant, the state or other jurisdiction of incorporation or organization and the names under which such subsidiaries do business.
JURISDICTION OF NAMES UNDER NAME ORGANIZATION WHICH DOES BUSINESS - ------------------------------- ---------------------- -------------------------------------------------- ESY Export Company, Inc. U.S. Virgin Islands E-Systems Serv-Air, Inc. Delaware Serv-Air, "Maintenance Aircraft Company, Inc." and "Air-Serv, Inc." Engineering Research Maryland "ERA" Associates, Inc. HRB Systems, Inc. Delaware "HRB" E-Systems Medical Electronics Delaware "E-MED" Inc. Advanced Video Products, Inc. Massachusetts "AVP"
44 EX-23 12 EXH-23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 2-77230, Post Effective Amendment Number 1 to Form S-8 No. 2-77230; Form S-8 No. 2-98894; Form S-8 No. 33-23740 and Form S-8 No. 33-42745) pertaining to Employee Stock Option Plans of E-Systems, Inc. and the related Prospectuses and the Registration Statements (Form S-8 No. 2-88384; and Form S-8 No. 33-28356) pertaining to the E-Systems Tax Advantaged Capital Accumulation Plan of E-Systems, Inc. and Subsidiaries and the related Prospectuses of our report dated January 27, 1994, with respect to the consolidated financial statements and schedule of E-Systems, Inc. and Subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1993. ERNST & YOUNG Dallas, Texas March 23, 1994 45 -----END PRIVACY-ENHANCED MESSAGE-----