UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21818
FIELDS AIRCRAFT SPARES, INC.
----------------------------
(Name of small business issuer as specified in its charter)
Utah 95-4218263
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2251-A Ward Avenue
Simi Valley, California 93065
-----------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 583-0080
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
shares, par value $.05 per share
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. X
---
The issuer's revenues for the fiscal year ended December 31, 1997 were
$12,101,000.
As of December 31, 1997, 2,079,571 of the issuer's common shares were
issued and outstanding, approximately 1,295,404 of which were held by
non-affiliates. As of March 24, 1998, the aggregate market value of shares held
by non-affiliates was approximately $12,954,040. The issuer believes that three
shareholders who owned approximately 13.6%, 12.8% and 7.9%, respectively as of
March 31, 1998 of the total shares issued and outstanding are not affiliates of
the issuer since they do not participate in management decisions.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the documents of the issuer listed below have been
incorporated by reference into the indicated parts of the Form 10-KSB:
Notice of Annual Meeting of Shareholders and Proxy Statement anticipated to
be filed within 120 days after December 31, 1997 . . . Part III, Items 9-12
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
PART I.
The following Item 1 "BUSINESS" includes statements that relate to future plans,
financial results or projections, events or performance, including statements
with respect to future business potential. These are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
are subject to risks and uncertainties that could cause actual results to differ
materially. Actual results may differ from such forward-looking statements as a
result of a number of factors, including but not limited to competitive factors
and pricing pressures, ability to obtain necessary capital or financing, the
price and availability of aircraft parts and other materials, successful
execution of Fields Aircraft Spares, Inc.'s (the "Company") expansion plans
including combining the business of the completed acquisition with the Company's
business and successful completion of additional acquisitions, failure to
maintain existing customer or vendor relationships, shifts in market demand,
general economic conditions and other risks and uncertainties discussed in this
and other periodic reports filed by the Company with the Securities and Exchange
Commission.
ITEM 1. BUSINESS
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Development of the Company
- --------------------------
The primary business of the Company is the distribution and stocking of
factory new spare parts applicable to various commercial aircraft models and the
brokerage of a wide variety of new and reconditioned aircraft parts through its
subsidiary Fields Aircraft Spares Incorporated, a California corporation
("FAS"). The Company has, through a subsidiary acquired in January 1998, begun
to manufacture, on a selected basis, certain aircraft spare parts. Flightways
Manufacturing, Inc. ("Flightways"), which the Company acquired, manufactures
plastic replacement parts for aircraft cabin interiors. The Company has entered
into a letter of intent to acquire Skylock Industries Incorporated, a
manufacturer of hardware and retaining devices for aircraft interiors, and
intends to acquire other aircraft cabin interior parts manufacturing companies.
In 1984, the Company was organized as FEP Resources, Inc., under the
laws of the State of Utah. In 1985, the Company was renamed Fields Industrial
Group, Inc. and acquired Fields Industrial Supply, Inc., a California
corporation that was engaged in the sale of cutting tools and supplies. As of
1990, that business was discontinued. In 1987, the Company began distributing
aircraft parts. In 1988, the Company incorporated FAS as a wholly owned
subsidiary. In 1995, McDonnell Douglas Corporation (together with its affiliates
and/or divisions, "MDC") acquired Series A Convertible Preferred Stock of FAS
which converted to common shares of the Company in 1997. In 1995, the Company
changed its name to Fields Aircraft Spares, Inc.
On March 29, 1995, the Company's shareholders authorized the reverse
split of the Company's common shares on the basis of 50 old shares for one new
share. The reverse split was effective as of November 20, 1995.
All material aspects of the Company's business other than manufacturing
are conducted through FAS. Manufacturing is currently conducted through
Flightways and future manufacturing is expected to be conducted in subsidiaries.
The business of the Company as conducted through FAS and Flightways is referred
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to in this document as the Company's business. References in this document to
the Company, where appropriate, shall be deemed to be references to the Company
and its subsidiaries, collectively.
The Industry
- ------------
According to The Boeing Company ("Boeing"), in their 1997 Current
Market Outlook, the world jetliner fleet is projected to grow from 11,500
airplanes at the end of 1996 to nearly 17,000 airplanes in 2006. Boeing expects
this increase to be driven by an expected 5.5% per year growth in air travel and
6.6% in air cargo.
In its 23rd annual aviation forecast, the Federal Aviation
Administration (the "FAA") projects that U.S. airline passenger traffic will
increase 3.5% in 1998 and that it will continue to grow at an average rate of
3.7% through 2009. Further, the FAA projects international traffic to and from
the United States by foreign and domestic carriers will increase by 5.5% in 1998
with an average growth rate of 5.8% through 2009.
Industry analysts have estimated that 70% of cargo growth will be met
by converting aging passenger fleets to cargo configurations. Management
believes the number of 10 year and older planes in service continues to climb as
cost considerations in an intensely competitive environment favor the "used and
convert instead of new" purchase decision. This has contributed to the
absorption of surplus aircraft parts and inventories at a faster rate as
airlines extend aircraft utilization and convert aircraft into alternative uses.
The Company believes that all of these trends provide the underpinnings
to the long-term growth of the aircraft spare parts industry.
Business of the Company
- -----------------------
Through December 31, 1997, the primary business of the Company was the
distribution and stocking of factory new spare parts applicable to various
commercial aircraft models and the brokerage of a wide variety of new and
reconditioned aircraft parts through FAS. The Company's business has been
concentrated in the distribution and stocking, as an authorized factory
distributor for various manufacturers, of cabin interior replacement parts for a
wide variety of commercial aircraft models. The Company also distributes from
what it believes to be the largest inventory, outside of MDC, of factory new
parts for DC-8, DC-9, DC-10 and MD-80 aircraft. It also purchases and
distributes both new and used parts and related equipment from aircraft
manufacturers for Boeing, McDonnell Douglas and Airbus aircraft. The Company
sells, exchanges or leases parts to commercial aircraft operators servicing both
the passenger and cargo markets, to overhaul facilities and to brokers
throughout the world.
In January 1998, the Company, through the acquisition of Flightways,
expanded into the business of manufacturing aircraft cabin interior parts. The
Company has signed a letter of intent to acquire Skylock Industries
Incorporated, and intends to acquire additional strategic manufacturing entities
that will enhance the Company's ability to compete. In 1998, the Company expects
that its business will be concentrated in the manufacturing and the distribution
and stocking, as an authorized factory distributor for various manufacturers, of
cabin interior replacement parts for a wide variety of commercial aircraft
models.
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Distributorships
----------------
The Company provides distribution services for manufacturers ("OEM") of
aircraft aftermarket replacement spare parts. The Company concentrates on the
stocking and distributing of interior cabin parts and is an authorized
distributor for a number of OEMs providing replacement parts for lavatories,
galleys, seats, interior latches, tray tables, lighting and cleaning products.
The Company primarily sells these parts to major air carriers and overhaul
facilities. In some cases, the Company has agreements or purchasing arrangements
designating it as the sole or primary source for specific replacement parts. The
Company's acquisition strategy as set forth below is also focused on acquiring
selected manufacturers and distributing its own manufactured parts.
The Company provides inventory management and supply services to air
carriers and aircraft overhaul facilities. By working closely with customers and
aircraft maintenance records, the Company forecasts replacement part demand,
purchases estimated demand from the OEMs, inventories the parts pending the
order, and then supplies the parts to the customers on a just-in-time basis.
This service allows the customers to reduce the cost of carrying and managing
inventory. Further, by consolidating orders, the Company is able to purchase
from OEMs at favorable prices, allowing it to sell to its customers at prices
often below those available to the customer when buying direct from the OEM.
During 1997, the Company served as the exclusive source of specific
replacement parts for galleys, lavatories and seats for two major airlines and
one regional carrier. The Company is in varying stages of negotiations with a
number of other airlines to become their exclusive source of various interior
replacements parts. No formal agreements have been reached with other airlines.
As of December 31, 1997, backlog of distributorship orders for shipment
in 1998, which the Company believes to be firm, was approximately $2.3 million.
There was backlog of approximately $1.6 million of distributorship orders as of
December 31, 1996.
McDonnell Douglas Components and Parts
--------------------------------------
The Company believes that it has the largest factory new inventory of
DC-8, DC-9, DC- 10 and MD-80 parts outside of MDC. This inventory consists of
over $70 Million, catalog value, of factory new spare parts and components
purchased directly from MDC in 1989 and 1991. MDC inventory is generally sold at
a discount to catalog value. The total future discount to catalog value cannot
be quantified at this time.
An important factor in the aircraft spare parts distribution market is
the documentation or traceability that is supplied with an aircraft spare part.
MDC has re-certified the Company's MDC inventory as directly traceable to their
production certificate, and it is the only inventory known to the Company
outside of MDC's direct control that has been certified to allow MDC to
repurchase and ship to customers without having to go through their quality
control department for a source inspection.
Based upon its market research, the Company believes that in many cases
parts in this inventory are the only new material and in many cases are the only
material available in any condition.
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Once the Company's MDC inventory is depleted, this segment of business
will no longer be a revenue source for the Company.
Brokerage Activities
--------------------
The Company receives inquiries from its customers for parts that are
not currently held in its inventory. The salesperson receiving this request
checks a computerized industry database known as the Inventory Locator Service
("ILS") and utilizes the knowledge of the Company and its staff to locate a
suitable part. Once located, a purchase price is agreed with the owner of the
part. At that time, the sales person contacts the customer and extends a quote.
If the quote is accepted by the customer, the part is purchased and shipment to
the Company's warehouse is arranged. When received at the warehouse, both the
part and its accompanying paperwork are inspected. After inspection and
acceptance, the part is shipped to the customer.
Because of government and industry group guidelines, aircraft operators
have become increasingly careful from whom they buy parts. The Company has had
its quality control systems and procedures audited and evaluated by MDC as well
as by a number of major airlines and freight operators. Almost every major U.S.
airline, freight operator and overhaul facility has designated the Company as
either an approved or preferred vendor. This preferred status has enabled the
Company to act as a broker to purchase parts for airlines when the Company does
not have the parts in stock.
Because parts for brokerage are not purchased until a corresponding
sale has been made, it is less capital intensive than the purchase and sale of
inventory. Brokerage allows incremental increases in sales without corresponding
increases in overhead.
New Material Acquisition
------------------------
The Company uses information provided by its customers and industry
research to identify new parts and materials that customers have difficulty in
obtaining on short notice. The Company then stocks inventories of these items
and makes them available to its customers on a just-in-time basis as well as
through the ILS.
Manufacturing
-------------
Through Flightways, acquired in 1998, the Company manufacturers high
quality plastic replacement components for commercial aircraft seats and
interiors, including foodtrays, latches, shrouds, panels, armcaps, bumper
strips, escutcheons, and components for lavatories, galleys, cockpits, windows
and overhead units. The Company sells new parts to aircraft manufacturers and to
airlines and aircraft repair facilities. Also, through its repair station, the
Company overhauls and repairs seats, seating components, carts and modules.
The customers of Flightways include U.S. domestic airlines as well as
an increasing number of international carriers. The Company intends to initially
operate Flightways out of its Van Nuys, California, facility. The Company may
eventually consolidate its corporate headquarters with that of Flightways into a
larger facility. The Company will deliver the products and services of
Flightways through the Company's distribution system.
5
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On January 20, 1998, the Company entered into a letter of intent to
acquire 100% of the outstanding shares of Skylock Industries Incorporated
("Skylock"). Skylock is a designer and manufacturer of hardware and retaining
devices for aircraft interiors. Skylock focuses on using advanced technologies
and manufacturing methods to optimize such critical elements as appearance,
weight, ease of use and security. The acquisition of Skylock is subject to the
entering of a definitive agreement and verification of factual matters. There is
no assurance the acquisition of Skylock will be completed.
Consignments
------------
In 1995, the Company entered into a three-year consignment arrangement
to warehouse and market spare parts for Airweld of Kentucky, Inc. Other
consignment arrangements are currently under negotiation, although no assurances
can be made that the Company will be successful in completing those
negotiations. Under such consignment arrangements, the consignor retains
ownership and the Company arranges the sales for the consignor.
Parts warehoused by the Company under consignment arrangements are also
listed by the Company in the SPEC 2000 and the ILS computerized databanks. In
addition, the Company adds the consignment inventories to the inventory listings
that it provides its customers in computer readable form.
Business Growth Strategy
- ------------------------
The Company intends to pursue the following areas of growth:
Obtain Additional Distributorships. The Company intends to pursue and
secure additional distributorships with other aircraft cabin interior
manufacturers. In addition, the Company intends to expand its distributorship
activities to other aircraft parts and systems.
Acquisitions. The aircraft industry is populated by a large number of
small manufacturing companies providing a variety of parts and services. With
the worldwide demand for aircraft increasing and the growth in outsourcing by
air carriers, along with their desire to reduce the number of vendors they deal
with, the Company believes there is significant opportunity to grow through
acquisition.
Capitalize on Authorized Vendor Status. The Company has been authorized
as a vendor of record by most major air carriers and aircraft overhaul
facilities. This provides the opportunity to expand sales with existing
customers, as those customers work to reduce the number of vendors they deal
with. Also, as the owner of what management believes to be the largest inventory
of factory new MDC parts outside of MDC, customers would be reluctant to remove
the Company as a vendor, which gives the Company a marketing advantage over the
competition.
Brokerage. The increasing population of aircraft in service is expected
to increase the demand for parts. With its relationships in the industry, its
status as a vendor to most major air carriers and its reputation for quality and
service, the Company intends to take advantage of this growing segment of the
market.
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Expand new parts and material sales. The Company intends to increase
inventories of parts that customers have trouble obtaining on a timely basis
with the goal of providing complete inventory management and supply services to
air carriers.
Operations
- ----------
The Company maintains an inventory consisting primarily of factory new
aircraft spare parts in its warehouse in Fillmore, California. The Company's
inventory is listed in two computerized data banks that are available to the
airline industry: SPEC 2000 and the ILS. The Company pays a fee to be listed on
such systems and continually updates the Company information listed on the
systems to keep them current. In addition, the Company provides an inventory
listing in computer readable form to many of its major customers. The Company
receives orders for spare parts from commercial aircraft operators servicing
both the passenger and cargo markets, from overhaul facilities and from brokers.
The Company currently has seven full-time inside salespersons and six full-time
outside salespersons. Additionally, the Company is represented on an
international basis by a number of independent outside general sales agents.
Orders for parts in inventory are filled and shipped, 24 hours per day,
F.O.B. from the warehouse, generally within five hours of the receipt of the
order. The Company believes that a quick turn-around time, between an order
being taken and the part being delivered, is a key service for which the
customer is willing to pay. Reducing the time that an aircraft is on the ground
is a major advantage the Company offers to its customers. The Company's
warehouse is 60 minutes from Los Angeles International Airport and has a
delivery service to the airport. In addition, the Company utilizes commercial
cargo carriers to deliver spare parts to the Los Angeles airport and around the
world. The Company emphasizes its ability to respond quickly in obtaining parts
for its customers.
The Company's business exposes it to possible claims for personal
injury or death which may result from the failure of an aircraft spare part sold
or manufactured by it. While the Company maintains what it believes to be
adequate liability insurance to protect it from such claims, and while no
material claims have, to date, been made against the Company no assurance can be
given that claims will not arise in the future or that such insurance coverage
will be adequate.
Pricing
- -------
The price at which the Company sells parts is based upon market
competition.
Marketing
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The Company currently concentrates its marketing efforts in the
following areas:
(i) commercial airlines servicing the passenger market;
(ii) commercial airlines servicing the cargo market;
(iii) aircraft leasing companies; and
(iv) overhaul facilities.
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As the Company expands into manufacturing, it intends to continue its
marketing efforts in these areas and to add marketing efforts aimed directly at
OEM's.
The Company has not conducted any formal market studies to determine
the actual size of each of its current and any proposed markets, and relies upon
the experience of its officers and key employees for such judgments.
The Company sells its products through three primary methods:
1. The use of its own sales staff which currently includes 13
salespersons. This staff calls on customers and potential customers to determine
the needs of such customers and responds to incoming calls. Once the need is
determined, the order is then sent to the Company's warehouse.
2. The use of computerized parts database systems.
3. The use of exclusive and non-exclusive general sales agency
agreements.
The Company has developed literature and advertising material
describing the Company's products and services. The literature is distributed by
the Company's sales staff and agents, as well as by mail, to previous and
current customers, persons who have responded to previous advertising, and
companies believed to be engaged in the relevant market.
The Company also uses media advertising, such as trade journals and
technical publications, directed toward specific market segments. In addition,
the Company attends trade shows and puts on exhibitions directed to specific
market segments.
During the fiscal year ended December 31, 1997, two customers of the
Company each accounted for more than 10% of sales. No other single customer
accounted for more than 10% of the Company's sales. During the 1996 fiscal year,
one of the Company's customers accounted for more than 10% of sales.
In an effort to increase foreign sales, the Company intends to engage
additional independent representatives to serve foreign markets.
Competition
- -----------
The Company competes with a number of large and small sellers of
aircraft spare parts in the aviation after-market. These competitors include
OEM's such as Boeing, aircraft service companies and aircraft spare parts
redistributors. The major aircraft service companies and aircraft spares parts
redistributors with which the Company competes include AAR Corp., AGES, Aviation
Sales and The Memphis Group. For many of the Company's competitors, the sale of
aircraft spare parts is only a part of larger sales operations. The
manufacturing segments of the aviation industry in which Flightways and Skylock
operate are considered to be highly fragmented and competitive. Many of the
Company's competitors are larger and more established than the Company and have
greater financial resources and larger facilities and marketing forces. The
Company's increased emphasis during the past two years on distributorships and
its current expansion into manufacturing has exposed the Company to new
competitors.
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Although the Company has not performed any market survey studies, it
believes that industry competition is based primarily upon service, price and
reputation of the supplier. The Company believes that it is competitive and that
it enjoys a good reputation. There can be no assurance, however, that the
Company has, or can maintain, a significant competitive advantage in any of
these areas.
Government Regulation
- ---------------------
The Company's business is regulated in the United States by the FAA.
The FAA has numerous regulations that must be complied with by the Company.
The Company is subject to U.S. federal governmental regulation on
foreign sales of its products. Depending on the type of product, the Company may
be subject to review by various federal agencies for a determination of whether
the specific product is a high technology product subject to restriction. Export
licenses may be denied for certain high technology products. If such a decision
is rendered, the Company may experience substantial time delays and expense in
the application and approval of export licenses. If export licenses are not
granted, the Company would be precluded from selling such products in certain
foreign markets.
The Company's sales in foreign countries are subject to various
applicable foreign governmental regulations. To date, compliance with such
regulations has not had a material adverse effect on the Company's operations.
Financing Arrangements
- ----------------------
McDonnell Douglas Corporation Contracts
---------------------------------------
In 1995, the Company and MDC entered into a Debt Restructure Agreement
and related agreements (collectively the "MDC Agreement") pursuant to which MDC
canceled $7,658,500 of debt owed by the Company in exchange for 586,862 shares
of Series A Convertible Preferred Stock of FAS (the "Series A Shares") and a
cash payment of $850,000.
In connection with the MDC Agreement, the Company and MDC entered into
a Securities Exchange Agreement of even date with the MDC Agreement (the
"Exchange Agreement"). The Exchange Agreement provided for the mandatory
exchange of the Series A Shares for 25% of the issued and outstanding common
shares of the Company on a fully diluted basis within 10 days following the date
on which the common shares were approved for quotation, and were quoted for
trading on. The Nasdaq Stock Market(SM) as a SmallCap issue. The Company
exchanged the MDC Series A Shares for 564,194 common shares on April 4, 1997.
The Exchange Agreement further provided for the Company to register the common
shares issued to MDC in connection with the Exchange Agreement under certain
circumstances.
Peter Frohlich, Alan Fields and Lawrence Troyna (each an affiliate of
the Company and collectively referred to as the "Fields' Group") and the Company
and MDC entered into a Voting Agreement of even date with the MDC Agreement (the
"Voting Agreement"). The Voting Agreement provides that MDC will vote the common
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shares owned by MDC in favor of directors proposed by the Fields' Group,
provided MDC has the right to designate up to 25% of the directors proposed if
MDC so elects.
Credit Arrangements
-------------------
In 1995, the Company, through FAS, entered into a line of credit
arrangement (the "Credit Agreement") with Norwest Business Credit Inc.
("Norwest") providing originally for a line of credit in the amount of
$10,000,000 with interest payable monthly at 2.5% over the prime rate. In March
1997, an Eighth Amendment to the Credit Agreement was entered into which
permitted the Company to have outstanding $6,131,000.
On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit Commercial Funding ("NationsCredit") at an annual interest rate of
prime plus 3%. All assets of the Company and its subsidiaries are pledged as
collateral. NationsCredit advanced $6,717,000 on April 18, 1997 which was used
to repay the obligations owed to Norwest and other fees incurred in connection
with the NationsCredit loan facility. In connection with the NationsCredit loan
facility, the Company issued NationsCredit an option to acquire 40,000 common
shares of the Company at a price of $6.25 per share.
In September 1997, the NationsCredit loan facility was amended to allow
the Company to issue 8.5% Subordinated Redeemable Debentures Due 2000 in the
principal amount of $10,000,000.
In connection with the Norwest and NationsCredit credit facilities, the
Company retained a financial advisor to assist the Company in obtaining and
closing the credit facilities. At the closing of each facility, the Company paid
the financial advisor a fee of $200,000. The Company also entered into a
contract with the financial advisor in February 1995 whereby the financial
advisor would provide ongoing consulting to the Company. The contract provided
for the Company to pay the financial advisor a non-refundable retainer of
$150,000, which was payable over the period of the contract. The agreement with
the financial advisor lapsed in February 1998.
Employees
- ---------
At December 31, 1997, the Company had approximately 33 full-time
employees. Following the acquisition of Flightways in January 1998, the number
of employees increased to approximately 138 full-time employees. None of the
employees are unionized. Management is of the opinion that its relationship with
its employees is good. Management believes that, although unemployment has
dropped substaintially in the aviation industry, persons with requisite training
and experience are available to meet Company needs if and when necessary.
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ITEM 2. DESCRIPTION OF PROPERTY
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The executive offices of the Company are located at 2251-A Ward Avenue,
Simi Valley, California and its telephone number is (805) 583-0080. The
executive office space consists of approximately 5,000 square feet of office
space located in a two-story building. The offices are leased on a month to
month basis.
The Company's warehouse is located at 341 "A" Street, Fillmore,
California. The warehouse building was leased by the Company in 1988. In 1991,
the Company exercised an option to purchase the building. The warehouse is an
older produce-packing building of wood and concrete construction with a
high-ceiling upper floor and a concrete lower/basement floor, all clear span
except for wooden pillar supports. The total storage area for both floors is
83,600 sq. ft. Exterior open-air storage area (secured) is approximately 18,700
sq. ft. A modern fire-prevention system with a ceiling water pressure sprinkler
system is installed on both floors. A visual/aural monitoring security system
operates inside the building and in all the exterior property contained within
the fenced area.
On January 16, 1998, the Company completed its acquisition of
Flightways. Flightways operates in a manufacturing facility located at 7660
Densmore Avenue, Van Nuys, California. The manufacturing facilities consist of
approximately 3,000 square feet of office space and 12,000 square feet of
manufacturing space. The lease on the property expires July 31, 1999.
Flightways also leases approximately 5,000 square feet of warehouse
space located at 16153 Covello, Van Nuys, California. The space is leased on a
month to month basis.
On March 21, 1997, the Company signed a lease effective August 1, 1997
for executive offices and warehousing space. Subsequently, the Company
determined that these premises were too small for the Company and the premises
were sublet to a third party at a rent resulting in a small profit to Company.
The Company maintains an executive office located in London, England.
The office is leased from a third party by Belgravia Sales Financial Services
Limited, an entity owned and controlled by certain officers of the Company, and
is sublicensed to the Company on a month to month basis at a monthly rental to
the Company of $2,150. The underlying lease expires September of 1999. See
"Certain Relationships and Related Transactions."
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The following chart provides more detailed information concerning the
Company's properties:
<TABLE>
<CAPTION>
Approximate Size
in
Location Sq. Ft. of Facility Lease Expiration Primary Use
- -------- ------------------- ---------------- -----------
<S> <C> <C> <C>
Simi Valley, California 5,000 month to month Executive Offices
Fillmore, California 83,600(1) owned Warehouse
Van Nuys, California 15,000 1999 Manufacturing
Van Nuys, California 5,000 month to month Warehouse
London, England 1,000 month to month Executive Offices
Simi Valley, California 24,000 2002 Sublet to Third
Party
</TABLE>
(1) Located on two acres.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company is currently not a party to any known litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted during the fourth quarter of the year ended
December 31, 1997 to a vote of the Company's shareholders.
PART II.
ITEM 5. MARKET FOR COMMON SHARES AND RELATED SHAREHOLDER MATTERS
- ------- --------------------------------------------------------
Market Information
- ------------------
Until May 17, 1996, there was no market for the Company's common
shares. The common shares were quoted over-the-counter under the symbol FASS
until March 25, 1997. Commencing March 26, 1997, the common shares were quoted
on The Nasdaq Stock Market(SM) as a SmallCap issue under the symbol FASI.
The Nasdaq Stock Market(SM), which began operation in 1971, is the
world's first electronic securities market and the fastest growing stock market
in the U.S. Nasdaq utilizes today's information technologies--computers and
telecommunications--to unite its participants in a screen-based, floorless
market. It enables market participants to compete with each other for investor
orders in each Nasdaq security and, through the use of Nasdaq Workstation II(TM)
and other automated systems, facilitates the trading and surveillance of
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thousands of securities. This competitive marketplace, along with the many
products and services available to issuers and their shareholders, attracts
today's largest and fastest growing companies to Nasdaq. These include industry
leaders in computers, pharmaceuticals, telecommunications, biotechnology, and
financial services. More domestic and foreign companies list on Nasdaq than on
all other U.S. stock markets combined.
The following table sets forth, for the fiscal quarters indicated, the
high and low bid quotations as reported by the National Quotation Bureau until
March 25, 1997 and thereafter by The Nasdaq Stock Market(SM). The quotations
quoted by the National Quotation Bureau reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
<TABLE>
<CAPTION>
================================================================================================================================
Period 1996 1997
- --------------------------------------------------------------------------------------------------------------------------------
High Bid Low Bid High Closing Price Low Closing Price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter --- --- $ 6.00** $2.50**
- --------------------------------------------------------------------------------------------------------------------------------
Second Quarter $ 6.50* $ 2.50* 6.75 5.00
- --------------------------------------------------------------------------------------------------------------------------------
Third Quarter 5.00 4.00 11.50 4.75
- --------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter 5.00 2.50 14.00 8.00
================================================================================================================================
* Beginning May 17, 1996
** From January 1, 1997 to March 25, 1997 prices represent the high and low bid.
Thereafter price represents the closing price on The Nasdaq Stock Market(SM)
</TABLE>
Shareholders.
- -------------
At December 31, 1997, the number of record holders of the Company's
common shares was approximately 260. The Company believes it has in excess of
300 round lot shareholders of beneficial interest of the Company's common
shares. The Company has no outstanding preferred shares.
Dividends
- ---------
The Company utilizes all available funds for working capital purposes
and has never paid a dividend. Management does not anticipate paying dividends
in the foreseeable future on common shares. In addition, the Company's loan
arrangements restrict the payment of dividends by the subsidiaries of the
Company. There are no preferred shares currently outstanding. In the future, the
Company may issue preferred shares which may pay dividends.
Issuance of Shares Without Registration
- ---------------------------------------
During the fourth quarter of the year ended December 31, 1997, the
Company issued the following securities without registration under the
Securities Act of 1933:
13
<PAGE>
As of September 30, 1997, the Company closed a private placement of
$10,000,000 principal amount of 8.5% Subordinated Redeemable Debentures Due 2000
(the "Debentures") to non-United States persons pursuant to Regulation S. The
holders of Debentures have a one-time right at any time after December 29, 1997,
through September 27, 2000, subject to prior redemption or repurchase, to
convert up to 30% (less any amounts converted pursuant to the Mandatory
Conversion described below) of the principal amount of Debentures into common
shares. The conversion price (the "Conversion Price") is equal to 85% of the
average closing price of the Company's common shares during the 20-trading day
period ending on the date of notice of conversion, but in no event less than
$12.00 per share, subject to certain adjustments. In the event that during any
20-trading day period, the average closing price of the common shares equals or
exceeds $12.00 per share, the Company may require the conversion of up to 20% of
the principal amount of outstanding Debentures at the Conversion Price
("Mandatory Conversion"). Etablissement Pour le Placement Prive, Zurich
Switzerland ("EPP") acted as the Company's placement agent in connection with
the offering. In addition to its commissions of 8% of the offering price, EPP
also received placement fee of $175,000 and 15,000 common shares, valued at
$172,500. After brokerage and issuance costs, the sale of the Debentures
resulted in a net infusion of capital of approximately $8,850,000.
On October 13, 1997 the Company issued 5,000 common shares to EPP at an
agreed on value of $11.50 per share as part payment for consulting services.
Pursuant to its Mandatory Conversion right, the Company converted
approximately $2,000,000 principal amount of Debentures at the Conversion Price
of $12.00 per share. Accordingly, on November 14, 1997, 166,666 common shares,
at $12.00 per share, were issued to Debentureholders and approximately
$2,000,000 principal amount of Debentures were cancelled.
As of February 20, 1998, the Company entered into a First Supplemental
Indenture (the "Supplement") to the Indenture, dated as of September 30, 1997
(the "Indenture"), between the Company and EPP, as Trustee, relating to the
Company's Debentures. The Supplement provides that, solely at the holder's
option, (a) from February 20, 1998 to June 30, 1998, 20% of each holder's
original principal amount of Debentures may be converted into common shares at a
conversion price of $9.75 per common share; (b) from February 20, 1998 to
September 30, 1998, an additional 20% of each holder's original principal amount
of Debentures may be converted into common shares at a conversion price of
$11.00 per common share; and (c) from February 20, 1998 to December 31, 1998, an
additional 20% of each holder's original principal amount of Debentures may be
converted into common shares at a conversion price of $13.00 per common share.
EPP shall receive a fee equal to 3% of all amounts converted pursuant to the
Supplement.
These additional conversion amounts are in addition to the Mandatory
Conversion. Pursuant to the Indenture, an additional 10% of the original
principal amount of Debentures may be converted, at the option of the holders,
prior to September 27, 2000.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------------
Operations
- ----------
The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto set forth elsewhere
in this Annual Report. The following tables illustrate certain selected
financial information regarding the Company and its subsidiaries:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
Statement of Operations Data: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales $12,101,000 $5,734,000 $5,589,000
Net (loss) income $ (147,000) $(242,000) $4,547,000
Net (loss) income per common share $(.07) $(0.13) $3.47
<CAPTION>
Balance Sheet Date: December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total Assets $22,181,000 $11,499,000 $10,934,000
Current Liabilities $1,535,000 $7,418,000 $8,533,000
Long Term Liabilities $15,047,000 $268,000 -0-
Minority Interest - 0 - -0- $2,050,000
Shareholders' Equity $5,599,000 $3,813,000 $351,000
</TABLE>
Results of Operations
- ---------------------
To date, the Company has not achieved sustained profitable operations
for a full fiscal year. The Company has, however, been profitable in each of the
last three quarters of 1997. The Company may incur losses in the future. If such
losses do occur, the Company may be required to reduce its inventory and its
marketing efforts and seek additional financing.
15
<PAGE>
The following table sets forth the Company's consolidated statement of
operations for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
-----------
1997 1996 1995
---- ---- ----
Statement of Operations (Dollars in
Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Sales 12,101 100% 5,734 100% 5,589 100%
Cost of Sales 7,214 60 2,975 52 2,462 44
------ --- ----- --- ----- ---
Gross Profit 4,887 40 2,759 48 3,127 56
Operating Expenses 3,349 27 2,608 45 2,414 43
------ --- ----- --- ----- ---
Income From Operations 1,538 13 151 3 713 13
Other Income (Expense)
Casualty Gain - - 949 16 - -
Gain on Exchange of Debt - - - - 4,759 85
Gain on Sale of Subsidiary - - - - 183 3
Interest Expense, Net (1,676) (14) (1,338) (23) (1,163) (21)
------- ---- ------- ---- ------- ----
Total Other Income (Expense) (1,676) (14) (389) (7) 3,779 67
------- ---- ------- ---- ------- ----
(Loss) Income Before Taxes (138) (1) (238) (4) 4,492 80
Income Tax (Credit) 9 - 4 - (55) (1)
------- ----- ------- ----- ------- -----
Net (Loss) Income (147) (1%) (242) (4%) 4,547 81%
======= ===== ======= ===== ======= =====
</TABLE>
Operations of the Company and its subsidiaries for the year ended
December 31, 1997 generated operating income of $1,538,000, up by 918% from
$151,000 for 1996. The increase in operating income for the year is attributable
to an increase in sales and the resulting increase in gross profit.
Sales for the year ended December 31, 1997 were $12,101,000 compared
to $5,734,000 for 1996, an increase of approximately 111%. The increase in sales
was made up of an increase in after-market aircraft inventory management and
supply sales and brokerage sales of 164% and an increase in MDC inventory sales
of 29%.
Costs of goods sold for the year ended December 31, 1997 and 1996 were
$7,214,000 and $2,975,000, respectively (approximately 60% and 52% of sales,
respectively). The reduction in the gross margin percentage is a result of a
change in the product mix of sales.
Operating expenses increased to $3,349,000 for the year ended December
31, 1997 from $2,608,000 for the year ended December 31, 1996. This was
principally attributable to the increase in sales activity.
During the year ended December 31, 1996, the Company recognized a
nonrecurring gain of $949,000 in connection with a certain casualty insurance
claim. There were no nonrecurring gains in 1997. Interest expense increased to
$1,676,000 from $1,338,000 for the years ended December 31, 1997 and December
31, 1996, respectively. The increase is entirely attributable to an accelerated
amortization of original loan costs and other fees associated with the
refinancing of the Company's primary loan with Norwest. See "Liquidity" below.
Without the approximately $340,000 representing amortization of loan costs and
other fees associated with the repayment of the Norwest loan, which was
recognized in the first quarter of 1997, the Company would have been profitable
for the year ended December 31, 1997.
16
<PAGE>
The Company had a net loss in 1997 of $147,000, as compared to a net
loss in 1996 of $242,000, a decrease in loss of $95,000. The net loss for the
year ended December 31, 1997 was entirely due to the nonrecurring accelerated
amortization of loan costs described in the prior paragraph. Any comparison
between the two periods should also take into consideration the 1996
nonrecurring income as described above.
Years Ended December 31, 1996 and 1995
- --------------------------------------
Sales for the year ended December 31, 1996 increased by $145,000, or
3%, to $5,734,000 as compared to $5,589,000 for the year ended December 31,
1995. The increase in net sales was attributable to a 71% increase in
distributorship and brokerage sales offset by a decrease of 36% in MDC inventory
gross sales. The trend of overall increasing net sales and the shift to
distributorship and brokerage sales is evidenced by 1997 sales as described
above.
Cost of goods sold for 1996 increased by $513,000, or 21%, to
$2,975,000 from $2,462,000 in 1995. Cost of goods sold were 52% of sales in 1996
compared to 44% of net sales in 1995. The reduction in the gross margin
percentage is a result of the increasing proportion of total sales represented
by brokerage and distributorship transactions as opposed to MDC inventory where
the margins are larger.
Operating expenses for 1996 increased by $194,000, or 8% to $2,608,000
as compared to $2,414,000 for 1995. Operations of the Company and its
subsidiaries for 1996 generated a profit of $151,000, as compared to $713,000 in
the prior year. The reduction of $562,000 in the profit from operations in 1996
is attributable to an increase in operating expenses and a reduction in gross
margin as a result of the shift in sales mix. Interest expense increased
$175,000 or 15% from $1,163,000 in 1995 as compared with $1,338,000 in 1996. The
major portion of the increase in general and administrative expenses resulted
from additional staffing costs incurred to generate the increased
distributorship and brokerage sales. Interest expense increased because of an
increase in the rate charged by the Company's primary lender and because of the
fees associated with several amendments to the Credit Agreement.
During 1996, the Company recognized a nonrecurring gain of $949,000
from the recovery of a casualty insurance claim as a result of the 1994
earthquake. During 1995, the Company recognized a $4,759,000 gain on exchange of
debt as a result of the exchange of preferred stock of a subsidiary for
$6,809,000 of debt of that subsidiary. In addition, the Company recognized a
nonrecurring gain of $183,000 from the sale of a subsidiary.
As a result of the foregoing, the Company had a net loss in 1996 of
$242,000, as compared to net income in 1995 of $4,547,000, a decrease of
$4,789,000.
Liquidity
- ---------
At December 31, 1997 the Company had working capital (current assets in
excess of current liabilities) of $17,740,000 compared to working capital of
$2,434,000 on December 31, 1996. The increase in liquidity is attributable
principally to obtaining the NationsCredit credit facility and an increase in
17
<PAGE>
cash as a result of the Company's receipt of the proceeds of a sale of
$10,000,000 principal amount of Debentures. See "Market For Common Shares and
Related Shareholder Matters -- Issuance of Shares Without Registration." These
changes, coupled with an increase in distributorship inventory, were partially
offset by an increase in accounts payable and accrued liabilities.
Operating activities used $2,681,000 and $350,000 of the Company's cash
flow for the year ended December 31, 1997 and the prior year, respectively. The
major usage of cash resulted in increases in inventory of $2,950,000 and
accounts receivable of $448,000 and these were only partly offset by an increase
in accounts payable of $375,000.
As of January 1, 1997, the Company's outstanding amount on its Credit
Agreement with Norwest was $6,232,000 at an interest rate of 15.25%.
On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit at an annual interest rate of prime plus 3%. NationsCredit
advanced $6,717,000 on April 18, 1997 which was used to repay the obligations
owed to Norwest and other fees incurred in connection with the NationsCredit
loan facility. In connection with the NationsCredit loan facility, the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share.
As of November 14, 1997, approximately $2,000,000 principal amount of
Debentures were converted to 166,666 common shares at a price of $12.00 per
share, leaving approximately $8,000,000 principal amount of Debentures
outstanding on December 31, 1997.
Capital Resources
- -----------------
The Company's operations to date have been primarily funded through
bank loans, sales of equity and debentures, and vendors deferred purchase notes.
During 1996, the Company began a private placement transaction to
non-United States persons pursuant to Regulation S of the Securities Act.
164,283 units (the "Units") representing 328,566 common shares and warrants to
acquire 164,283 common shares at $6.25 per share (the "Warrants") were sold for
$2,135,685 between September 1996 and March 1997. The Warrants are exercisable
at anytime prior to the second anniversary of their issuance. Etablissement Pour
le Placement Prive, Zurich Switzerland ("EPP"), acted as the Company's placement
agent in connection with the offering. After brokerage and issuance costs, the
sales resulted in a net infusion of capital of approximately $1,654,000 at
December 31, 1996 and approximately $1,724,000 through March 1997. In connection
with that offering, the Company issued, on or about June 26, 1997, additional
warrants to acquire 32,857 common shares at $6.25 per share (the "Agent
Warrants") pursuant to the terms of the Placement Agent Agreement, dated July
22, 1996, between the Company and EPP, as amended. The Agent Warrants are
exercisable at any time prior to the second anniversary of their issuance. The
Company has also agreed to pay EPP a fee of 5% of amounts received by the
Company from the exercise of the Warrants.
On April 18, 1997, the Company's wholly owned subsidiaries entered into
separate Loan and Security Agreements for an aggregate of up to $10,000,000 with
NationsCredit at an annual interest rate of prime plus 3%. NationsCredit
18
<PAGE>
advanced $6,717,000 on April 18, 1997 which was used to repay the obligations
owed to Norwest and other fees incurred in connection with the NationsCredit
loan facility. In connection with the NationsCredit loan facility, the Company
issued NationsCredit an option to acquire 40,000 common shares of the Company at
a price of $6.25 per share. At December 31, 1997, approximately $7,047,000 of
credit had been extended under the credit line.
On or about June 27, 1997, the Company sold 15,774 common shares and
warrants to acquire 2,881 common shares at $6.25 per share, for approximately
$98,780. The warrants are exercisable at any time prior to the second
anniversary of their issuance. The securities were sold to EPP in a private
transaction in reliance on Regulation S under the Securities Act.
On September 30, 1997, the Company completed the sale of $10,000,000
principal amount of its Debentures issued under an Indenture (the "Indenture")
dated as of September 30, 1997, between the Company and EPP as Trustee. In
connection with this sale, the Company issued, on September 30, 1997, 15,000
common shares, valued at $172,500, to EPP, to partially pay the Placement Fees.
The Indenture was amended on February 20, 1998. See "Market for Common Shares
and Related Shareholder Matters -- Issuance of Shares Without Registration."
Effective October 13, 1997, the Company issued 5,000 common shares to
EPP and agreed to pay a corporate development fee of $125,000 to EPP in
connection with a future equity raising transaction. The common shares were
issued in reliance on Regulation S under the Securities Act.
As of November 14, 1997, pursuant to its Mandatory Conversion right,
approximately $2,000,000 principal amount of Debentures were converted to
166,666 common shares at a price of $12.00 per share. On February 20, 1998, the
Company amended the Debentures as set forth under "Market for Common Shares and
Related Shareholder Matters -- Issuance of Shares Without Registration."
In January 1998, the Company acquired Flightways by purchasing
substantially all of the issued and outstanding shares of Flightways. The
Company paid approximately $2,900,000 in cash and retired approximately
$1,100,000 in Flightways debt by refinancing such debt using the Company's
credit facility.
On January 20, 1998, the Company entered into a letter of intent with
Skylock Industries Incorporated ("Skylock") to acquire 100% of the issued and
outstanding shares of Skylock. The acquisition of Skylock is subject to the
entering of a definitive agreement and verification of factual matters. There is
no assurance the transaction will close.
As of February 20, 1998, the Company received and accepted
subscriptions for the sale of 26,333 units (the "1998 Units"), representing
210,664 common shares and warrants to acquire 52,666 common shares at $13.00 per
share (the "1998 Warrants") for approximately $2,054,000. The 1998 Units were
sold to accredited non-United States persons in reliance on Regulation S under
the Securities Act. The 1998 Warrants are exercisable at any time prior to
February 20, 2000.
EPP acted as placement agent in connection with the offering of the
1998 Units and received a commission of 9% of the sale price of the Units sold,
or approximately $185,000. EPP also received a corporate development fee of
approximately $61,620, which was based on the number of Units sold.
19
<PAGE>
On April 2, 1997, the Board of Directors authorized and issued stock
option contracts to purchase 100,000 common shares at $6.25 per share to
officers and certain key employees of the Company. On August 7, 1997, stock
option contracts to purchase an additional 270,000 common shares at $10.00 per
share were issued to certain officers of the Company. On August 28, 1997, the
Board of Directors authorized the issuance of options to certain directors,
executive officers and employees to purchase 89,500 common shares at $8.25 per
share pursuant to the Company's 1997 Omnibus Stock Option Plan. On January 16,
1998, as a part of the Flightways acquisition and in order to retain key
management personnel and employees, the Company issued options to purchase
50,000 common shares, 10,000 of which were issued under the 1997 Omnibus Stock
Option Plan, at $8.35 per share to key employees. On February 13, 1998, the
Board of Directors adopted the 1998 Nonqualified Share Option Plan (the "1998
Plan") authorizing the issuance of options to purchase 167,600 common shares and
issued options to purchase 119,600 common shares to certain directors, executive
officers and employees of the Company and Flightways. Additional options have
been reserved for attracting and rewarding nonexecutive employees and employees
of acquisition targets. On March 16, 1998, the Company issued options to
purchase 5,000 common shares under the 1998 Plan to an employee. For a
description of the terms of the option plans and option contracts, see
"Executive Compensation" below.
The Company will seek to acquire other companies in similar or allied
businesses. Any such acquisition will only be undertaken following a careful
analysis of the potential acquisition, any potential synergism with the
Company's existing business and the capital needs of the acquired products
compared to the capital needs and resources of the Company. There is no
assurance that any acquisitions will be successfully completed.
The Company will continue to actively seek equity capital infusions.
There is no assurance the Company will be successful in securing additional
capital.
Forward-Looking Statements
- --------------------------
Statements regarding the Company's expectations as to its capital
resources and certain other information presented in this Form 10-KSB constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. In addition to matters
affecting the economy and the Company's industry generally, factors that could
cause actual results to differ from expectations include, but are not limited
to, the following: (i) the Company's ability to obtain future debt financing may
be adversely affected by its uncertainty of future profitability; (ii) the
Company's ability to acquire other businesses in similar or allied businesses
may be adversely affected if the Company is not able to raise additional capital
and obtain any necessary debt financing; (iii) the Company's ability to raise
additional capital may be adversely affected by its lack of trading volume and
the Company's uncertainty of future profitability; (iv) regulation by
governmental authorities; (v) growth or lack of growth of the commercial airline
industry; (vi) the price and availability of aircraft parts and other materials;
(vii) the Company's ability to maintain existing customer and vendor
relationships; (viii) successful execution of the Company's expansion plans;
(ix) the Company's ability to service its debt financing; and (x) competition
and pricing pressures.
20
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ----------------------------
The financial statements, supplementary data and report of independent
public accountants are filed as part of this report on pages F-1 through F-16.
The following financial statements of the Company are included beginning at page
F-1.
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-5
Notes to the Consolidated Financial Statements F-6 through F-16
21
<PAGE>
[Letterhead]
MOORE STEPHENS FRAZER AND TORBET, LLP
CERTIFIED PUBLIC ACCOUNTANTS
OFFICE: 1199 South Fairway Drive, Walnut, California 91789
MAIL: Post Office Box 3949, City of Industry, California 91744
Telephone: (909) 595-4624 Facsimile: (909) 594-2357
e-mail: 75444,[email protected]
- --------------------------------------------------------------------------------
The Board of Directors
Fields Aircraft Spares, Inc.
Fillmore, California
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Fields
Aircraft Spares, Inc., formerly known as Fields Industrial Group, Inc., as of
December 31, 1997 and 1996 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 financial position of Fields Aircraft
Spares, Inc. as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years ended December 31, 1997, 1996 and 1995 in
conformity with generally accepted accounting principles.
/s/ Moore Stephens Frazer and Torbet, LLP
Certified Public Accountants
February 20, 1998
MS An independently owned and operated member of Moore Stephens North America,
Inc. - members in principal cities throughout North America
Moore Stephens North America, Inc. is a member of Moore Stephens
International Limited - members in principal cities throughout the world.
F-1
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
------------------
ASSETS 1997 1996
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 6,071,000 $ 88,000
Accounts receivable, net of allowance for
doubtful accounts of $100,000 in 1997 and
$50,000 in 1996 1,955,000 1,507,000
Inventory 11,058,000 8,108,000
Prepaid expenses 191,000 149,000
----------------- ----------------
Total current assets $ 19,275,000 $ 9,852,000
----------------- ----------------
LAND, BUILDING AND EQUIPMENT:
Land $ 210,000 $ 210,000
Building and building improvements 1,065,000 1,061,000
Furniture and equipment 565,000 548,000
----------------- ----------------
Totals $ 1,840,000 $ 1,819,000
Less accumulated depreciation and amortization 830,000 734,000
----------------- ----------------
Total land, building and equipment, net $ 1,010,000 $ 1,085,000
----------------- ----------------
OTHER ASSETS:
Debt issuance costs, net of accumulated
amortization of $192,000 in 1997 and
$388,000 in 1996 $ 1,267,000 $ 300,000
Other assets 629,000 262,000
----------------- ----------------
Total other assets $ 1,896,000 $ 562,000
----------------- ----------------
Total assets $ 22,181,000 $ 11,499,000
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
---- ----
CURRENT LIABILITIES:
Accounts payable $ 1,239,000 $ 864,000
Accrued liabilities 241,000 230,000
Income taxes payable 1,000
Current portion of notes payable 55,000 6,323,000
----------------- -----------------
Total current liabilities $ 1,535,000 $ 7,418,000
----------------- -----------------
LONG-TERM LIABILITIES:
Notes payable, net of current portion $ 15,047,000 $ 268,000
----------------- -----------------
SHAREHOLDERS' EQUITY:
Common stock $ 351,000 $ 312,000
Additional paid-in capital 6,959,000 5,065,000
Retained deficit (1,711,000) (1,564,000)
----------------- -----------------
Total shareholders' equity $ 5,599,000 $ 3,813,000
----------------- -----------------
Total liabilities and shareholders' equity $ 22,181,000 $ 11,499,000
================= =================
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 12,101,000 $ 5,734,000 $ 5,589,000
COST OF SALES 7,214,000 2,975,000 2,462,000
------------ --------------- ---------------
GROSS PROFIT $ 4,887,000 $ 2,759,000 $ 3,127,000
------------ --------------- ---------------
OPERATING EXPENSES $ 3,349,000 $ 2,608,000 $ 2,414,000
------------ --------------- ---------------
INCOME FROM OPERATIONS $ 1,538,000 $ 151,000 $ 713,000
------------ --------------- ---------------
OTHER INCOME (EXPENSE):
Casualty gain $ $ 949,000 $ -
Gain on exchange of debt - 4,759,000
Gain on sale of subsidiary - 183,000
Interest expense, net (1,676,000) (1,338,000) (1,163,000)
------------ --------------- ---------------
Total other income (expense) $ (1,676,000) $ (389,000) $ 3,779,000
------------ --------------- ---------------
(LOSS) INCOME BEFORE PROVISION (CREDIT) FOR INCOME TAXES $ (138,000) $ (238,000) $ 4,492,000
PROVISION (CREDIT) FOR INCOME TAXES 9,000 4,000 (55,000)
------------ --------------- ---------------
NET (LOSS) INCOME $ (147,000) $ (242,000) $ 4,547,000
============ =============== ===============
NET (LOSS) INCOME PER SHARE (fully-diluted basis) $ (.06) $ (.13) $ 3.47
============ =============== ===============
NET (LOSS) INCOME PER SHARE (primary basis) $ (.07) $ (.13) $ 3.47
============ =============== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
COMMON STOCK
----------------------------
NUMBER ADDITIONAL TOTAL
OF SHARES PAID-IN RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
----------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1994 944,352 $ 47,000 $ 1,376,000 $ (5,869,000) $ (4,446,000)
Issuance of common stock 40,000 250,000 250,000
Net income 4,547,000 4,547,000
--------- ----------- ------------- -------------- -------------
BALANCES, December 31, 1995 984,352 $ 297,000 $ 1,376,000 $ (1,322,000) $ 351,000
Additional paid-in capital 2,050,000 2,050,000
Issuance of common stock 317,785 15,000 1,639,000 1,654,000
Net loss (242,000) (242,000)
--------- ----------- ------------- -------------- -------------
BALANCES, December 31, 1996 1,302,137 $ 312,000 $ 5,065,000 $ (1,564,000) $ 3,813,000
Issuance of common stock 777,434 39,000 1,894,000 1,933,000
Net loss (147,000) (147,000)
--------- ----------- ------------- -------------- -------------
BALANCES, December 31, 1997 2,079,571 $ 351,000 $ 6,959,000 $ (1,711,000) $ 5,599,000
========= =========== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net (loss) income $ (147,000) $ (242,000) $ 4,547,000
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation 99,000 120,000 89,000
Amortization of debt issuance costs 422,000 211,000 177,000
Loss on sale of assets 51,000
Gain on exchange of debt (4,759,000)
Gain on sale of subsidiary (183,000)
Increase in accounts receivable (448,000) (226,000) (925,000)
(Increase) decrease in inventory (2,950,000) (456,000) 84,000
Increase in prepaid expenses (42,000) (3,000) (93,000)
Increase in other assets (272,000) (81,000)
Decrease in income tax refund receivable 711,000
Increase (decrease) in accounts payable 375,000 376,000 (225,000)
Increase (decrease) in other accrued liabilities 11,000 91,000 (127,000)
Decrease in income taxes payable (1,000) (35,000)
------------- ------------ ------------
Net cash used in operating activities $ (2,681,000) $ (350,000) $ (820,000)
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land, building and equipment $ (24,000) $ (13,000) $ (156,000)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on line of credit $ (6,232,000) $ (1,195,000) $ 1,250,000
Principal payments on notes payable (2,094,000) (193,000) (64,000)
Borrowings on notes payable 18,837,000 74,000 64,000
Costs associated with issuance of notes payable (1,782,000) (424,000)
Net proceeds from issuance of common stock 352,000 1,654,000 250,000
Costs associated with the issuance of common stock (393,000)
------------- ------------ ------------
Net cash provided by financing activities $ 8,688,000 $ 340,000 $ 1,076,000
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 5,983,000 $ (23,000) $ 100,000
CASH AND CASH EQUIVALENTS, beginning of year 88,000 111,000 11,000
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 6,071,000 $ 88,000 $ 111,000
============= ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. Summary of significant accounting policies
------------------------------------------
a. Principles of consolidation and company background
--------------------------------------------------
The consolidated Group financial statements include the
accounts of Fields Aircraft Spares, Inc. (FASI), a Utah corporation, and its
wholly-owned subsidiaries Fields Aircraft Spares Incorporated (FASC), a
California corporation and Fields Aero Management, Inc. All significant
intercompany accounts and activity have been eliminated.
The Group distributes new aircraft parts and equipment for use
on international and domestic commercial and military aircraft and purchases and
sells parts on a brokerage basis.
b. Concentration of credit risk
----------------------------
Substantially all of the Group's trade accounts receivables
are due from companies in the aviation industry located throughout the United
States and internationally. The Group performs periodic credit evaluations of
its customers' financial condition and does not require collateral. Credit
losses relating to customers in the airline industry have consistently been
within management's expectations.
c. Concentration of sales
----------------------
The Group had sales to foreign companies that amounted to 12%,
17% and 32% of total sales for the years ended December 31, 1997, 1996 and 1995,
respectively.
For the year ended December 31, 1997, two customers accounted
for sales of $1,706,000 and $1,395,000. For the year ended December 31, 1996,
two customers accounted for sales of $657,000 and $351,000. For the year ended
December 31, 1995, two customers accounted for sales of $801,000 and $790,000.
d. Cash and cash equivalents
-------------------------
For purposes of the statement of cash flows, the Group
considers all highly liquid investments purchased with a maturity of three
months or less to be a cash equivalent.
The Group currently maintains cash in bank deposit accounts
which exceeds federally insured limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to any significant risks
on cash in bank deposit accounts. Uninsured balances are approximately
$4,575,000 as of December 31, 1997.
F-6
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
e. Inventory
---------
Inventory is valued at the lower of cost or market value using
the first-in, first-out method. Where a group of parts were purchased together
as a lot, the cost of the lot was allocated to the individual parts by
management pro rata to the list selling price at the time of purchase.
Consistent with industry practice, inventory is carried as a current asset but
all inventory is not expected to be sold within one year.
f. Land, building and equipment
----------------------------
Land, building and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 25 years.
The cost and related accumulated depreciation and amortization
of assets sold or otherwise retired are eliminated from the accounts and any
gain or loss is included in the statement of operations. The cost of maintenance
and repairs is charged to income as incurred, whereas significant renewals and
betterments are capitalized. Depreciation expense for the years ended December
31, 1997, 1996 and 1995 amounted to $99,000, $120,000 and $89,000, respectively.
g. Debt issuance costs
-------------------
Gross debt issuance costs of $1,459,000 less amortization of
$192,000 relate to the issuance of new financing. Amortization of debt issuance
costs for the years ended December 31, 1997, 1996 and 1995 amounted to $422,000,
$211,000 and $177,000, respectively. The costs are amortized using the
straight-line method over the life of the respective loans.
h. Revenue recognition
-------------------
The Group recognizes revenue from all types of sales under
the accrual method of accounting when title transfers. Title transfers at the
Group's facility.
i. Earnings per share
------------------
In March 1995, FASI's shareholders authorized the reverse
split of its common stock on the basis of fifty old shares for one new share.
This reverse split was effective as of November 1995. All references herein to
the number of shares are after the reverse split.
F-7
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
i. Earnings per share, (continued)
-------------------------------
Fully-diluted earnings per share was computed using 2,325,078,
1,840,543 and 1,312,469 shares for the years ended December 31, 1997, 1996 and
1995, respectively.
j. Income taxes
------------
The Group files consolidated income tax returns. Deferred
income taxes relate to temporary differences between financial statement and
income tax reporting of certain accrued expenses, state income taxes, bad debts,
inventory, and depreciation.
The Group adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes". SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between tax basis and financial reporting basis of assets
and liabilities. The income tax effect of the temporary differences as of
December 31, 1997 and 1996 consisted of the following:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liability resulting from
taxable temporary differences for
accounting for inventory $ (314,000) $ (314,000)
Deferred tax asset resulting from
deductible temporary differences
for allowance for doubtful accounts 6,000 4,000
Deferred tax asset resulting from
deductible temporary differences
for utilization of net operating loss
carryforwards for income tax purposes 1,078,000 1,344,000
Valuation allowance resulting from the
potential nonutilization of net operating
loss carryforwards for income tax
purposes (770,000) (1,034,000)
-------- ----------
Total deferred income taxes $ - $ -
============ ===========
</TABLE>
F-8
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
1. Summary of significant accounting policies (continued)
------------------------------------------------------
k. Employee benefit plan
---------------------
FASC has a 401(k) Plan under Section 401(k) of the Internal
Revenue Code. The Plan allows all employees who are not covered by a collective
bargaining agreement to defer up to 25% of their compensation on a pre-tax basis
through contributions to the Plan. Contributions to the Plan by FASC are
discretionary and are determined by the Board of Directors. No contributions
were made to the Plan during the years ended December 31, 1997, 1996 and 1995.
l. Use of estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
its financial statements are reasonable and prudent. Actual results could differ
from these estimates.
2. Shareholders' equity
--------------------
FASI has 50,000 shares authorized of its $.001 par value
preferred stock. At December 31, 1997 and 1996, there were no shares of
preferred stock issued or outstanding.
FASI has the following common stock as of December 31, 1997
and 1996:
1997 1996
---- ----
Authorized 5,000,000 2,000,000
Issued and outstanding 2,079,571 1,302,137
Par value $.05 $.05
In February 1995, the Group owed $7,658,000 to McDonnell
Douglas Corporation (MDC). MDC canceled the debt in exchange for $850,000 plus
586,862 shares of Series A convertible preferred stock of FASC. This constituted
full and complete satisfaction of the MDC debt. The agreement provided for the
mandatory exchange of the Series A preferred stock of FASC for 25% of the total
outstanding common stock of FASI within 10 days following the date the common
stock is approved for quotation on, and is quoted for trading on, the Nasdaq
Stock Market.
F-9
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
2. Shareholders' equity
--------------------
FASI's common shares began quotation on the Nasdaq SmallCap
Market on March 26, 1997. On April 4, 1997 the MDC Series A shares were
exchanged by MDC for 564,194 common shares of FASI.
In 1996, FASI sold 317,785 shares of common stock and 158,893
warrants. Each warrant allows the holder to purchase one share of common stock
for $6.25. The net proceeds were $1,654,000 after deducting costs of $481,000
for underwriting and issuance.
In April 1997, the Group's wholly-owned subsidiaries entered
into separate Loan and Security Agreements for an aggregate of up to $10,000,000
with NationsCredit Commercial Funding ("NationsCredit") at an interest rate of
prime plus 3%. In connection with the NationsCredit loan facility, FASI issued
NationsCredit an option to acquire 40,000 common shares of FASI at a price of
$6.25 per share.
In addition, during 1997, FASI issued 31,574 shares of common
stock and 41,128 warrants. Each warrant allows the holder to purchase one share
of common stock for $6.25. FASI issued another 15,000 of common stock in
association with the issue of $10,000,000 at 8.50% subordinated debentures.
In September 1997, FASI closed the sale of these $10,000,000
Subordinated Redeemable Debentures due 2000 issued under an Indenture with
Etablissement Pour le Placement Prive as Trustee. The Securities were sold in
reliance on Regulation S of the Securities Act of 1933 to entities which
represented to FASI to be accredited non-U.S. persons.
The Debenture holders have a one-time right at any time
between December 29, 1997 and September 27, 2000, subject to prior redemption or
repurchase, to convert up to 30% of the principal amount of such holder's
Debentures into Common Shares at a conversion price equal to 85% of the average
closing price of the Common Shares during the 20-trading day period ending on
the date of notice of conversion, but in no event less than $12.00 per share. In
the event that during any 20-day trading period, the average closing price of
the Common Shares equals or exceeds $12.00 per share, FASI may require the
conversion of up to 20% of the principal amount of outstanding Debentures at the
Conversion Price. Pursuant to this, in November 1997, FASI required the
conversion of $2,000,000 of Debentures in exchange for 166,666 of common shares
at $12.00 per share.
The Debentures are redeemable, in whole or in part, at the
option of the Group, at any time on or after March 31, 1999 at 100% of the
principal amount plus accrued interest.
F-10
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
3. Notes payable
-------------
The notes payable at December 31, 1997 and 1996 consisted of
the following:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Subordinated debenture with fixed interest at 8.50%
per annum, payable semi-annually, due 2000 $ 8,000,000 $ -
Note payable to NationsCredit, secured by all
assets of the Group, interest at prime plus 3.0%
(11.5% at December 31, 1997), payable monthly,
due 2000 7,047,000
Line of credit from Norwest, secured by all assets
of the Group, interest at prime plus 7.0%
(15.25% at December 31, 1996), payable monthly 6,232,000
Note payable to bank, secured by land and building,
payable monthly at $2,396 plus interest at prime
plus 2% (10.25% at December 31, 1996) 331,000
Other notes payable 55,000 28,000
---------------- -----------------
Total notes payable $ 15,102,000 $ 6,591,000
Less current portion 55,000 6,323,000
---------------- -----------------
Notes payable, net of current portion $ 15,047,000 $ 268,000
================ =================
</TABLE>
Principal payment requirements on all notes payable based on terms
explained above are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1998 $ 55,000
1999 -
2000 15,047,000
Thereafter -
Total interest expense including the amortization of debt
issuance costs for the years ended December 31, 1997, 1996 and 1995 amounted to
$1,676,000, $1,338,000 and $1,163,000, respectively. Total interest paid for the
years ended December 31, 1997, 1996 and 1995 amounted to $1,048,000, $1,706,000
and $936,000, respectively.
F-11
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
4. Provision (credit) for income taxes
-----------------------------------
The provision (credit) for income taxes for the years ended December 31
consisted of the following:
1997 1996 1995
---- ---- ----
CURRENT:
Federal $ $ $ (55,000)
State 9,000 4,000
-------- -------- ----------
Total provision (credit) for
income taxes $ 9,000 $ 4,000 $ (55,000)
======== ======== ==========
Total income taxes paid in 1997, 1996 and 1995 amounted to
$3,000 each year. The Group has net operating loss carryovers available to
offset future taxable income. The amount and expiration date of the carryovers
are as follows:
YEAR ENDING
DECEMBER 31, FEDERAL STATE
------------ ------- -----
1998 $ $ 750,000
1999 580,000
2000 126,000
2001 110,000
2008 942,000 70,000
2009 1,161,000
2010 255,000
2011 225,000
2012 140,000
5. Commitments
-----------
The Group leases a warehouse and office facility under an
operating lease. The minimum lease payments required under operating leases as
of December 31, 1997 are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
1998 $160,000
1999 144,000
2000 144,000
2001 144,000
2002 84,000
Thereafter -
F-12
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
5. Commitments (continued)
-----------------------
The Group subleases the warehouse and office facility under an
operating lease. As of December 31, 1997, the minimum lease payments to be
received under this agreement total $687,500.
Lease expense for the years ended December 31, 1997, 1996 and 1995 was
$150,000, $102,000 and $84,000, respectively. Lease income for the year ended
December 31, 1997 was $34,000.
6. Related party transactions
--------------------------
The Group leases a small overseas office facility on a month to month
basis from an entity owned by certain officers of the Group.
7. Stock option plans
------------------
In November 1995, FASI adopted a Management Stock Option Plan
("Management Plan") and Employee Stock Option Plan ("Employee Plan"). Pursuant
to the Management Plan, FASI has issued options to five individuals involved in
the management of FASI to acquire up to 69,025 common shares of FASI at a
purchase price of $3.00 per share subject to vesting requirements, which
includes FASI obtaining sales during a 12-month period of $7,500,000 and an
average closing price for FASI's Common Shares for a three-month period of
$6.00, $9.00 and $12.00, respectively, for each one-third of the options to
vest. The options must vest by November 1998 and must be exercised within three
years of vesting. Pursuant to the Employee Plan, FASI has issued options to
acquire 13,500 common shares of FASI to 20 employees of FASI at a purchase price
of $3.00 per share subject to vesting requirements, which include FASI obtaining
sales during a 12-month period of $7,500,000 and at least one year continued
employment after the grant of the option. The options must vest by November 1998
and must be exercised within two years of vesting.
In April 1997, FASI issued options to employees of the Group to acquire
up to 100,000 common shares of FASI at an exercise price of $6.25 per share.
Half of the options will vest in April 1998 and the remaining half will vest in
April 1999. The options expire in April 2000.
On August 7, 1997 FASI issued options to employees of the Group to
acquire up to 270,000 common shares of FASI at an exercise price of $10.00 per
share. The options will vest if the Group meets the following two conditions;
F-13
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
7. Stock options plans (continued)
-------------------------------
the Group must raise at least $7,500,000 in additional debt or equity capital
and the Group must have sales of at least $14,000,000 in any 12-month period.
The options must vest by June 30, 1999 and will expire three years after the
vesting date.
On August 28, 1997, FASI issued options to employees of the Group to
acquire up to 89,500 common shares of FASI at an exercise price of $8.25 per
share. Half of the options will vest in August 1998 and the remaining half will
vest in August 1999. The options expire in August 2002.
The Group accounts for stock options under the provision of APB Opinion
25 "Accounting for Stock Issued to Employees". Accordingly, no compensation cost
has been recognized for its stock option grants. Had compensation cost for the
Group's stock option grants been determined based on the fair value at the grant
dates consistent with the method of FASB Statement 123 "Accounting for
Stock-Based Compensation", the Group's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
For the year ended
December 31, 1997
-----------------
Net loss As reported $ (147,000)
==============
Pro forma $ (1,136,000)
==============
Primary earnings
per share As reported $ (.07)
==============
Pro forma $ (.55)
==============
Fully-diluted earnings
per share As reported $ (.06)
==============
Pro forma $ (.49)
==============
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
the April 1997, August 7, 1997 and August 28, 1997 grants, respectively:
risk-free interest rates of 6.4%, 5.7% and 6.0%; expected lives of two years for
all three grants; and volatility of 78% for all three grants.
F-14
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
7. Stock options plans (continued)
-------------------------------
The first condition for vesting of the August 7, 1997 option grant was
met in September 1997. The Group anticipates meeting the second vesting
conditions of sales of $14,000,000 in any 12-month period in March 1998.
Accordingly, the effect of these options on the above pro forma amounts was
determined under the assumption that the options will vest in March 1998.
The fair value of the November 1995 option grant was determined to be
immaterial. Accordingly, the effect of these options on income is not included
in the above pro forma amounts.
8. Contingency
-----------
In the event of the death of a Director or Officer of the Group, the
Group is obligated to pay up to 100% of the Director's or Officer's annual
compensation to their beneficiary within the twelve months subsequent to their
death.
9. Casualty gain
-------------
In April 1996, the Group reached a final settlement with its insurance
company. Management elected to record a casualty gain as a result of the January
1994 earthquake. A gain of $949,000 was recorded in the financial statements in
1996 as a result of this transaction.
10. Subsequent events
-----------------
In January 1998, the Group completed the acquisition of Flightways
Manufacturing, Inc. Flightways Manufacturing, Inc. is a manufacturer of plastic
replacement components for commercial aircraft seats and interiors.
Each share of Flightways Manufacturing, Inc. tendered into the offer
was exchanged for cash. The total cost of the acquisition excluding liabilities
assumed was approximately $2,866,000.
The acquisition will be accounted for as a purchase in 1998. The
purchase price will be allocated to the assets acquired and liabilities assumed
based on their estimated fair values. Results of operations for Flightways
Manufacturing, Inc. will be included with those of the Group for periods
subsequent to the date of acquisition.
F-15
<PAGE>
FIELDS AIRCRAFT SPARES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
10. Subsequent events (continued)
-----------------------------
The excess of the purchase price over net assets acquired,
which is expected to exceed $2,500,000, will be amortized over a period not
exceeding 15 years.
The following unaudited pro forma data presents the
consolidated results of operations as if the acquisition had been completed at
January 1, 1997 and does not purport to be indicative of what would have
occurred had the acquisition actually been made of that date or of results which
may occur in the future.
(UNAUDITED) 1997
----------- ----
Net sales $ 16,091,000
Net income $ 123,000
Earnings per share:
Fully diluted $ .05
Primary $ .06
On February 20, 1998, the Group received and accepted subscription
agreements for the sale of 210,664 shares of common stock and 52,666 warrants
for approximately $2,054,000. Each warrant allows the holder to purchase one
share of common stock for $13.00. The Securities were sold in reliance on
Regulation S of the Securities Act of 1933 to entities which represented to FASI
to be accredited non-U.S. persons.
On February 20, 1998, the Group entered into a Supplemental Indenture
to the Indenture with Etablissement Pour le Placement Prive as trustee, relating
to the 8.5% Subordinated Redeemable Debenture due 2000 described in Note 2. The
Supplemental Indenture provides that the Debenture holders have the following
additional rights: at any time between February 20, 1998 and June 30, 1998, each
holder may convert 20% of the original principal amount of such holder's
Debentures into Common Shares at a conversion price of $9.75 per share; at any
time between February 20, 1998 and September 30, 1998, each holder may convert
an additional 20% of the original principal amount of such holder's Debentures
into Common Shares at a conversion price of $11.00 per share; at any time
between February 20, 1998 and December 31, 1998, each holder may convert an
additional 20% of the original principal amount of such holder's Debentures into
Common Shares at a conversion price of $13.00 per share.
F-16
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- ---------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
- --------------------------------------------------------------------------------
WITH SECTION 16(a) OF THE EXCHANGE ACT
- --------------------------------------
Information regarding directors, executive officers, promoters and
control persons of the Company and Management's compliance with Section 16(a) of
the Securities Exchange Act of 1934, as amended, appears under the sections
"Executive Officers," "Election of Directors" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Company's Proxy Statement to be
filed within 120 days after December 31, 1997, with the Securities and Exchange
Commission relating to the Company's Annual Meeting of Shareholders and is
incorporated herein by reference thereto.
ITEM 10. EXECUTIVE COMPENSATION
- -------- ----------------------
Information regarding the compensation of the Company's executives
appears under the section "Management Compensation" in the Company's Proxy
Statement to be filed within 120 days after December 31, 1997, with the
Securities and Exchange Commission relating to the company's Annual Meeting of
Shareholders and is incorporated herein by reference thereto.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Information regarding beneficial security ownership of the Company's
equity securities appears under the section "Security Ownership of Directors,
Nominees and Principal Security Holders" in the Company's Proxy Statement to be
filed within 120 days after December 31, 1997, with the Securities and Exchange
Commission relating to the Company's Annual Meeting of Shareholders and is
incorporated herein by reference thereto.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
- -------- ----------------------------------------------------
Information regarding certain relationships and related transactions
appears under the section "Transactions With Related Parties" in the Company's
Proxy Statement to be filed within 120 days after December 31, 1997, with the
Securities and Exchange Commission relating to the Company's Annual Meeting of
Shareholders and is incorporated herein by reference thereto.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Index to Exhibits
-----------------
The following documents are included as exhibits.
SEC Exhibit Sequential
No. No. Description Page No.
--- --- ----------- --------
2 2.1 Stock Purchase Agreement by and among the Company
and Sellers listed in Exhibit A to the agreement dated
January 2, 1998 (Incorporated by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated
January 16, 1998 (the "January 1998 8-K"))
22
<PAGE>
SEC Exhibit Sequential
No. No. Description Page No.
--- --- ----------- --------
3 3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10-SB, filed October 30, 1995 (the
"Form 10-SB") and Exhibit 3.1.3 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997)
3 3.2 Amended and Restated By-laws 27
4 4.1 Form of Warrant Agreement (1996-97 Regulation S
Private Placement) (Incorporated by reference to Exhibit
4.1 to Amendment No. 1 to the Company's Annual Report
on Form 10-KSB/A for the fiscal year ended December
31, 1996 (the "1996 10-KSB/A"), filed April 29, 1997)
4 4.2 Form of Option Agreement to NationsCredit Commercial
Funding (Incorporated by reference to Exhibit 4.2 to the
1996 10-KSB/A)
4 4.3 Indenture for the 8.5% Subordinated Redeemable
Debentures Due 2000, dated as of September 30, 1997,
between the Company and Etablissement Pour le
Placement Prive, as Trustee (the "Indenture").
(Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated September
30, 1997 (the "September 1997 8-K"))
4 4.4 Form of 8.5% Subordinated Redeemable Debentures Due
2000 (included in Exhibit A to Exhibit 4.3 above)
(Incorporated by reference to Exhibit 4.2 to the September
1997 8-K)
4 4.5 First Supplemental Indenture, dated February 20, 1998, to
the Indenture (Incorporated by reference to Exhibit 4.1 to
the Company's Current Report on Form 8-K dated
February 20, 1998)
4 4.6 Form of Warrant Agreement (1998 Regulation S Private
Placement) 50
9 9.1 Voting Agreement dated February 7, 1995, among
McDonnell Douglas Corporation, the Registrant, Peter
Frohlich, Alan Fields, and Lawrence Troyna (Incorporated
by reference to Exhibit 5.1 to the Form 10-SB)
10 10.1 Debt Restructure Agreement dated February 7, 1995
between McDonnell Douglas Corporation and the
Registrant (Incorporated by reference to Exhibit 6.1 to the
Form 10-SB)
23
<PAGE>
SEC Exhibit Sequential
No. No. Description Page No.
--- --- ----------- --------
10 10.2 Securities Exchange Agreement dated February 7, 1995,
between McDonnell Douglas Corporation and the
Registrant (Incorporated by reference to Exhibit 6.2 to the
Form 10-SB)
10 10.3 Discretionary Revolving Credit Facility and Credit and
Security Agreement dated February 9, 1995, between
Fields Aircraft Spares, Inc., a California corporation and
Norwest Business Credit, Inc. (Incorporated by reference
to Exhibit 6.3 to the Form 10-SB)
10 10.4 First Amendment to Credit Agreement, dated November
20, 1995 (Incorporated by reference to Exhibit
6.4 to Amendment No. 1 to the Company's
Registration Statement on Form 10-SB ("Form
10-SB/A"), filed
January 29, 1996)
10 10.5 Second Amendment to Credit Agreement, dated February
19, 1996 (Incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996 (the "1996 10-KSB), filed
March 28, 1997)
10 10.6 Third Amendment to Credit Agreement, dated June 30,
1996 (Incorporated by reference to Exhibit 10.6 to the
1996 10-KSB)
10 10.7 Fourth Amendment to Credit Agreement, dated August
1996 (Incorporated by reference to Exhibit 10.7 to the
1996 10-KSB)
10 10.8 Fifth Amendment to Credit Agreement, dated January 1,
1997 (Incorporated by reference to Exhibit 10.8
to the 1996 10-KSB)
10 10.9 Sixth Amendment to Credit Agreement, dated February 1,
1997 (Incorporated by reference to Exhibit 10.9 to the
1996 10-KSB)
10 10.10 Seventh Amendment to Credit Agreement, dated March 1,
1997 (Incorporated by reference to Exhibit 10.10 to the
1996 10-KSB)
10 10.11 Eighth Amendment to Credit Agreement, dated March
1997 (Incorporated by reference to Exhibit 10.11 to the
1996 10-KSB)320
10 10.12 1995 Management Stock Option Plan (Incorporated by
reference to Exhibit 6.5 to Form 10-SB/A)
10 10.13 1995 Employee Stock Option Plan (Incorporated by
reference to Exhibit 6.6 to Form 10-SB/A)
24
<PAGE>
SEC Exhibit Sequential
No. No. Description Page No.
--- --- ----------- --------
10 10.14 Lease dated May 16, 1994, by and between Harold Pease 64
and Flightways Manufacturing, Inc.
10 10.15 Loan Agreement between Fields Aircraft Spares
Incorporated and NationsCredit Commercial Funding,
dated April 18, 1997 (Incorporated by reference to Exhibit
10.14 to 1996 Form 10-KSB/A)
10 10.16 Loan Agreement between Fields Aero Management, Inc.
and NationsCredit Commercial Funding, dated April 18,
1997 (Incorporated by reference to Exhibit 10.15 to 1996
Form 10-KSB/A)
10 10.17 Covenant not to Compete dated as of January 2, 1998, by
and among the Company, Flightways Manufacturing, Inc.
and Yung Ford (Incorporated by reference to Exhibit 10.1
to January 1998 8-K)
10 10.18 Covenant not to Compete dated as of January 2, 1998, by
and among the Company, Flightways Manufacturing, Inc.
and Frank Scalise (Incorporated by reference to Exhibit
10.2 to January 1998 8-K)
10 10.19 Covenant not to Compete dated as of January 2, 1998, by
and among the Company, Flightways Manufacturing, Inc.
and Christian J. Luhnow (Incorporated by reference to
Exhibit 10.3 to January 1998 8-K)
11 11.1 Statement re: Computation of Per Share Earnings 80
21 21.1 Subsidiaries of Registrant 81
27 27.1 Financial Data Schedule LAST
(b) Reports on Form 8-K
-------------------
The Company filed a Report on Form 8-K, dated November 13, 1997,
covering Item 5, Other Events, with respect to the mandatory conversion of
approximately $2,000,000 principal amount of its 8.5% Subordinated Redeemable
Debentures Due 2000.
The Company filed a Report on Form 8-K, dated January 16, 1998,
covering Item 2, Acquisition or Disposition of Assets.
The Company filed a Report on Form 8-K, dated February 20, 1998,
covering Item 9, Sales of Equity Securities Pursuant to Regulation S.
25
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 7, 1998
FIELDS AIRCRAFT SPARES, INC.
By /s/ Alan M. Fields
-----------------------
Alan M. Fields
President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Company and in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alan M. Fields Principal Executive
- ------------------------------- Officer April 7, 1998
Alan M. Fields President and Director
/s/ Lawrence J. Troyna Principal Financial April 6, 1998
- ------------------------------- Officer
Lawrence J. Troyna Secretary and Director
/s/ Peter Frohlich Chairman and Director April 6, 1998
- -------------------------------
Peter Frohlich
/s/ Leonard I. Fields Director April 7, 1998
- -------------------------------
Leonard I. Fields
/s/ Rt. Hon. Sir Jeremy Hanley Director April 7, 1998
- -------------------------------
Rt. Hon. Sir Jeremy Hanley
/s/ Mary L. Sprouse Director April 6, 1998
- -------------------------------
Mary L. Sprouse
26
AMENDED AND RESTATED
BYLAWS
OF
FIELDS AIRCRAFT SPARES, INC.
ARTICLE I. OFFICES
Section 1. Principal Office. The principal office of the
corporation shall be as designated by the board of directors. The corporation
may from time to time change the location of its principal office, within or
without the State of Utah. The corporation may have such other offices, either
within or without the State of Utah, as the business of the corporation may
require from time to time.
Section 2. Registered Office. The registered office of the
corporation required by the Utah Revised Business Corporation Act (the "Act") to
be maintained in the State of Utah may be, but need not be, identical with the
principal office in the State of Utah, and the address of the registered office
may be changed from time to time by the board of directors.
ARTICLE II. SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders shall be held on the first Monday in the month of February in each
year at the hour of 10:00 o'clock a.m., or at such other time on such other day
within such month as shall be fixed by the board of directors, for the purpose
of electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Utah, such meeting shall be held on the next succeeding
business day. If the election of directors shall not be held on the day
designated herein or any annual meeting of the shareholders, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as is convenient.
Section 2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes described in the meeting notice,
unless otherwise prescribed by statute, may be called by the president, the
chairman of the board of directors, or by the board of directors, and shall be
called by the president at the request of the holders of outstanding shares of
the corporation representing at least ten percent of all the votes entitled to
be cast on any issue proposed to be considered at the special meeting, if such
shareholders sign, date, and deliver to the corporation's secretary one or more
written demands for the meeting, stating the purpose or purposes for which it is
to be held.
27
<PAGE>
Section 3. Place of Meeting. The board of directors may
designate any place, either within or without the State of Utah, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. If the special meeting is called by the president or the chairman of
the board of directors, the officer calling the special meeting may designate
any place, either within or without the State of Utah, as the place for that
special meeting. If a special meeting is called by the president at the request
of shareholders, the board of directors, or, if the board of directors fails to
act, the president, may designate a place, either within or without the State of
Utah, as the place of meeting for any special meeting. A waiver of notice signed
by all shareholders entitled to vote at a meeting may designate any place,
either within or without the State of Utah, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the principal office of the corporation.
Section 4. Notice of Meeting.
(a) Required Notice. Written notice stating the place, day,
and time of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise prescribed by
statute, be delivered not less than ten (10) or more than sixty (60) days before
the date of the meeting, either personally or by mail, by or at the direction of
the President, or the Secretary, or the persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
(b) Adjourned meetings. If an annual or special meeting is
adjourned to a different date, time or place, notice need not be given of the
new date, time, or place if the new date, time, or place is announced at the
meeting prior to adjournment. If a new record date is or must be fixed under the
Utah Revised Business Corporation Act, new notice of the adjourned meeting must
be given to all shareholders of record who are entitled to vote at the meeting.
(c) Waiver of Notice. The shareholder may waive notice of the
meeting (or any notice required by the Utah Revised Business Corporation Act,
articles of incorporation, or bylaws), by a writing signed by the shareholder
entitled to the notice, which is delivered to the corporation (either before or
after the date and time stated in the notice) for inclusion in the minutes or
filing with the corporate records.
A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or
defective notice of the meeting, unless the
shareholder at the beginning of the meeting
objects to holding the meeting or
transacting business at the meeting because
of lack of notice or defective notice; and
28
<PAGE>
(2) waives objection to consideration of a
particular matter at the meeting that is not
within the purpose or purposes described in
the meeting notice, unless the shareholder
objects to considering the matter when it is
presented.
(d) Contents of Notice. The notice of each special shareholder
meeting shall include a description of the purpose or purposes for which the
meeting is called. Except as provided in this Article II, Section 4(d), the
corporation's articles of incorporation, or otherwise in the Utah Revised
Business Corporation Act, the notice of an annual shareholder meeting need not
include a description of the purpose or purposes for which the meeting is
called.
If a purpose of any shareholder meeting is to consider either:
(1) a proposed amendment to the articles of incorporation (including any
restated articles requiring shareholder approval); (2) a plan of merger or share
exchange; (3) the sale, lease, exchange or other disposition of all, or
substantially all of the corporation's property outside the ordinary course of
business; (4) if all or substantially all of the corporation's assets consists
of its interest in an entity it controls, the sale, lease, exchange or other
disposition of all or substantially all of the property owned by that entity,
outside the ordinary course of business; (5) the dissolution of the corporation;
or (6) the removal of a director, the notice must so state and be accompanied by
respectively a copy or summary of the: (1) articles of amendment; (2) plan of
merger or share exchange; and (3) transaction for disposition of the
corporation's property. If the proposed corporate action creates dissenters'
rights, the notice must state that shareholders are, or may be, entitled to
assert dissenters' rights, and must be accompanied by a copy of Part 13 of the
Utah Revised Business Corporation Act.
Section 5. Fixing of Record Date.
(a) By Board of Directors. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors of the corporation may fix in advance a
date as the record date. Such record date shall not be more than 70 days prior
to the day on which the meeting is held or on which the action is taken.
(b) By Operation of Bylaw. If no record date is so fixed by
the board for the determination of shareholders entitled to notice of, or to
vote at a meeting of shareholders, or shareholders entitled to receive a share
dividend or distribution, the record date for determination of such shareholders
shall be at the close of business on:
(1) With respect to an annual shareholder
meeting or any special shareholder meeting
called by the board or any person
specifically authorized by the board or
these bylaws to call a meeting, the day
before the first notice is delivered to
shareholders;
29
<PAGE>
(2) With respect to a special shareholder's
meeting demanded by the shareholders, the
president shall fix in advance a date as the
record date, which record date shall not be
more than 70 days prior to the date on which
the meeting is held;
(3) With respect to the payment of a share
dividend, the date the board authorizes the
share dividend;
(4) With respect to actions taken in writing
without a meeting, the date the first
shareholder signs a consent;
(5) And with respect to a distribution to
shareholders, (other than one involving a
repurchase or reacquisition of shares), the
date the board authorizes the distribution.
(c) Record Date Following Adjournment. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof unless the board of directors fixes a new record date which it must do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
Section 6. Shareholder Lists. After a record date for a
shareholders' meeting has been fixed, the officer or agent having charge of the
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to be given notice of that meeting, arranged in
alphabetical order, with the address of and the number of shares held by each.
The list must be arranged by voting group and within each voting group by class
or series of shares. The shareholder list must be available for inspection by
any shareholder, beginning on the earlier of ten days before the meeting for
which the list was prepared or two business days after notice of the meeting is
given and continuing through the meeting, and any meeting adjournments. The list
shall be available at the corporation's principal office or at a place
identified in the meeting notice in the city where the meeting is to be held. A
shareholder, his agent, or attorney is entitled on written demand to inspect
and, subject to the requirements of Section 14 of this Article II, to copy the
list at his or her expense during regular business hours and during the period
it is available for inspection. The corporation shall maintain the shareholder
list in written form or in another form capable of conversion into written form
within a reasonable time.
Section 7. Shareholder Quorum and Voting Requirements.
(a) Action by Separate Voting Group. If the articles of
incorporation or the Act provides for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group.
30
<PAGE>
(b) Quorum Requirements for Voting Groups. Shares entitled to
vote as a separate voting group may take action on a matter at a meeting only if
a quorum of those shares exists with respect to that matter. Unless the articles
of incorporation or the Act provide otherwise, 40% of the votes entitled to be
cast on the matter by the voting group constitutes a quorum of that voting group
for action on that matter.
(c) Action by Two or More Voting Groups. If the articles of
incorporation or the Act provide for voting by two or more voting groups on a
matter, action on that matter is taken only when voted upon by each of those
voting groups counted separately. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.
(d) Share Presence. Once a share is represented for any
purpose at a meeting, it is deemed present for quorum purposes for the remainder
of the meeting and for any adjournment of that meeting unless a new record date
is or must be set for that adjourned meeting.
(e) Voting Requirements. If a quorum exists, action on a
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the articles of incorporation or the Act require a
greater number of affirmative votes.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy. A shareholder may appoint a proxy to
vote or otherwise act for that shareholder by signing an appointment form either
personally or by its duly authorized attorney-in-fact. The shareholder may
appoint a proxy by transmitting or authorizing the transmission of telegram,
teletype, or other electronic transmission, provided that the transmitted
appointment shall set forth or be transmitted with evidence from which it can be
determined that the shareholder transmitted or authorized the transmission of
the appointment. Such proxy shall be filed with the secretary of the corporation
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
Section 9. Voting of Shares.
(a) One Share One Vote. Unless otherwise provided in the
articles of incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
(b) Shares Held by Another Corporation. Except as provided by
specific court order, no shares held by another corporation, if a majority of
the shares entitled to vote for the election of directors of such other
corporation are held by the corporation, shall be voted at any meeting or
counted in determining the total number of outstanding shares at any given time
for purposes of any meeting. Provided, however, the prior sentence shall not
31
<PAGE>
limit the power of the corporation to vote any shares, including its own shares,
held by it in a fiduciary capacity.
(c) Voting of Redeemable Shares. Redeemable shares are not
entitled to vote after notice of redemption is mailed to the holders and a sum
sufficient to redeem the shares has been deposited with a bank, trust company,
or other financial institution under an irrevocable obligation to pay the
holders the redemption price on surrender of the shares.
Section 10. Corporation's Acceptance of Votes.
(a) Shareholder's Name Signed. If the name signed on a vote,
consent, waiver, proxy appointment or proxy revocation corresponds to the name
of a shareholder, the corporation if acting in good faith, is entitled to accept
the vote, consent, waiver, proxy appointment or proxy revocation and give it
effect as the act of the shareholders.
(b) Other Than Shareholder's Name Signed. If the name signed
on a vote, consent, waiver, proxy appointment or proxy revocation does not
correspond to the name of a shareholder, the corporation, if acting in good
faith, is nevertheless entitled to accept the vote, consent, waiver, proxy
appointment or proxy revocation and give it effect as the act of the shareholder
if:
(1) the shareholder is an entity as defined in
the Act and the name signed purports to be
that of an officer or agent of the entity;
(2) the name signed purports to be that of an
administrator, executor, guardian, or
conservator representing the shareholder
and, if the corporation requests, evidence
of fiduciary status acceptable to the
corporation has been presented with respect
to the vote, consent, waiver, proxy
appointment or proxy revocation;
(3) the name signed purports to be that of a
receiver or trustee in bankruptcy of the
shareholder and, if the corporation
requests, evidence of this status acceptable
to the corporation has been presented with
respect to the vote, consent, wavier proxy
appointment or proxy revocation;
(4) the name signed purports to be that of a
pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if
the corporation requests, evidence
acceptable to the corporation of the
signatory's authority to sign for the
shareholder has been presented with respect
to the vote, consent, waiver, proxy
appointment or proxy revocation; or
32
<PAGE>
(5) two or more persons are the shareholder as
co-tenants or fiduciaries and the name
signed purports to be the name of at least
one of the co-owners and the person signing
appears to be acting on behalf of all the
co-owners.
(c) Rejection. The corporation is entitled to reject a vote,
consent, waiver proxy appointment or proxy revocation if the secretary or other
officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about
the signatory's authority to sign for the shareholder.
(d) No Liability for Accepting or Rejecting. The corporation
and its officer or agent who accepts or rejects a vote, consent, waiver, proxy
appointment or proxy revocation in good faith and in accordance with the
standards of this section are not liable in damages to the shareholder for the
consequences of the acceptance or rejection.
(e) Action Presumed Valid. Corporate action based on the
acceptance or rejection of a vote, consent, waiver, proxy appointment or proxy
revocation under this section is valid unless a court of competent jurisdiction
determines otherwise.
Section 11. Informal Action by Shareholders.
(a) Written Consents. Any action required to be taken at a
meeting of the shareholders, or any action which may be taken at a meeting of
the shareholders, may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to take the action at a meeting at which all shares
entitled to vote thereon were present and voted, and delivered to the
corporation for inclusion in the minute book.
(b) Notice When Not Unanimous. Unless the written consents of
all shareholders entitled to vote have been obtained, notice of any shareholder
approval without a meeting shall be given at least ten days before the
consummation of the action authorized by the approval to:
(1) those shareholders entitled to vote who have
not consented in writing; and
(2) those shareholders not entitled to vote and
to whom the Act requires that notice of the
proposed action be given.
(c) Contents of Notice. The notice must contain or be
accompanied by the same material that would have been required to be sent in a
notice of meeting at which the proposed action would have been submitted to the
shareholders for action.
33
<PAGE>
(d) Revocation of Consent. Any shareholder giving a written
consent, or the shareholder's proxy holder, or a transferee of the shares or a
personal representative of the shareholder or their respective proxy holder, may
revoke the consent by a signed writing describing the action and stating that
the shareholder's prior consent is revoked, if the writing is received by the
corporation prior to the effectiveness of the action.
(e) Time Limitation. An action taken pursuant to this Section
is not effective unless all written consents on which the corporation relies are
received within a sixty (60) day period and not revoked.
(f) Effective Date of Action by Consent. An action taken
pursuant to this Section is effective as of the date the last written consent
necessary to effect the action is received by the corporation unless all of the
consents necessary to effect the action specify a later date as the effective
date and that date is not more than 70 days after the date the first shareholder
signed the written consent.
(g) Election of Directors. Directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors.
Section 12. Voting for Directors. Unless otherwise provided in
the articles of incorporation, directors are elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present.
Section 13. Shareholder's Rights to Inspect Corporate Records.
(a) Minutes and Accounting Records. The corporation shall keep
as permanent records minutes of all meetings of its shareholders and board of
directors, a record of all actions taken by the shareholders or board of
directors without a meeting, and a record of all actions taken by a committee of
the board of directors in place of the board of directors on behalf of the
corporation, and a record of all waivers of notices of meetings of shareholders,
meetings of the board of directors, or any meetings of committees of the board
of directors. The corporation shall maintain appropriate accounting records.
(b) Absolute Inspection Rights of Records Required at
Principal Office. If a shareholder gives the corporation written notice of the
shareholder's demand at least five business days before the date on which the
shareholder wishes to inspect and copy, a shareholder (or the shareholder's
agent or attorney) has the right to inspect or copy, during regular business
hours any of the following records, all of which the corporation is required to
keep at its principal office:
(1) its articles or restated articles of
incorporation and all amendments to them
currently in effect;
34
<PAGE>
(2) its bylaws or restated bylaws and all
amendments to them currently in effect;
(3) all financial statements prepared for the
periods ending during the last three years
that show in reasonable detail the
corporation's assets and liabilities and the
results of its operations;
(4) the minutes of all shareholders' meetings,
and records of all action taken by
shareholders without a meeting, for the past
three years;
(5) all written communications within the past
three years to shareholders as a group or to
the holders of any class or series of shares
as a group;
(6) a list of the names and business addresses
of its current directors and officers; and
(7) its most recent annual report delivered to
the Department of Commerce, Division of
Corporations and Commercial Code.
(c) Conditional Inspection Right. In addition, if a
shareholder gives the corporation a written demand made in good faith and for a
proper purpose at least five business days before the date on which the
shareholder wishes to inspect a copy, the shareholder describes with reasonable
particularity the shareholder's purpose or purposes and the records the
shareholder desires to inspect, and the records are directly connected with the
shareholder's purposes, a shareholder of the corporation (or the shareholder's
agent or attorney) is entitled to inspect and copy, during regular business
hours at a reasonable location specified by the corporation, any of the
following records of the corporation:
(1) excerpts from minutes of any meeting,
records of any action taken by the board of
directors, or of a committee of the board of
directors while acting on behalf of the
corporation in place of the board of
directors, minutes of any meeting of the
shareholders, and records of action taken by
the shareholders without a meeting, and
waivers of notices of any meeting of the
shareholders, or any meeting of the board of
directors, or of any meeting of a committee
of the board of directors;
(2) accounting records of the corporation; and
(3) the record of shareholders (compiled no
earlier than the date of the shareholder's
demand.)
35
<PAGE>
(d) Copy Costs. The right to copy records includes, if
reasonable, the right to receive copies made by photographic, xerographic, or
other means. The corporation may impose a reasonable charge, covering the costs
of labor and material, for copies of any documents provided to the shareholder.
The charge may not exceed the estimated cost of production or reproduction of
the records.
(e) Shareholder Includes Beneficial Owner. For purposes of
this Section 13, the term "shareholder" shall include a beneficial owner whose
shares are held in a voting trust or by a nominee on his behalf.
Section 14. Financial Statements. Upon the written request of
any shareholder, the corporation shall mail to him or her, its most recent
annual or quarterly financial statements showing in reasonable detail its assets
and liabilities and the results of its operations.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. Unless the articles of
incorporation or a shareholder agreement executed by all shareholders pursuant
to Section 16-10a-732 of the Act have dispensed with or limited the authority of
the board of directors by describing who will perform some or all of the duties
of a board of directors, all corporate powers shall be exercised by or under the
authority of, and the business and affairs of the corporation shall be managed
under the direction of the board of directors.
Section 2. Number, Tenure and Qualifications. The number of
directors of the corporation shall be not less than the number of shareholders
entitled to vote for the election of directors, if the corporation has fewer
than three such shareholders, nor more than seven (7) as determined, from time
to time, by the shareholders or the board of directors. Each director shall hold
office until their term has expired or until removed. If a director's term
expires, he or she shall continue to serve until his successor shall have been
elected and qualified or until there has been a decrease in directors. Directors
need not be residents of the State of Utah or shareholders of the corporation.
The board of directors may elect from its own number a chairman of the board,
who shall preside at all meetings of the board of directors, and shall perform
such other duties as may be prescribed from time to time by the board of
directors.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this by-law immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, either within or
without the State of Utah, for the holding of additional regular meetings
without other notice than such resolution. Such meetings may be held by
telephone or by any other means of communication by which all directors
participating may hear each other during the meeting.
Section 4. Special Meetings. Special meetings of the board
of directors may be called by or at the request of the president or the chairman
of the board of directors or any two directors. The person or persons authorized
36
<PAGE>
to call special meetings of the board of directors may fix any place, either
within or without the State of Utah, as the place for holding any special
meeting of the board of directors called by them. Such meetings may also be held
by telephone or by any other means of communication by which all directors
participating may hear each other during the meeting.
Section 5. Notice.
(a) General Provisions. Regular meetings of the board of
directors may be held without notice of the date, place, time and purpose of the
meeting. Notice of any special meeting, however, shall be given at least two
days previously thereto by written notice delivered personally or mailed to each
director at his business address, or by telegram or telephonic facsimile. If
mailed, such notice shall be deemed to be effective at the earlier of: (1) when
received; (2) five days after deposited in the United States mail, addressed to
the director's business office, with postage thereon prepaid; or (3) the date
shown on the return receipt if sent by registered or certified mail, return
receipt requested, and the receipt is signed by or on behalf of the director. If
notice is given by telegram such notice shall be deemed to be effective when the
telegram is delivered to the telegraph company. If notice is given by telephonic
facsimile, such notice shall be deemed to be effective when the transmission is
confirmed by or on behalf of the director. If notice is given by private
courier, such notice shall be deemed to be effective when acknowledgement of
delivery is signed by or on behalf of the director.
(b) Waiver. Any director may waive notice of any meeting.
Except as provided in this section 5(b), the waiver must be in writing, signed
by the director entitled to the notice and filed with the minutes or corporate
records. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business and at the
beginning of the meeting, or promptly upon the director's arrival, objects to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice, and does not thereafter vote for or assent to action
taken at the meeting.
(c) Content. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed
pursuant to Section 2 of this Article III shall constitute a quorum for the
transaction of business at any meeting of the board of directors, but if less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice.
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Section 7. Manner of Acting.
(a) Voting Requirements. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the board of directors, unless the articles of incorporation, these bylaws,
or the Act require a greater percentage.
(b) Appropriate Means of Communication. Unless the articles of
incorporation provide otherwise, any or all directors may participate in a
regular or special meeting by, or conduct the meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
(c) Effect of Presence at Meeting. A director who is
present at a meeting of the board of directors or a committee of the
board of directors when corporate action is taken is deemed to have
assented to the action taken unless: (1) he objects at the beginning of
the meeting (or promptly upon his arrival) to holding it or transacting
business at the meeting; or (2) his dissent or abstention from the
action taken is entered in the minutes of the meeting; or (3) he
delivers written notice of his dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting. This right of dissent or
abstention is not available to a director who votes in favor of the
action taken.
Section 8. Director Action Without a Meeting. Unless the
articles of incorporation, these bylaws, or the Act provide otherwise, any
action required or permitted to be taken by the board of directors at a meeting
may be taken without a meeting if all directors consent to the action in
writing. Action taken by consents is effective when the last director signs a
writing describing the action taken, unless, prior to that time, any director
has revoked a consent by a writing signed by the director and received by the
secretary or other person authorized by the board of directors to receive a
revocation, or unless the consent specifies a different effective date. A signed
consent has the effect of a meeting vote and may be described as such in any
document.
Section 9. Removal of Directors. The shareholders may remove
one or more directors at a meeting called for that purpose if notice has been
given that a purpose of the meeting is such removal. The removal may be with or
without cause unless the articles provide that directors may only be removed
with cause. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove him. If
cumulative voting is authorized, a director may not be removed if the number of
votes sufficient to elect him under cumulative voting is voted against his
removal. If cumulative voting is not authorized, a director may be removed only
if the number of votes cast to remove him exceeds the number of votes cast not
to remove him.
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Section 10. Vacancies.
(a) Who May Fill Vacancy. Unless the articles of incorporation
provide otherwise, if a vacancy occurs on the board of directors, including a
vacancy resulting from an increase in the number of directors:
(1) the shareholders may fill the vacancy;
(2) the board of directors may fill the vacancy;
or
(3) if the directors remaining in office
constitute fewer than a quorum of the board,
they may fill the vacancy by the affirmative
vote of a majority of all the directors
remaining in office.
(b) Directors Elected by a Voting Group. Unless otherwise
provided in the articles of incorporation, if the vacant office was held by a
director elected by a voting group of shareholders:
(1) if one or more directors are elected by the
same voting group, only they are entitled to
vote to fill the vacancy if it is filled by
the directors; and
(2) only the holders of shares of that voting
group are entitled to vote to fill the
vacancy if it is filled by the shareholders.
(c) Filling Future Vacancies. A vacancy that will occur at a
specific later date, by reason of a resignation effective at a later date or
otherwise, may be filled before the vacancy occurs, but the new director may not
take office until the vacancy occurs.
(d) Term of New Director. The term of a director elected to
fill a vacancy expires at the next shareholders' meeting at which directors are
elected. However, if his term expires, he shall continue to serve until his
successor is elected and qualifies or until there is a decrease in the number of
directors.
Section 11. Compensation. By resolution of the board of
directors, each director may be paid his expenses, if any, of attendance at each
meeting of the board of directors, and may be paid a stated salary as director
or a fixed sum for attendance at each meeting of the board of directors or both.
No such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
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Section 12. Director Committees.
(a) Creation of Committees. The board of directors may create
one or more committees and appoint members of the board of directors to serve on
them. Each committee must have two or more members, who serve at the pleasure of
the board of directors.
(b) Selection of Members. The creation of a committee and
appointment of members to it must be approved by the greater of (1) a majority
of all the directors in office when the action is taken or (2) the number of
directors required by the articles of incorporation or bylaws to take such
action.
(c) Required Procedures. Provisions of this Article III, which
govern meetings, action without meetings, notice and waiver of notice, quorum
and voting requirements of the board of directors, apply to committees and their
members.
(d) Authority. Each Committee may exercise those aspects of
the authority of the board of directors which the board of directors confers
upon such committee in the resolution creating the committee.
ARTICLE IV. OFFICERS
Section 1. Number. The officers of the corporation shall be a
president and a secretary, each of whom shall be elected by the board of
directors. Such other officers and assistant officers, including a chairman of
the board, treasurer and any vice presidents, as may be deemed necessary may be
elected or appointed by the board of directors. If specifically authorized by
the board of directors, an officer may appoint one or more officers or assistant
officers. Any two or more offices may be held simultaneously by the same person.
Section 2. Appointment and Term of Office. The officers of the
corporation shall be appointed by the board of directors for a term as
determined by the board of directors. The designation of a specified term grants
to the officer no contract rights, and the board can remove the officer at any
time prior to the termination of such term. If no term is specified, they shall
hold office until they resign, die, or until they are removed in the manner
provided hereafter.
Section 3. Removal. Any officer or agent may be removed by the
board of directors at any time, with or without cause. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
Section 4. Resignation. An officer may resign at any time by
giving written notice of the resignation to the corporation. The resignation is
effective when the notice is received by the corporation, unless a later
effective date is specified. If the resignation is effective at a later date,
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the board of directors may remove the officer at any time before the effective
date and fill the resulting vacancy, or the board may allow the officer to
remain in office until the effective date and fill the pending vacancy before
the effective date if the board provides that the successor does not take office
until the effective date.
Section 5. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term.
Section 6. Chief Executive Officer. The board of directors may
designate one of the officers as chief executive officer. He shall have, subject
to the supervision and direction of the board of directors, general supervision
of the business, property, and affairs of the corporation and the powers vested
in him by the board of directors, by law or by these Bylaws or which usually
attach or pertain to such office.
Section 7. Chairman of the Board. If appointed, the chairman
of the board shall have the powers and duties vested in him by the board of
directors, by law or by these Bylaws. He shall preside at meetings of the board
of directors.
Section 8. The President. The president shall be the principal
executive officer of the corporation and, subject to the control of the board of
directors and the Chief Executive Officer, shall in general supervise and
control all of the business and affairs of the corporation. He shall, when
present, preside at all meetings of the shareholders. He may sign, with the
secretary or any other proper officer of the corporation thereunto authorized by
the board of directors, certificates for shares of the corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the board of directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.
Section 9. The Vice-President. If appointed, in the absence of
the president or in the event of his death, inability or refusal to act, the
vice-president (or in the event there be more than one vice-president, the
vice-presidents in the order designated at the time of their appointment, or in
the absence of any designation, then in the order of their appointment) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. Any
vice-president may sign, with the secretary or an assistant secretary,
certificates for shares of the corporation; and shall perform such other duties
as from time to time may be assigned to him by the president or by the board of
directors.
Section 10. The Secretary. The secretary shall: (a) keep the
minutes of the proceedings of the shareholders and of the board of directors in
one or more books provided for that purpose; (b) see that all notices are duly
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given in accordance with the provisions of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the corporation and
see that the seal of the corporation is affixed to all documents the execution
of which on behalf of the corporation under its seal is duly authorized; (d)
when requested or required, authenticate any records of the corporation, (e)
keep a register of the post office address of each shareholder; (f) sign with
the president, or a vice-president, certificates for shares of the corporation,
the issuance of which shall have been authorized by resolution of the board of
directors; (g) have general charge of the stock transfer books of the
corporation; and (h) in general perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the President or by the board of directors; provided that the Secretary may
delegate the responsibilities set forth in clauses (e) and (g) above to the duly
appointed stock transfer agent of the corporation.
Section 11. The Treasurer. If appointed, the treasurer shall:
(a) have charge and custody of and be responsible for all funds and securities
of the corporation; (b) receive and give receipts for moneys due and payable to
the corporation from any source whatsoever, and deposit all such moneys in the
name of the corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of Article V; (c) in general
perform all of the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to him by the president or by the
board of directors; and (d) if there is no vice-president, then the Treasurer
shall perform such duties of the president. If required by the board of
directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the board of directors
shall determine.
Section 12. Assistant Secretaries and Assistant Treasurers.
The assistant secretaries, when authorized by the board of directors, may sign
with the president or a vice-president certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the board of directors. The assistant treasurers shall, respectively, if
required by the board of directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of directors shall
determine. The assistant secretaries and assistant treasurers, in general, shall
perform such duties as shall be assigned to them by the secretary or the
treasurer, respectively, or by the president or the board of directors.
Section 13. Salaries. The salaries of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The board of directors may authorize any
officer or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
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Section 2. Loans. No loans shall be contracted on behalf of
the corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the board of directors. Such authority may
be general or confined to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to time
be determined by resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositaries as the board of
directors may select.
ARTICLE VI. INDEMNIFICATION
Section 1. Indemnification. To the extent allowed by law, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative by reason
of the fact that he is or was a director or officer of the Corporation, or is or
was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit or
proceeding, except in relation to matters as to which he shall be finally
adjudged in such action, suit or proceeding to be liable for willful misconduct
in the performance of his duties. Indemnification under this Section 1 shall be
considered a contractual right of the indemnified parties.
Section 2. General Terms of Indemnification. The
indemnification and advancement of expenses provided by this Article may not be
construed to be exclusive of any of the rights to which a person seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of shareholders or disinterested directors or otherwise,
both as to an action in his official capacity and as to an action in another
capacity while holding office.
Section 3. Advances. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer that he shall repay the
amount advanced if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the Corporation as
authorized by this Article.
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Section 4. Scope of Indemnification. The indemnification and
advancement of expenses authorized by this Article shall apply to all present
and future directors and officers of the Corporation and shall continue as to
such persons who cease to be directors or officers of the Corporation and shall
inure to the benefit of the heirs, executors, and administrators of all such
persons and shall be in addition to all other indemnification and advancement of
expenses provided by law.
Section 5. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status in any such capacity, whether or not the Corporation
would have the power to indemnify him against any such liability under the
provisions of this Article or the laws of the State of Utah as the same may
hereafter be amended or modified.
Section 6. Severability. If any provision of this Article or
the application of such provision to any person or circumstance shall be found
by a court of competent jurisdiction to be invalid or unenforceable the
remainder of this Article or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby. It is the intent of the Corporation to indemnify
all parties set forth in this Article to the full extent provided by law.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares.
(a) Content. Certificates representing shares of the
corporation shall at minimum, state on their face the name of the issuing
corporation and that it is formed under the laws of Utah, the name of the person
to whom issued; and the number and class of shares and the designation of the
series, if any, the certificate represents; and be in such form as determined by
the board of directors. Such certificates shall be signed (either manually or,
if countersigned by the duly appointed stock transfer agent of the corporation,
by facsimile) by the president or a vice-president and by the secretary or an
assistant secretary and may be sealed with a corporate seal or a facsimile
thereof. Each certificate for shares shall be consecutively numbered or
otherwise identified.
(b) Legend as to Class or Series. If the corporation is
authorized to issue different classes of shares or different series within a
class, the designations, relative rights, preferences and limitations applicable
to each class and the variations in relative rights, preferences and limitations
determined for each series (and the authority of the board of directors to
determine variations for any existing or future class or series) must be
summarized on the front or back of each certificate. Alternatively, each
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certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder this information on request in writing and without
charge.
(c) Restrictions on Transfer. Any restriction on the transfer
or registration of transfer of shares must be noted conspicuously on the front
or back of the share certificate.
(d) Shareholder List. The name and address of the person to
whom the shares represented thereby are issued, with the number of shares and
date of issue, shall be entered on the transfer books of the corporation.
(e) Transferring Shares. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the corporation as the board of directors may prescribe.
Section 2. Registration of the Transfer of Shares.
Registration of the transfer of shares of the corporation shall be made only on
the transfer books of the corporation. To register a transfer, the record owner
shall surrender the shares to the corporation for cancellation, properly
endorsed by the appropriate person or persons with reasonable assurances that
the endorsements are genuine and effective. Unless the corporation has
established a procedure by which a beneficial owner of shares held by a nominee
is to be recognized by the corporation as the owner, the person in whose name
shares stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
Section 3. Restrictions on Transfer of Shares.
(a) Restrictions Permitted. The board of directors (or
shareholders) may impose restrictions on the transfer or registration of
transfer of shares (including any security convertible into, or carrying a right
to subscribe for or acquire shares). A restriction does not affect shares issued
before the restriction was adopted unless the holders of the shares are parties
to the restriction agreement or voted in favor of the restriction.
(b) Authorized Purposes for Restrictions. A restriction on the
transfer or registration of transfer of shares may be authorized:
(1) to maintain the corporation's status when it
is dependent on the number or identity of
its shareholders;
(2) to preserve entitlements, benefits, or
exemptions under federal, state or local
laws;
(3) to provide continuity in the ownership and
management of the corporation; or
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(4) for any other reasonable purpose.
(c) Types of Restrictions Authorized. A restriction on the
transfer or registration of transfer of shares may:
(1) obligate the shareholder first to offer the
corporation or other persons (separately,
consecutively, or simultaneously) an
opportunity to acquire the restricted
shares;
(2) obligate the corporation or other persons
(separately, consecutively, or
simultaneously) to acquire the restricted
shares;
(3) require the corporation, any of its
shareholders or any one or more persons to
approve the transfer or registration of
transfer of the restricted shares, if the
requirement is not manifestly unreasonable;
(4) require the shareholder to establish
compliance with federal and state laws
regarding registration of the offer and sale
of securities; or
(5) prohibit the transfer or the registration of
a transfer of the restricted shares to
designated persons or classes of persons, if
the prohibition is not manifestly
unreasonable.
(d) Disclosure of Restrictions Required. A restriction on the
transfer or registration of transfer of shares is valid and enforceable against
the holder or a transferee of the holder if the restriction is authorized by
this section or the Act and its existence is noted conspicuously on the front or
back of the share certificate or is contained in the information statement
required by Section 2 of this Article VII with regard to shares issued without
certificates. Unless so noted, a restriction is not enforceable against a person
without knowledge of the restriction.
Section 4. Corporation's Acquisition of Shares.
(a) Acquisition Authorized. Subject to the restrictions
contained in Utah Code Ann. ss.16-10a-640(3), the corporation may acquire its
own shares and the shares so acquired constitute authorized but unissued shares.
(b) When Amendment of Articles Required. If the articles of
incorporation prohibit the reissue of acquired shares, the number of authorized
shares is reduced by the number of shared acquired, effective upon amendment of
the articles of incorporation, which amendment shall be adopted by the board of
directors without shareholder action. The articles of amendment must be
delivered to the Utah Department of Commerce, Division of Corporations and
Commercial Code and must set forth:
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(1) the name of the corporation;
(2) the reduction in the number of authorized
shares, itemized by class and series;
(3) the total number of authorized shares,
itemized by class and series, remaining
after reduction of the shares; and
(4) a statement that the amendment was adopted
by the board of directors without
shareholder action and that shareholder
action was not required.
ARTICLE VIII. FISCAL YEAR
The fiscal year of the corporation shall be a 52- or 53-week
year ending on Friday of the week which contains the last business day of
December.
ARTICLE IX. DISTRIBUTIONS
The board of directors may authorize, and the corporation may
make, distributions (including dividends on its outstanding shares) in the
manner, and upon the terms and conditions provided by law and the corporation's
articles of incorporation.
ARTICLE X. CORPORATE SEAL
The board of directors may in its discretion provide a
corporate seal.
ARTICLE XI. AMENDMENTS
Section 1. Restrictions on Amendments. The corporation's
board of directors may amend or repeal the corporation's bylaws unless:
(a) the articles of incorporation or the Act reserve this
power exclusively to the shareholders in whole or in part; or
(b) the shareholders in adopting, amending, or repealing a
particular bylaw provide expressly that the board of directors may not amend or
repeal that bylaw.
Section 2. Amendment by Shareholders. The corporation's
shareholders may amend or repeal the corporation's bylaws even though the bylaws
may also be amended or repealed by its board of directors.
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ARTICLE XII. EMERGENCY BYLAWS
The following provisions shall be effective during an
emergency which is defined as when a quorum of the corporation's directors
cannot be readily assembled because of some catastrophic event.
During such emergency:
(a) Notice of Board Meetings. Any one member of
the board of directors or any one of the following officers: president, any
vice-president, secretary, or treasurer, may call a meeting of the board of
directors. Notice of such meeting need to given only to those directors whom it
is practicable to reach, and may be given in any practical manner, including by
publication and radio. Such notice shall be given at least six hours prior to
commencement of the meeting.
(b) Temporary Directors and Quorum. One or more
officers of the corporation present at the emergency board meeting, as is
necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in order
of seniority. In the event that less than a quorum of the directors are present
(including any officers who are to serve as directors for the meeting), those
directors present (including the officers serving as directors) shall constitute
a quorum.
(c) Actions Permitted to be Taken. The board as
constituted in paragraph (b), and after notice as set forth in paragraph (a)
may:
(1) Officers' Powers. Prescribe emergency powers
to any officer of the corporation;
(2) Delegation of Any Power. Delegate to any
officer or director, any of the powers of
the board of directors;
(3) Lines of Succession. Designate lines of
succession of officers and agents, in the
event that any of them are unable to
discharge their duties;
(4) Relocate Principal Place of Business.
Relocate the principal place of business, or
designate successive principal places of
business;
(5) All Other Action. Take any other action,
convenient, helpful, or necessary to carry
on the business of the corporation.
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ARTICLE XIII. PROCEDURE FOR CONDUCTING MEETINGS
All shareholder and director meetings shall be conducted in
accordance with the rules and procedures set forth in the most current edition
of Roberts' Rules of Order, unless otherwise specified by the Chairman of the
Board or other presiding officer.
Amended and Restated June 9, 1997
Further Amended February 13, 1998
Further Amended March 30, 1998
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Warrant Certificate No. ___
_____ Warrants to Acquire
One Share Per Warrant
NEITHER THE WARRANTS EVIDENCED HEREBY NOR THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THESE WARRANTS HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS AN "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT) ("ACCREDITED
INVESTOR") AND (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE WARRANTS
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL
OR OTHERWISE TRANSFER THE WARRANTS EVIDENCED HEREBY OR THE COMMON SHARES
ISSUABLE UPON CONVERSION OF SUCH WARRANTS EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE COMPANY, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE
WARRANTS EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
COMPANY), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904
OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
WARRANTS EVIDENCED HEREBY ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE WARRANTS EVIDENCED
HEREBY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE ASSIGNMENT
FORM RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE
COMPANY. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE,
THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
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CUSIP # U31656 11 6
ISIN # USU 31656 11 61
These Warrants shall cease to be exercisable and shall be void after
5:00 p.m., Simi Valley, California time, on February 20, 2000
COMMON SHARE PURCHASE WARRANTS
OF
FIELDS AIRCRAFT SPARES, INC.
FOR VALUE RECEIVED, Fields Aircraft Spares, Inc. (the "Company"), a Utah
corporation, hereby certifies that ___________________________, whose address is
_________________________________, or his permitted assigns, is the holder of
____________ Warrants to purchase from the Company one Common Share of the
Company, par value $.05, per Warrant, subject to the conditions and upon the
terms of these Warrants, at any time or from time to time after the date hereof
and prior to 5:00 p.m. Simi Valley, California time, on February 20, 2000, at a
per share exercise price of $13.00 per share (subject to adjustment as provided
herein). Hereinafter (i) said common shares, together with any other equity
securities that may be issued by the Company with respect thereto or in
substitution therefor, is referred to as "Common Stock," (ii) the shares of
Common Stock purchasable hereunder are referred to as the "Warrant Shares,"
(iii) the aggregate purchase price payable hereunder for the Warrant Shares
calculated as set forth in Paragraph 1 is referred to as the "Aggregate Warrant
Price," (iv) the price payable hereunder for each of the Warrant Shares is
referred to as the "Per Share Warrant Price," (v) these Warrants, and all
warrants hereafter issued in exchange or substitution for these Warrants are
referred to as the "Warrants" and (vi) the holder of these Warrants are referred
to as the "Holder."
The Per Share Warrant Price is subject to adjustment pursuant to the
anti-dilution provisions of Paragraph hereof. In the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Warrant Price by the Per Share Warrant Price in effect immediately
after such adjustment.
1. Exercise of Warrants. These Warrants may be exercised, in whole at
any time or in part from time to time during the period (the "Exercise Period")
commencing on the date hereof, and ending on 5:00 p.m. Simi Valley, California
time then current on February 20, 2000, by the Holder of these Warrants by the
surrender of these Warrants (with the exercise form at the end hereof duly
executed) at the address set forth in Subsection (a) hereof, together with
payment of the Aggregate Warrant Price, or the proportionate part thereof if
these Warrants are exercised in part. Payment for Warrant Shares shall be made
by certified or official bank check or wire transfer of immediately available
funds payable to the order of "Fields Aircraft Spares,
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Inc." The Warrants shall expire, and exercise shall no longer be allowed, to the
extent the Warrants have not been exercised by the expiration of the Exercise
Period.
2. Partial Exercise of Warrant. If these Warrants are exercised in
part, these Warrants must be exercised for a minimum of 100 shares of Common
Stock and if the Exercise Period has not expired the Holder is entitled to
receive new Warrants covering the number of Warrant Shares in respect of which
these Warrants have not been exercised and setting forth the proportionate part
of the Aggregate Warrant Price applicable to such Warrant Shares. Upon such
surrender of these Warrants, the Company will (a) issue a certificate or
certificates in the name of the Holder for the largest number of whole shares of
Common Stock to which the Holder shall be entitled and, if these Warrants are
exercised in whole, in lieu of any fractional share of the Common Stock to which
the Holder shall be entitled, cash equal to the fair value of such fractional
share (determined in such reasonable manner as the Board of Directors of the
Company shall determine), and (b) deliver the proportionate part thereof if
these Warrants are exercised in part, pursuant to the provisions of the
Warrants. The Warrants shall expire, and exercise shall no longer be allowed, to
the extent the Warrants have not been exercised by the expiration of the
Exercise Period.
3. Redemption of Warrants. The Warrants are redeemable by the Company,
in whole or in part, on not less than thirty (30) days' prior written notice at
a redemption price of $.01 per Warrant at any time, provided that the closing
price of the Common Stock has maintained an average of $20.00 (the "Redemption
Level") for any twenty (20) trading days ending within 50 days prior to the day
on which the Company gives notice of redemption. The redemption notice shall be
mailed to the holders of the Warrants at their addresses set forth in Subsection
10(b) hereof. Holders of the Warrants will have exercise rights until the close
of business on the date fixed for redemption. If an adjustment is made to the
Per Share Warrant Price in Section 5(b) below, a corresponding adjustment shall
be made to the Redemption Level.
4. Reservation of Warrant Shares. The Company will at all times during
the Exercise Period have authorized and reserved, and will keep available,
solely for issuance or delivery upon the exercise of the Warrants, the Warrant
Shares.
5. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date of the
Warrants, the Company shall distribute property or assets to all holders of
Common Stock (excluding (x) dividends paid in, or distributions of, the
Company's capital stock for which the number of Warrant Shares receivable
hereunder shall have been adjusted pursuant to Subsection (b), and (y) dividends
or distributions paid in cash) (any of the foregoing being hereinafter in this
Subsection (a) called the "Property"), then, in each such case, the Company
shall reserve sufficient Property for distribution to the Holder upon exercise
of the Warrants so that, in addition to the shares of Common Stock to which the
Holder is entitled, the Holder will receive upon such exercise the amount and
kind of such Property which such Holder would have received if the Holder had,
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immediately prior to the record date for the distribution of the Property,
exercised the Warrants. Notice of each such distribution shall be given to the
Holder concurrently with any notice given to the holders of Common Stock
regarding such distribution.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its Common Stock payable in shares of capital stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, then, in any such event, the Holder
shall be entitled to receive the aggregate number and kind of shares which, if
the Warrants had been exercised immediately prior to the record date with
respect to the dividend or distribution or the effective date of the
subdivision, combination or reclassification, he would have been entitled to
receive by virtue of such dividend, distribution, subdivision, combination or
reclassification, and the Per Share Warrant Price shall be appropriately
adjusted. Such adjustment shall be made successively whenever any event listed
above shall occur. An adjustment made pursuant to this subsection (b) shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this subsection (b), the Holder of these Warrants
shall become entitled to receive shares of two or more classes of capital stock
or shares of Common Stock and other capital stock of the Company, then these
Warrants may thereafter be exercised for units consisting of whole number
multiples of each such securities, as designated by the Board of Directors.
(c) In case of any of the following events (each of which
shall be deemed a "Reorganization Event"): (i) any consolidation or merger to
which the Company is a party, other than a merger or consolidation in which the
Company is the continuing corporation, (ii) any sale or conveyance to another
entity of all or substantially all of the assets of the Company (including a
sale of all or substantially all of the assets of the Company for a
consideration consisting primarily of securities) or (iii) any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third party into the Company), the Holder shall
have the right thereafter to receive upon exercise of these Warrants the kind
and amount of securities, cash or other property which he would have owned or
have been entitled to receive immediately after such Reorganization Event had
such Warrants been converted immediately prior to the effective date of such
Reorganization Event and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section
with respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth in this Section shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
these Warrants. The foregoing provisions of this Subsection (c) shall similarly
apply to successive Reorganization Events. Notice of any Reorganization Event
and of said provisions so proposed to be made shall be mailed to the Holder not
less than 30 days prior to the effective date of such event.
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(d) Notwithstanding any other provision of this Section, no
adjustment in the Per Share Warrant Price shall be required unless such
adjustment would require an increase or decrease of at least $0.10 per share of
Common Stock and no adjustment in the number of Warrant Shares issuable upon
exercise of these Warrants shall be required if such adjustment would represent
less than one percent of the number of Warrant Shares to be so delivered;
provided, however, that any adjustments which by reason of this Subsection (d)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment, and provided further, however, that adjustments shall
be required and made in accordance with the provisions of this Section (other
than this Subsection (d)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the Holder. All
calculations under this Section shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section to the
contrary notwithstanding, the Company shall be entitled to make such reductions
in the Per Share Warrant Price, in addition to those required by this Section,
as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares, or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its shareholders shall not be taxable.
(e) Whenever the Per Share Warrant Price is adjusted as
provided in this Section and upon any modification of the rights of the Holder
of these Warrants in accordance with this Section, the Company shall promptly
prepare a certificate of the Company's Chief Financial Officer, setting forth
the Per Share Warrant Price and the number of Warrant Shares after such
adjustment or the effect or such modification, a brief statement of the facts
requiring such adjustment or modification and the manner of computing the same
and cause a copy of such certificate to be mailed to the Holder.
(f) If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Stock, the
Company shall mail notice thereof to the Holder not less than 15 days prior to
the record date fixed for determining shareholders entitled to participate in
such dividend or other distribution.
6. Fully Paid Stock; Taxes. The shares of the Common Stock represented
by each and every certificate for Warrant Shares delivered on the exercise of
these Warrants shall, at the time of such delivery, be validly issued and
outstanding, fully paid and non-assessable, and not subject to any pre-emptive
rights, and the Company will take all such actions as may be necessary to assure
that the par value or stated value, if any, per share of the Common Stock is at
all times equal to or less than the then Per Share Warrant Price. The Company
shall pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
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<PAGE>
7. Transfer.
(a) Securities Laws. Neither these Warrants nor the Warrant
Shares issuable upon the exercise hereof have been registered in reliance on
Regulation S promulgated under the Securities Act of 1933, as amended (the "Act"
or the "Securities Act") or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of except pursuant to Regulation S under the Act unless an exemption
from such registration is available. Except as provided in subsection (b) of
this Section, these Warrants shall bear the following legend:
NEITHER THE WARRANTS EVIDENCED HEREBY NOR THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THESE WARRANTS HAVE BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER
(1) REPRESENTS THAT (A) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a) UNDER THE SECURITIES ACT) ("ACCREDITED INVESTOR") AND (B)
IT IS NOT A U.S. PERSON AND IS ACQUIRING THE WARRANTS EVIDENCED HEREBY
IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR
OTHERWISE TRANSFER THE WARRANTS EVIDENCED HEREBY OR THE COMMON SHARES
ISSUABLE UPON CONVERSION OF SUCH WARRANTS EXCEPT (A) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
COMPANY, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE WARRANTS
EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
COMPANY), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES
ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE WARRANTS EVIDENCED
HEREBY ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE WARRANTS EVIDENCED
HEREBY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
ASSIGNMENT FORM RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE COMPANY. IF THE PROPOSED TRANSFER IS PURSUANT TO
CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
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<PAGE>
FURNISH TO THE COMPANY, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
(b) Conditions to Transfer. In the event Holder desires to
transfer these Warrants or (in the absence of registration under the Securities
Act) any of the Warrant Shares issued, the Holder must give the Company prior
written notice of such proposed transfer including the name and address of the
proposed transferee and shall check the appropriate box on the Assignment Form
relating to the manner of such transfer. Such transfer may be made only in
accordance with Section 7(a) and the terms on the Assignment Form including, if
necessary, receipt by the Company of an opinion of Holder's counsel acceptable
to the Company, to the effect that the proposed transfer will not violate the
provisions of the Securities Act, the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated under either such act
(collectively, the "Securities Laws"). Prior to any such proposed transfer, and
as a condition thereto, if such transfer is not made pursuant to an effective
registration statement under the Securities Act, the Holder will, if requested
by the Company, deliver to the Company any representation or agreement
reasonably requested to determine compliance with the Securities Laws.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 7, and the Holder
hereby shall indemnify and hold harmless the Company, its representatives and
each officer, director and control person thereof from and against any and all
loss, damage or liability (including all attorneys' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (i) the inaccuracy
of any representation or the breach of any warranty of the Holder contained in,
or any other breach of, these Warrants, (ii) any transfer of the Warrants or any
of the Warrant Shares in violation of the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated under
either of such acts, (iii) any transfer of the Warrants or any of the Warrant
Shares not in accordance with these Warrants or (iv) any untrue statement or
omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder or its agents to the Company or its counsel in connection with any
transfer or proposed transfer of the Warrants or any Warrant Shares.
(d) Transfer. Except as provided in this Section 7, these
Warrants and the Warrant Shares issued may be transferred by the Holder in whole
or in part at any time or from time to time after 90 days following the latest
date of original issuance of the Warrants. Upon surrender of these Warrants to
the Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
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<PAGE>
transfer tax, and upon compliance with the foregoing provisions, the Company
shall, without charge, execute and deliver new Warrants in the name of the
assignee or assignees named in such Assignment Form (and if the entire amount of
the Warrants is not being transferred, in the name of the Holder), and these
Warrants shall promptly be cancelled. Any assignment, transfer, pledge,
hypothecation or other disposition of these Warrants attempted contrary to the
provisions of these Warrants, or any levy of execution, attachment or other
process attempted upon the Warrants, shall be null and void and without effect.
8. Loss, etc. of Warrants. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of these Warrants, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of these Warrants, if mutilated, the Company
shall execute and deliver to the Holder new Warrants of like date, tenor and
denomination.
9. Warrant Holder Not Shareholder. Except as otherwise provided herein,
these Warrants do not confer upon the Holder any right to vote or to consent to
or receive notice as a shareholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a shareholder of the
Company, either at law or in equity, and the rights of the Holder are limited to
those expressed in the Warrants.
10. Communication. No notice or other communication under the Warrants
shall be effective unless the same is in writing and is either (i) mailed by
first-class mail, postage prepaid, in which event the notice shall be deemed
effective three days after deposit in the mails, or (ii) delivered by
established delivery service which guarantees three business days or less
delivery, in which event the notice is deemed effective on the date of
guaranteed delivery. Regardless of the method of delivery, the notice or
communication shall be addressed to:
(a) the Company at 2251-A Ward Avenue, Simi Valley,
California 93065, Attention: Chief Executive Officer or such other address as
the Company has designated in writing to the Holder, or
(b) the Holder at the address indicated in the opening
paragraph hereof, or such other address as the Holder has designated in writing
to the Company.
11. Headings. The headings of the Warrants have been inserted as a
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. The Warrants shall be governed by and
construed in accordance with the law of the State of Utah without giving effect
to the principles of conflicts of law thereof.
13. Warrant Register. The Company will register the Warrants in
the Warrant Register in the name of the record holder to whom it has been
distributed or assigned in accordance with the terms hereof. The Company may
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<PAGE>
deem and treat the registered Holder of these Warrants as the absolute owner
hereof (notwithstanding any notation of ownership or other writing hereon made
by anyone) for the purpose of any exercise hereof or any distribution to the
Holder and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
14. Successors. All of the provisions of the Warrants by or for
the benefit of the Company or the Holder shall bind and inure to the benefit of
their respective successors and assigns.
IN WITNESS WHEREOF, Fields Aircraft Spares, Inc. has caused this
Warrant Certificate to be signed by its President this 20th day of February,
1998.
FIELDS AIRCRAFT SPARES, INC.
By: ________________________________
Alan M. Fields
President
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EXERCISE FORM
To be executed by the Holder
in Order to Exercise Warrants
The undersigned Holder hereby irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in the Holder's name and be delivered to
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
[please print or type address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Holder at the
address stated above.
The undersigned certifies that it is not a U.S. person as defined in
Regulation S of the Securities Act and that the Warrants are not being exercised
on behalf of a U.S.
person.
The undersigned acknowledges that, if this Exercise Form is submitted
prior to the Company having given notice that the issuance of the Warrant Shares
has been registered under the Securities Act, the Warrant Shares issued on
exercise will be "restricted securities" and will bear appropriate restrictive
legends.
Dated: _________________________ ____________________________________
Signature of Holder
------------------------------------
------------------------------------
Signature Guaranteed
------------------------------------
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ASSIGNMENT
For value received hereby sell(s), assign(s) and transfer(s)
unto _________________________ (please insert social security or other
identifying number of assignee) ____________________ Warrants to purchase one
Common Share per Warrant, and hereby irrevocably constitutes and appoints
_________________________ attorney to transfer _____________ Warrants to
purchase one Common Share per Warrant, on the books of the Company, with full
power of substitution in the premises.
In connection with any transfer of the Warrants the
undersigned confirms that such Warrant is being transferred:
[ ] To Fields Aircraft Spares, Inc. or a subsidiary thereof; or
[ ] Pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
[ ] To an accredited investor pursuant to and in compliance with
the Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Rule 144 under the
Securities Act of 1933, as amended.
Unless one of the boxes above is checked, the Company will
refuse to register any of the within Warrants in the name of any person other
than the registered holder thereof (or hereof); provided, however, that the
Company may, in its sole discretion, register the transfer of such Warrants if
it has received such certifications, legal opinions and/or other information as
the Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, as amended.
In addition, if the transferee is an accredited investor or a
purchaser who is not a U.S. person, the holder must furnish to the transfer
agent (i) in the case of an accredited investor, a signed letter containing
certain representations and agreements relating to the restrictions on transfer
of the security evidenced hereby in substantially the form of Exhibit A to the
Warrants, and (ii) such other certifications, legal opinions or other
information as it may reasonably require to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, as amended.
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Dated: ______________________
- -----------------------------
- -----------------------------
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.
- -----------------------------
Signature Guarantee
NOTICE: The signature on the conversion notice or the assignment must
correspond with the name as written upon the face of the Warrants in
every particular without alteration or enlargement or any change
whatever.
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EXHIBIT A - FORM OF TRANSFEREE CERTIFICATE FOR WARRANTS
TO BE ISSUED TO ACCREDITED INVESTORS
Fields Aircraft Spares, Inc.
2251-A Ward Avenue
Simi Valley, California 93065
Attention: Chief Executive Officer
Re: Fields Aircraft Spares, Inc.
Warrants to Purchase
Common Shares (the "Warrants")
Reference is hereby made to the Warrant Certificate dated as
of February 20, 1998 (the "Warrant Certificate") of Fields Aircraft Spares, Inc.
(the "Company"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Warrant Certificate.
The undersigned is delivering this letter in connection with
the transfer of Warrants to the undersigned.
The undersigned hereby confirms that:
(i) the undersigned is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act of 1933, as amended (the
"Securities Act"), or an entity in which all of the equity owners are accredited
investors within the meaning of Rule 501(a) under the Securities Act (an
"Accredited Investor");
(ii) (A) any purchase of Warrants by the undersigned will be
for the undersigned's own account or for the account of one or more other
Accredited Investors or as fiduciary for the account of one or more trusts, each
of which is an "accredited investor" within the meaning of Rule 501(a)(7) under
the Securities Act and for each of which we exercise sole investment discretion
or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities
Act, or a "savings and loan association" or other institution described in
Section 3(a)(5)(A) of the Securities Act that is acquiring Warrants as fiduciary
for the account of one or more institutions for which we exercise sole
investment discretion;
(iii) the undersigned has such knowledge and experience in
financial and business matters that the undersigned is capable of evaluating the
merits and risks of purchasing Warrants;
(iv) the undersigned is not acquiring Warrants with a view to
distribution thereof or with any present intention of offering or selling
Warrants or the Common Stock issuable upon exercise thereof, except as permitted
below; provided that the disposition of the undersigned's property and property
of any accounts for which the undersigned is acting as fiduciary shall remain at
all times within the undersigned's control; and
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(v) the undersigned acknowledges that it has had access to
such financial and other information as the undersigned deems necessary in
connection with the undersigned's decision to purchase Warrants.
The undersigned understands that the Warrants have been issued
in a transaction not involving any public offering within the United States
within the meaning of the Securities Act and that the Warrants and the shares of
Common Stock issuable upon exercise thereof (collectively, the "Securities")
have not been registered under the Securities Act or any applicable state
securities laws, and the undersigned agrees, on the undersigned's own behalf and
on behalf of each account for which the undersigned acquires any Securities,
that if in the future the undersigned decides to resell or otherwise transfer
such Securities, such Securities may be resold or otherwise transferred only (a)
to the Company or any subsidiary thereof, (b) to a person who is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (c) to an Accredited Investor
that, prior to such transfer, furnishes to the transfer agent for such
Securities a signed letter containing certain representations and agreements
relating to the restrictions on transfer of such Securities (the form of which
letter can be obtained from such Company), (d) outside the United States in a
transaction meeting the requirements of Regulation S under the Securities Act,
(e) pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if applicable) or (f) pursuant to a registration statement that
has been declared effective under the Securities Act. The undersigned agrees
that any such transfer of Securities referred to in this paragraph shall be in
accordance with applicable securities laws of any State of the United States or
any other applicable jurisdiction and in accordance with the legends set forth
on the Securities. The undersigned further agrees to provide any person
purchasing any of the Securities from the undersigned a notice advising such
purchaser that resales of such Securities are restricted as stated herein. The
undersigned understands that the Company will not be required to accept for
registration or transfer any Securities, except upon presentation of evidence
satisfactory to the Company that the foregoing restrictions on transfer have
been complied with. The undersigned further understands that any Securities will
bear a legend (unless the sale of the Securities has been registered under the
Securities Act) reflecting the substance of this paragraph.
The undersigned acknowledges that the Transferor, others and
you will rely upon the undersigned's confirmation, acknowledgments and
agreements set forth herein, and the undersigned agrees to notify you promptly
in writing if any of the undersigned's representations or warranties herein
ceases to be accurate and complete.
Dated: __________, ____
-------------------------------------
(Name of Transferor)
By:_________________________________
Name:
Title:
Address:
63
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, May
16, 1994, is made by and between Harold Pease ("Lessor") and FLIGHTWAYS
MANUFACTURING, INC., A California Corporation ("Lessee"), (collectively the
"Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 7660 Densmore Avenue, Van Nuys located in the
County of Los Angeles State of California and generally described as (describe
briefly the nature of the property) a 15,000 square foot industrial building and
two (2) metal storage structures on M-1 zoned land. ("Premises"). (See Paragraph
2 for further provisions.)
1.3 Term: five (5) years and 0 months ("Original Term") commencing August
1, 1994 ("Commencement Date") and ending July 31, 1999 ("Expiration Date"). (See
Paragraph 3 for further provisions).
1.4 Early Possession: June 1, 1994 to July 31, 1994 ("Early Possession
Date") (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $7,500.00 per month ("Base Rent"), payable on the first day
of each month commencing September 1, 1994 (See Paragraph 4 for further
provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $7,500.00 as Base Rent for the period
August, 1994 (Base rent for June and July 1994 is abated.
1.7 Security Deposit:$ 30,000.00 * ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 Permitted Use: manufacturing of aircraft seating components and related
legal uses. (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $_____ is the "Base
Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
DELPHI BUSINESS PROPERTIES represents
[ ] Lessor exclusively ("Lessor's Broker"); [X] both Lessee and Lessor, and N/A
represents
[ ] Lessee exclusively ("Lessee's Broker"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by (None) ("Guarantor"). (See Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 55 and Exhibits (None) all of which constitute a part of
this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7 3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
*See Paragraph #52 on Addendum. Initials CJL
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(C) Copyright 1990-By American Industrial Real Estate Association.
All rights reserved. No part of these works may be
reproduced in any form without permission in writing.
FORM 105G-R-12/91
<PAGE>
3.3 Delay In Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case. Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease Base Rent and all other
rent and charges for any period during the term hereof which is for less than
one (1) full calendar month shall be prorated based upon the actual number of
days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. (See Paragraph #52 on Addendum.) Lessee shall deposit with
Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as
security for Lessee's faithful performance of Lessee's obligations under this
Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder,
or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit moneys with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. Any time the Base
Rent increases during the term of this Lease, Lessee shall; upon written request
from Lessor, deposit additional moneys with Lessor sufficient to maintain the
same ratio between the Security Deposit and the Base Rent as those amounts are
specified in the Basic Provisions. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises of neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable descretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalities, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be to, the effects of any contamination or injury to person, property of the
environment created or suffered by Lessee, and the cost of investigation
(including consultant's and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by Lessor
in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenant, etc.
Initials CJL
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<PAGE>
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's said cost and expense and at all times
keep the Premises and every part thereof in good order, condition and repair,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee right to make repairs at the expense of Lessor or to terminate this Lease
by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by Governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor, Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surely bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "Insurance Cost Increase" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, and/or a premium rate increase. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "Base Premium." In lieu thereof, if the Premises have been previously
occupied, the "Base Premium" shall be the annual premium applicable to the most
recent occupancy. If the Premises have never been occupied, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the commencement of the Original Term, assuming the most nominal
use possible of the Premises. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under Paragraph 8.2(b) (Liability Insurance
Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) pays after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises"
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance-Building, Improvements and Rental Value. (a)
Building and Improvements. The Insuring Party shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to the holders of any mortgages, deeds of trust or
ground leases on the Premises ("Lender(s)"), insuring loss of damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by Lenders, but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age of
the improvements involved, such latter amount is less than full replacement
cost. Lessee Owned Alterations and Utilities Installations shall be insured by
Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building of buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5. Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage-Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair
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any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either; (i) repair such damage as
soon as reasonably possible at Lessor's expense in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall haw the right
within ten (10) days after the receipt of such notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage totally at
Lessee's expense and without reimbursement from Lessor. Lessee shall provide
Lessor with the required funds or satisfactory assurance thereof within thirty
(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such repairs
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's-Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b), shall be abated
in proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid advance to
Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due, at
least twenty (20) days prior to the applicable delinquency date or (ii) monthly
in advance with the payment of the Base Rent. If Lessor elects to require
payment monthly in advance, the monthly payment shall be that equal monthly
amount which, over the number of months remaining before the month in which the
applicable tax installment would become delinquent (and without interest
thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due. Lessee
shall pay to Lessor, upon Lessor's demand such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1 (a),
at the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment, general
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Premises or in the real property of which the Premises are a part. Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein imposed by reason of events
occurring, or changes in applicable law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Premises or
in the improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
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10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor if any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other Premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a nondurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice") increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary, Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee, agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3.
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements) or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, convenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. sec. 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that the nature of Lessor's obligation is
such that more than thirty (30) days after such notice are reasonably required
for its performance, then Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
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14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condeming authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages, provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ Sep. Agreement) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations, and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date or delivery shown on the receipt
card or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default of Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statement and/or conditions shall be of no force or effect whatsoever
unless specifically agreed to in writing by Lessor at or before the time of
deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, dead of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-distrubance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents, provided however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party" shall
include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a Part of, as Lessor may reasonably deem necessary Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. Auctions. Lessees shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything of the
contrary in this Lease. Lessor shall not be obligated to exercise any standard
reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall rot constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, condition, and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee
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is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, it any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary; (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee) ,or (ii) Lessor gives to
Lessee three (3) of more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves itself the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights and decications
that Lessor deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessees obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor, Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISE.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures
Executed at Woodland Hills, CA Executed at North Hollywood, CA
- ----------------------------------- --------------------------------------
on June , 1994 on June 2, 1994
- ----------------------------------- --------------------------------------
by LESSOR: by LESSEE:
HAROLD PEASE FLIGHTWAYS MANUFACTURING, INC.
- ----------------------------------- --------------------------------------
A California Corporation
- ----------------------------------- --------------------------------------
By /s/ Harold Pease By
- ----------------------------------- --------------------------------------
Name Printed: Harold Pease Name Printed: Chris Luhnow
- ----------------------------------- --------------------------------------
Title: Owner Title: President
- ----------------------------------- --------------------------------------
By By
- ----------------------------------- ---------------------------------------
Name Printed: Name Printed:
- ----------------------------------- ---------------------------------------
Title: Title:
- ----------------------------------- ---------------------------------------
Address: 20600 Oaksboro Circle Address: 11130 Sherman Way
- ----------------------------------- ---------------------------------------
Woodland Hills, CA 91364 North Hollywood, CA 91352
- ----------------------------------- ---------------------------------------
Tel.No.(818)_____ Fax No.( )______ Tel.No.(818)503-6400 Fax No.( )________
GROSS PAGE
NOTICE: These forms are often modified to meet changing requirements of
law and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071. (213) 687-8777. Fax. No. (213) 687-8616.
(C) Copyright 1990-By American Industrial Real Estate Association.
All rights reserved. No part of these works may be
reproduced in any form without permission in writing.
FORM 105G-R-12/91
73
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RENT ADJUSTMENT(S)
ADDENDUM TO
STANDARD LEASE
Dated May 16, 1994
By and Between (Lessor) HAROLD PEASE
(Lessee) FLIGHTWAYS MANUFACTURING, INC.
A California Corporation
Property Address: 7660 Densmore Avenue, Van Nuys, CA 91406
Paragraph 49
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] 1. Cost of Living Adjustment(s)(COL)
(a) On (Fill in COL Adjustment Date(s): December 1, 1995 and June 1, 1997
and December 1, ____ the monthly rent payable under paragraph 1.5 ("Base Rent")
of the attached Lease shall be adjusted by the change, if any, from the Base
Month specified below, in the Consumer Price index of the Bureau of Labor
Statistics of the U.S. Department of Labor for (select one): [ ] CPIW (Urban
Wage Earners and Clerical Workers) or [X] CPIU )All Urban Consumers), for (Fill
in Urban Area) Los Angeles - Anaheim - Riverside. All Items (1982-1984 = 100),
herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows the Base Rent set forth in paragraph 1.5
of the attached Lease, shall be multiplied by a fraction the numerator of which
shall be the C.P.I. of the calendar month 2 (two) months prior to the months(s)
specified in paragraph A1(a) above during which the adjustment is to take
effect, and the denominator of which shall be the C.P.I. of the calendar month
which is two (2) months prior to (select one): [X] the first month of the term
of this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in Other
"Base Month"); N/A. The sum so calculated shall constitute the new monthly rent
hereunder, but in no event, shall any such new monthly rent be less than the
rent payable for the month immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
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RENT ADJUSTMENT(S)
Page 74
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form. American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax No. (213) 687-8616.
Copyright American Industrial Real Estate Association.
<PAGE>
[THIS IS INTENTIONALLY BLANK]
Initials: _______ Initials: CJL
_______ HP
RENT ADJUSTMENT(S)
Page 75
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form. American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax No. (213) 687-8616.
Copyright American Industrial Real Estate Association.
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
Dated May 16, 1994
By and Between (Lessor) HAROLD PEASE
(Lessee) FLIGHTWAYS MANUFACTURING, INC.
A California Corporation
Property Address: 7660 Densmore Avenue, Van Nuys, CA 91406
Paragraph 50
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of the Lease
for 1 additional 60 month period commencing when the prior term expires upon
each and all of the following terms and conditions.
(i) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least four and not more than six months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to default
of Lessee set forth in paragraph 39.4 of this Lease are conditions of the
Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated
as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] 1. Cost of Living Adjustment(s)(COL)
(a) On (Fill in COL Adjustment Date(s): August, 1, 1999, February 1,
2001, August 1, 2002 and February 1, 2004 the monthly rent payable under
paragraph 1.5 ("Base Rent") of the attached Lease shall be adjusted by the
change, if any, from the Base Month specified below, in the Consumer Price index
of the Bureau of Labor Statistics of the U.S. Department of Labor for (select
one): [ ] CPIW (Urban Wage Earners and Clerical Workers) or [X] CPIU )All Urban
Consumers), for (Fill in Urban Area) Los Angeles - Anaheim - Riverside. All
Items (1982-1984 = 100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows the Base Rent set forth in paragraph 1.5
of the attached Lease, shall be multiplied by a fraction the numerator of which
shall be the C.P.I. of the calendar month 2 (two) months prior to the months(s)
specified in paragraph A1(a) above during which the adjustment is to take
effect, and the denominator of which shall be the C.P.I. of the calendar month
which is two (2) months prior to (select one): [X] the first month of the term
of this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in Other
"Base Month"); N/A. The sum so calculated shall constitute the new monthly rent
hereunder, but in no event, shall any such new monthly rent be less than the
rent payable for the month immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
Initials: _______ Initials: CJL
_______ HP
OPTIONS(S) TO EXTEND
Page 76
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form. American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax No. (213) 687-8616.
Copyright American Industrial Real Estate Association.
<PAGE>
[THIS IS INTENTIONALLY BLANK]
Initials: _______ Initials: CJL
_______ HP
OPTIONS(S) TO EXTEND
Page 77
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form. American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax No. (213) 687-8616.
Copyright American Industrial Real Estate Association.
<PAGE>
ADDENDUM
ADDENDUM TO THE LEASE DATED MAY 16, 1994, BY AND BETWEEN HAROLD PEASE AS LESSOR
AND FLIGHTWAYS MANUFACTURING, INC. AS LESSEE FOR THE PREMISES KNOWN AS 7660
DENSMORE AVENUE, VAN NUYS, CA 91406.
49. COST OF LIVING ADJUSTMENTS: See Addendum #49 attached hereto.
50. OPTION TO EXTEND: See Addendum #50 attached hereto.
51. CONDITION AND AVAILABILITY OF ELECTRICAL SERVICES: Lessee is given
possession of the Premises with the understanding that all existing
electrical services may contain amperage and power services panel within
the Premises and/or on the marketing brochures prepared by Broker. However,
Broker is unable to confirm, guarantee or substantiate that such amperage
or power services are located within such electrical service panel, or
supply to the subject service, and Lessee agrees to confirm the presence
and/or the availability of such electrical services with Lessee's
electrical contractor and/or with the City of Los Angeles or The Southern
California Edison Company, or such applicable utilities service company and
shall hold Broker's harmless from any such electrical service
insufficiencies that may exist.
52. SECURITY DEPOSIT REBATE: Provided Lessee is not then, or has not been in
default or any obligation, term or condition under this Lease, Lessor shall
apply one (1) month of the Security Deposit to the thirteenth (13th) month
Base Rent and one (1) month to the twenty-fifth (25th) month Base Rent.
53. LESSOR UTILIZATION OF METAL BUILDING: For the Term hereof, or any extension
thereof, Lessor shall retain for its own use a 20' x 20' portion of the
metal building on the east side of the Premises (the subject portion is
demised form the balance of the building). Lessor is granted full access
without limitation vis-a-vis time or days of the week and a locking system
will be arranged to allow both Parties access at all times.
54. NOTICE TO OWNERS AND PROSPECTIVE TENANTS AND BUYERS OF REAL PROPERTY
REGARDING THE AMERICANS WITH DISABILITIES ACT
a. Please be advised that an owner or tenant of real property may be
subject to the Americans With Disabilities Act (ADA), a Federal Law
codified at 42 USC Section 12101 et seq. Among other requirements of
the ADA that could apply to your property, Title III of the ADA
requires owners and tenants of "public accommodations" to remove
barriers to access by disabled persons and provide auxiliary aid and
services for hearing, vision or speech impaired persons by January 26,
1992. The regulations under Title III of the ADA are codified at 28
CFR Part 36.
b. We recommend that you and your attorney review the ADA and the
regulations, and, if appropriate, your proposed lease or purchase
agreement, to determine if this law would apply to you, and the nature
of the requirements. These are legal issues. You are responsible for
condusting your own independent investigation of these issues. Delphi
Business Properties cannot give you legal advice on these issues.
c. Lessee shall be responsible, at it's sole cost and expense, for any
and all required alterations to the Premises causes by Lessee's use or
actions.
Initials: CJL
HP
78
<PAGE>
55. NOTICE TO BUYERS, TENANTS AND OWNERS CONCERNING HAZARDOUS WASTES OR
SUBSTANCES AND UNDERGROUND STORAGE TANKS:
THIS IS AN IMPORTANT NOTICE - READ IT CAREFULLY
a. Under recently passed Federal and State laws governing the use,
storage, handling, cleanup, removal and disposal of "hazardous wastes
or substances", an owner, buyer, tenant and other users of real
property can be held responsible for the cost to clean up hazardous
wastes, for the payment of damages and for the modification of the
real property to conform with environmental safety standards (for
example: the removal of asbestos and the closure of underground
storage tanks. "Hazardous wastes and substances" includes, but is not
limited to: any petroleum based products, paints and solvents, lead,
cyanide, DDT, printing inks, acids, pesticides, ammonium compounds,
asbestos, PCBs and toxic chemical products.
b. Since these laws affect every kind of real property, it is essential
that legal and technical advice be obtained by you to determine
whether the laws have been complied with, and what, if anything, is
required to be done in connection with the proposed transaction
involving the real property described above, to minimized your
liability. Such professionals as attorneys, engineers and geologists
specializing in toxic waste matters are among those you should consult
to obtain a clear understanding of the condition of the real property
and your rights and obligations under the hazardous waster laws in
connection with this transaction.
WE STRONGLY RECOMMEND THAT YOU RETAIN LEGAL, ENGINEERING AND GEOLOGICAL EXPERTS
TO ADVISE YOU AS WILL AS ANY OTHER EXPERTS WHICH YOU OR THEY MAY DEEM
APPROPRIATE.
c. Please note that Broker must disclose to all prospective parties to
this transaction any knowledge we actually possess concerning the
condition of the real property described above and the existence of
hazardous wastes, substances, or underground storage tanks on the
property. In addition, Broker nor any of its employees or agents has
made any investigations or obtained reports regarding the condition of
the property or the past or present existence of hazardous wastes or
substances on the property.
d. Therefore, for the purposes of this transaction, Broker nor any of its
employees or agents makes any representation to any prospective buyer
or tenant concerning the condition of the property or the existence or
nonexistence of hazardous wastes or substances, or underground storage
tanks on the property.
e. If you own the real property described above, you are hereby notified
that prospective purchasers or tenants may feel that the potential for
liability for remedial costs necessitates an environmental audit or
investigation of the property prior to closing in order to discover
whether the nature and/or quantity of, existence, use, manufacture or
effect of any hazardous substances on the property renders it subject
to Federal, State or local regulation, investigation, remediation or
removal as potentially injurious to public health or welfare. Broker
hereby disclaims any liability for damages to you stemming from the
initiation, completion or result of any such investigation.
Initials: CJL
HP
79
<TABLE>
<CAPTION>
FIELDS AIRCRAFT SPARES, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
--------------------------------------------------------------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Additional common shares if
preferred convertible option
is exercised:
25% of common shares
outstanding at date of
conversion 514,220 355,625
Number of common shares
outstanding at the beginning
of the year 1,302,137 984,352 944,352
Total weighted average common
share equivalents at the end of
the year (primary) 2,262,578 1,840,543 1,312,469
Total weighted average common
share equivalents at the end
of the year (fully-diluted) 2,325,078 1,840,543 1,312,469
Net income (loss) $ (147,000) $ (242,000) $ 4,547,000
Primary earnings (loss) per share $ (.07) $ (.13) $ 3.47
Fully-diluted earnings (loss) per
share $ (.06) $ (.13) $ 3.47
</TABLE>
80
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
Fields Aircraft Spares Incorporated California
Fields Aero Management, Inc. California
Flightways Manufacturing, Inc. California
Each of the subsidiaries listed above is a wholly owned subsidiary of the
Company, except that the Company owns over 99% of Flightways Manufacturing, Inc.
81
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,071,000
<SECURITIES> 0
<RECEIVABLES> 2,055,000
<ALLOWANCES> 100,000
<INVENTORY> 11,058,000
<CURRENT-ASSETS> 19,275,000
<PP&E> 1,840,000
<DEPRECIATION> 830,000
<TOTAL-ASSETS> 22,181,000
<CURRENT-LIABILITIES> 1,535,000
<BONDS> 15,047,000
0
0
<COMMON> 351,000
<OTHER-SE> 5,248,000
<TOTAL-LIABILITY-AND-EQUITY> 22,181,000
<SALES> 12,101,000
<TOTAL-REVENUES> 12,101,000
<CGS> 7,214,000
<TOTAL-COSTS> 7,214,000
<OTHER-EXPENSES> 3,349,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,676,000
<INCOME-PRETAX> (138,000)
<INCOME-TAX> 9,000
<INCOME-CONTINUING> (147,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.06)
</TABLE>
