<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 27, 1997,
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from __________ to __________
Commission File Number: 0-27482
XETEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2310781
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
2105 GRACY FARMS LANE
AUSTIN, TEXAS 78758
(Address of principal executive offices, including zip code)
(512) 435-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such other 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 [ ]
Number of shares outstanding of the issuer's common stock, $0.0001 par value, as
of February 4, 1998: 8,987,894.
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XETEL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
<S> <C> <C>
Balance Sheet as of December 27, 1997 and March 29, 1997................................................................3
Statement of Operations for the three and nine months ended December 27, 1997 and December 28, 1996.....................4
Statement of Cash Flows for the three and nine months ended December 27, 1997 and December 28, 1996.....................5
Notes to Interim Financial Statements...................................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K......................................................................................12
Signatures......................................................................................................................13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
XETEL CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
December 27, March 29,
1997 1997
---------- ----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,983 $ 7,032
Trade accounts receivable, net of
allowance for doubtful accounts
of $240 and $240, respectively 16,244 13,886
Inventories 16,169 10,499
Prepaid expenses and other 1,287 1,836
------- -------
Total current assets 39,683 33,253
Property and equipment, net 8,301 5,599
Goodwill 790 950
------- -------
Total assets $48,774 $39,802
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $15,357 $ 9,940
Accrued expenses and other liabilities 3,278 2,929
------- -------
Total current liabilities 18,635 12,869
Deferred income taxes 230 230
Long term debt 2,792 42
Commitments (Note 7)
Stockholders' equity:
Common stock, $0.0001 par value,
25,000,000 shares authorized,
8,931,146 and 8,816,085 shares
issued and 8,868,650 and 8,795,589
shares outstanding, respectively 21,020 20,998
Retained earnings 6,124 5,996
Deferred compensation ( 27) ( 333)
------- -------
Total stockholders' equity 27,117 26,661
------- -------
Total liabilities and
stockholders' equity $48,774 $39,802
======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
XETEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
--------------------------------- --------------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 27,772 $ 17,979 $ 74,961 $ 66,370
Cost of sales 26,842 17,007 70,015 61,635
------------- ------------- ------------- -----------
Gross profit 930 972 4,946 4,735
Selling, general and administrative
expenses 1,536 1,596 4,790 4,729
------------- ------------- ------------- -----------
(Loss) income from operations (606) (624) 156 6
Other (expense) income, net (20) 84 50 218
------------- ------------ ------------- -----------
(Loss) income before income taxes (626) (540) 206 224
(Benefit) provision for income taxes (238) (206) 78 80
------------- ------------- ------------- -----------
Net (loss) income $ (388) $ ( 334) $ 128 $ 144
============= ============= ============= ===========
Basic (loss) earnings per share $ (0.04) $ (0.04) $ 0.01 $ 0.02
============= ============= ============= ===========
Basic weighted average shares 8,840 8,772 8,824 8,683
outstanding ============= ============= ============= ===========
Diluted (loss) earnings per share $ (0.04) $ (0.04) $ 0.01 $ 0.02
============= ============ ============ ===========
Diluted weighted average shares 8,840 8,772 9,558 9,332
outstanding ============= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
XETEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------- ------------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (388) $ (334) $ 128 $ 144
Adjustments to reconcile net (loss) income to net
cash (used for) provided by operating activities:
Depreciation and amortization 657 533 2,027 1,453
Loss (gain) on disposal of equipment 19 (7) 35 (20)
Change in operating assets and liabilities:
(Increase) decrease in--
Trade accounts receivable (2,092) 1,450 (2,359) 7,823
Inventories (1,048) 716 (5,671) 4,790
Prepaid expenses and other (121) 31 449 86
Increase (decrease) in--
Trade accounts payable 2,539 (360) 5,418 (6,979)
Accrued expenses and other liabilities (531) 186 (9) (2,988)
------- ------- ------- -------
Cash (used for) provided by operating activities (965) 2,215 18 4,309
------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of equipment 9 -- 408 --
Purchases of property and equipment (1,137) (391) (4,998) (1,025)
Acquisition, net of cash acquired-XeTel Dallas -- -- -- (18)
Acquisition, net of cash acquired-XeTel West -- (1,631) -- (1,631)
------- ------- ------- -------
Cash used for investing activities (1,128) (2,022) (4,590) (2,674)
------- ------- ------- -------
Cash flows from financing activities:
Net borrowings under debt agreements 1,250 (31) 3,208 (61)
Cash proceeds from stock issued under
employee stock purchase plan 253 -- 253 --
Proceeds from stock options exercised 25 1 62 55
Other -- -- -- (3)
------- ------- ------- -------
Cash provided (used for) by financing activities 1,528 (30) 3,523 (9)
------- ------- ------- -------
(Decrease) increase in cash and cash equivalents (565) 163 (1,049) 1,626
Cash and cash equivalents, beginning of period 6,548 6,605 7,032 5,142
------- ------- ------- -------
Cash and cash equivalents, end of period $ 5,983 $ 6,768 $ 5,983 $ 6,768
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
XETEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 BUSINESS
XeTel provides advanced design and prototype services, manufactures
sophisticated surface mount assemblies and supplies turnkey solutions to
original equipment manufacturers primarily in the telecommunications, networking
and computer industries. XeTel incorporates its design and prototype services
and assembly capabilities together with supply chain management, materials
management, advanced testing, systems integration services and order fulfillment
to provide turnkey solutions for its customers.
NOTE 2 BASIS OF PRESENTATION
The accompanying financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules or regulations.
In the opinion of management, the financial statements reflect all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position, operating results, and cash flows for
those periods presented. The results of operations for the period ended December
27, 1997 are not necessarily indicative of the results of operations for the
fiscal year ending March 28, 1998. These financial statements should be read in
conjunction with the financial statements, and notes thereto, for the fiscal
year ended March 29, 1997 as presented in the Company's 10-K filed with the SEC.
NOTE 3 NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"). The
Company adopted SFAS No. 128 in the quarter ended December 27,1997. Earnings per
share have been restated for all periods presented to conform to the
requirements of SFAS No. 128.
NOTE 4 INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 27, March 29,
1997 1997
----------- -----------
<S> <C> <C>
Raw materials $ 11,913 $ 7,795
Work in progress 3,883 2,567
Finished goods 373 137
----------- -----------
$ 16,169 $ 10,499
=========== ===========
</TABLE>
As of December 27, 1997 and March 29, 1997, the Company had allowances for
obsolete raw materials (principally printed circuit board assembly components)
of $490,000 and $490,000, respectively. Cost of sales for the three and nine
months ended December 27, 1997 and December 28, 1996 include provisions to the
allowance for obsolete materials of $0, $126,000, $11,000, and $42,000,
respectively.
<PAGE> 7
NOTE 5 PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
December 27, March 29,
1997 1997
----------- ----------
<S> <C> <C>
Machinery and equipment $ 13,319 $ 14,373
Furniture and fixtures 708 335
Leasehold improvements 2,989 409
----------- ----------
17,016 15,117
Less: Accumulated depreciation
and amortization ( 8,715) ( 9,518)
----------- ----------
$ 8,301 $ 5,599
=========== ==========
</TABLE>
NOTE 6 NOTES PAYABLE AND LONG-TERM DEBT
The Company has obtained a (i) revolving line of credit for $10 million from a
commercial bank, (ii) a term loan facility for $3.3 million, (iii) an equipment
financing facility from a financial services company, and (iv) a revolving line
of credit for $3 million from Rohm U.S.A., Inc. ("Rohm"), which is a
wholly-owned subsidiary of Rohm Co. Ltd., Japan. At December 27, 1997, the
Company had $3.3 million outstanding under the term loan facility, compared to
$-- at March 29, 1997. There were no outstanding balances under the commercial
bank revolving line of credit or the revolving line of credit with Rohm as of
December 27, 1997 and March 29, 1997.
The $10 million line of credit bears interest at LIBOR plus 1.25% or 1.75%
and/or prime (such rate determined based upon the amounts and period of loans),
matures on August 31, 1998 and is secured by certain assets of the Company. The
facility requires payment of a commitment fee equal to one-eighth of 1% (1/8%)
on the unused balance, and borrowings are limited based upon certain collateral
availability requirements. The term loan facility bears interest at 9.2%, is
secured by certain assets, and matures on August 31, 2000. The equipment
financing facility provides for the leasing of equipment over a five-year period
commencing on the date of acceptance of such equipment. All equipment leased to
date under this facility has qualified for operating lease treatment. The line
of credit from Rohm is secured by certain equipment, bears interest at LIBOR
plus 1.25%, is payable upon demand and expires on March 31, 1998.
The financing facilities contain certain restrictions which include maintenance
of a minimum level of tangible net worth and other operating and financial
ratios.
Interest paid totaled $100,000, $157,000, $5,900 and $12,500 for the three and
nine months ended December 27, 1997 and December 28, 1996, respectively.
NOTE 7 LEASE COMMITMENTS
XeTel leases its operating facilities and certain manufacturing and office
equipment under noncancellable operating leases. Rental expense under all
operating leases was approximately $790,000, $2.1 million, $395,000 and $1.0
million during the three and nine months ended December 27, 1997 and December
28, 1996, respectively. Future noncancellable minimum rental payments under all
operating leases with initial terms of greater than one year are $3,144,000 in
1998, $3,200,000 in 1999, $3,191,000 in 2000, $2,882,000 in 2001, $1,932,000 in
2002 and an aggregate of $8,510,000 thereafter.
NOTE 8 RELATED PARTY TRANSACTIONS
In addition to the debt arrangements described in Notes 6, the Company has
transactions with certain divisions of Rohm Corporation, a wholly-owned
subsidiary of Rohm, during the normal course of business. Rohm owned
approximately 48% of the Company's outstanding common stock as of December 27,
1997. Purchases from such divisions were $35,000, $171,000, $113,000 and
$434,000 for the three and nine months ended December 27, 1997 and December 28,
1996, respectively. Accounts payable to such divisions were $16,000 and $54,000
as of December 27, 1997 and March 29, 1997, respectively. Accounts receivable
from such divisions were not significant.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this document contains trend analysis and other 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. Actual results could differ materially from those projected in the
forward-looking statements throughout this document as a result of the risk
factors set forth below and other risks described in the Company's other filed
SEC documents such as those associated with the Company's initial public
offering and Form 10-K filing.
OVERVIEW
XeTel was founded in 1984. In 1986, Rohm , a diversified electronics company,
acquired a controlling interest in the Company. Since its inception, the Company
has manufactured surface mount assemblies and performed other manufacturing
services for OEMs in the electronics industry. In a number of cases, such
services were rendered during periods in which customers were experiencing
fluctuations in demand for their products. During such periods, the Company's
net sales and operating results were and are subject to significant fluctuations
that often were and are tied to the market demand for its customers' products,
competitive factors and the customers' need to utilize independent manufacturers
to maintain sufficient product supply to meet such demand. In addition, in the
past, the Company's customer base was concentrated within the computer industry.
Due to intense competitive pressures within the computer industry, as well as
fluctuations in overall demand and lower production volumes, the Company
generally experienced lower gross margins.
Gross margins and operating results are also affected by the level of capacity
utilization of manufacturing facilities, indirect labor and selling, general and
administrative expenses. Accordingly, gross margins and operating income margins
have generally improved during periods of high volume and high capacity
utilization. XeTel generally has idle capacity and reduced operating margins
during periods of lower-volume production.
In an effort to achieve greater stability and higher gross margins, the Company
made the strategic decision in 1993 to reduce its dependence on the computer
industry and expand its service offerings in order to establish long-term
relationships with targeted customers in diversified markets. With the addition
of new management personnel in 1993, including a new President in September
1993, the Company focused certain of its resources to establish capabilities in
product design and prototype, improve materials management processes,
restructure the Company's management organization, establish dedicated customer
teams, and to expand and diversify its customer base. The Company has reduced
its role as a source of additional capacity for OEMs during periods of
fluctuating product demand and has positioned itself to provide a more
comprehensive set of services within the electronics manufacturing services
industry.
The development and growth of the Company's business has generally followed the
trend by OEMs in the electronics industry to outsource certain of their
manufacturing requirements. Recognizing the benefits offered by using
independent manufacturers, OEMs in the electronics industry have increasingly
relied on independent manufacturers not only as a source of additional
manufacturing capacity during periods of fluctuating demand, but as the primary
source for their manufacturing and assembly needs. In addition, the Company has
developed competencies in additional areas where it can add value to its
customers' requirements, such as design, prototype, systems integration and
order fulfillment and has sought to use such competencies to forge long-term
relationships as a single source provider of turnkey solutions for its
customers. During fiscal 1997, XeTel acquired two full-service manufacturing
services centers in Dallas, Texas and San Ramon, California to further establish
and expand its long-term relationships with OEM's of advanced electronic
products.
RISK FACTORS
Fluctuations in Operating Results. XeTel's operating results are affected by a
number of factors, including timing of orders from and shipments to major
customers, availability of materials and components, the volume of orders
relative to the Company's capacity, timing of expenditures in anticipation of
future sales, the gain or loss of significant customers, variations in the mix
between consignment and component purchase arrangements with customers,
variations in the demand for products in the industries served by the Company
and general economic conditions. Operating results can also be significantly
influenced by the development and introduction of new products or technologies
by the Company's customers, or such customer's competitors, which may materially
and adversely affect the demand for the Company's services. The Company's
customers generally require short delivery cycles, and a substantial portion of
the Company's backlog is typically scheduled for delivery within 120 days. In
the absence of substantial backlog, quarterly sales and operating results depend
on the volume and timing of bookings received during the quarter which can be
difficult to forecast. Backlog fluctuations affect the Company's ability to plan
production and inventory levels, which could lead to fluctuations in operating
results. Variations in the size and delivery schedules of purchase orders
received by the Company, changes in customers' delivery requirements, or the
rescheduling or cancellation of orders and commitments, may result in
substantial fluctuations in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
operating results.
<PAGE> 9
A significant portion of the Company's expenses is relatively fixed in nature
and planned expenditures are based in part on anticipated orders. The inability
to adjust expenditures quickly enough to compensate for a decline in net sales
may magnify the adverse impact of such decline in the Company's results of
operations. Results of operations in any period should not be considered
indicative of the results for any future period, and fluctuations in operating
results may result in fluctuations in the price of the Company's common stock.
Due to the foregoing factors, among others, the Company's operating results in
some future quarters may be below the expectations of stock market analysts and
investors. In such event, there could be an immediate and significant adverse
effect on the trading price of the common stock of the Company.
Concentration of Customers. The Company's customer base is highly concentrated.
The Company's three largest customers accounted for approximately 21%, 11% and
9%, respectively, of net sales for the nine months ended December 27, 1997. The
loss of, or a significant curtailment of purchases by, one or more of these
customers, or any other significant customer of the Company, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company anticipates that a significant portion of its
sales will continue to be concentrated in a relatively small number of customers
for the foreseeable future.
Unavailability of Components and Materials. Components and material used by
XeTel in producing surface mount assemblies and turnkey solutions are purchased
by XeTel from approved suppliers of its customers. Any failure on the part of
suppliers to deliver required components to the Company or any failure of such
components to meet performance requirements could impair the Company's ability
to meet scheduled shipment dates and could delay sales of systems by the
Company's customers and thereby adversely affect the Company's business,
financial condition and results of operations. The Company has in the past
experienced shortages of certain types of electronic components, and may
experience shortages of certain electronic components that are in short supply
generally within the electronics industry. Component shortages or price
fluctuations, to the extent not absorbed by customers under its agreements with
the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations. Certain components used in a
number of the Company's customer programs are obtained from a single source.
Variability of Customer Requirements; Absence of Long-Term Purchase Orders. The
level and timing of purchase orders placed by the Company's customers are
affected by a number of factors, including variation in demand for the
customer's products, customer attempts to manage inventory and changes in the
customer's manufacturing strategies. Many of such factors are outside of the
control of the Company. The Company typically does not obtain long-term purchase
orders or commitments, but instead works with its customers to develop
nonbinding forecasts of the future volume of orders. Based on such nonbinding
forecasts, the Company makes commitments regarding the level of business that it
will seek and accept, the timing of production schedules and the levels and
utilization of personnel and other resources. Generally, customers may cancel,
reduce or delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased or procured and, in certain
circumstances, charges associated with such cancellation, reduction or delay.
During fiscal 1997, certain major customers reduced significant orders with the
Company due to competitive factors and efforts to rebalance inventories.
Significant or numerous cancellations, reductions or delays in orders by
customers, or inability by customers to pay for services provided by the Company
or to pay for components and materials purchased by the Company on such
customer's behalf, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management of Growth and Expansion. The Company's design, prototype, assembly
and turnkey solutions business and multi-site locations have grown rapidly in
recent years. This growth has increased the Company's fixed costs and required
it to hire additional personnel. Furthermore, the Company plans to establish
additional regional manufacturing services centers which will increase the
Company's fixed costs and will require additional personnel. A continuing period
of rapid growth, including geographic expansions, could place a significant
strain on the Company's management, operations and other resources. The
Company's ability to manage its growth will require it to manage its existing
resources more efficiently, to continue to invest in its operations, including
its financial and management information systems and internal process controls,
and to retain, motivate and manage its employees. If the Company's management is
unable to manage growth effectively, the quality of the Company's services and
its ability to retain key personnel could be materially and adversely affected,
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
RESULTS OF OPERATIONS
Net sales for the three months ended December 27, 1997 increased 54.4% to $27.8
million from $18.0 million for the same prior year period. Higher sales during
the three months ended December 27, 1997, compared to the same period last year,
primarily reflected increased shipments to the Company's major customers in the
computer and networking segments of the electronics market.
Net sales for the nine months ended December 27, 1997 increased 12.9% to $75.0
million from $66.4 million for the corresponding period of the prior year.
Higher sales during the nine months ended December 27, 1997, compared to the
same period in the prior year, were primarily attributable to increased
shipments to the Company's major customers in the computer segment of the
electronics market.
<PAGE> 10
Gross profit for the three months ended December 27, 1997 remained relatively
flat at $.9 million compared to the third quarter of last fiscal year. Gross
margin (gross profit as a percentage of net sales) decreased to 3.3% for the
third quarter of fiscal 1998 from 5.4% for the comparable prior year period. The
decrease in gross margin mainly reflects an unfavorable change in product mix,
new program start-up inefficiencies and higher fixed expenses associated with
strategic investments to update and expand facilities and to upgrade equipment
capabilities offered to customers. Gross profit is defined as net sales less
cost of sales. Cost of sales consists of direct labor, direct material and
manufacturing overhead (which includes manufacturing and process engineering
expenses).
Gross profit for the nine months ended December 27, 1997 increased 4.5% to $4.9
million from $4.7 million in the comparable prior year period. Gross margin
decreased to 6.6% versus 7.1% for the comparable prior year period. The decrease
in gross margin for the nine months ended December 27, 1997 primarily reflects
higher fixed costs related to facility and equipment upgrades and new program
start-up costs.
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries and related expenses, marketing and promotional expenses, and sales
commissions paid to direct sales personnel and independent sales representative
organizations. SG&A expenses for the three months ended December 27, 1997
remained relatively flat at $1.6 million compared to the corresponding period
last year. SG&A expenses represented 5.5% of net sales for the three months
ended December 27, 1997 compared to 8.9% for the three months ended December 28,
1996. The decrease in SG&A expenses as a percentage of sales reflects the effect
of cost controls over the period. SG&A expenses for the nine months ended
December 27, 1997 remained relatively flat at $4.7 million compared to the prior
year period. SG&A expenses represented 6.4% of net sales for the nine months
ended December 27, 1997 compared to 7.1% for the nine months ended December 28,
1996.
Other (expense) income, net for the three months ended December 27, 1997
reflected expense of $20,000 compared to income of $84,000 in the corresponding
period in fiscal 1997. Other (expense) income, net for the nine months ended
December 27, 1997 reflected income of $50,000 compared to income of $218,000 in
the corresponding prior year period. The change in other (expense) income, net
for the three and nine months ended September 27, 1997 is primarily due to
higher interest expense incurred on the term note during the current fiscal
year.
The benefit for income taxes of $238,000 and $206,000 for the three months ended
December 27, 1997 and December 28, 1996 reflect an effective tax rate of 38.0%
and 38.1%, respectively. The provision for income taxes of $78,000 and $80,000
for the nine months ended December 27, 1997 and December 28, 1996, respectively,
reflect an effective tax rate of 37.8% and 35.7% The effective tax rates for the
three and nine month periods ended December 27, 1997 remained relatively flat
with the comparable prior year periods.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $21.0 million and $20.4 million as of December 27, 1997 and
March 29, 1997, respectively. In addition to the Company's working capital as of
December 27, 1997, which includes cash and cash equivalents of $6.0 million, the
Company has $14.3 million available from unused credit facilities.
Net cash used for operating activities and net cash provided by operating
activities was $965,000 and $18,000 during the three and nine month periods
ended December 27, 1997, respectively . Net cash provided by operating
activities was $2.2 million and $4.3 million during the three and nine month
periods ended December 28, 1996.
Capital expenditures during the three and nine months ended December 27, 1997
and December 28, 1996 were $1.1 million, $5.0 million, $391,000, and $1.0
million, respectively. The increase in capital expenditures was primarily due to
capital investments associated with the Company's new manufacturing and
administrative facilities in Austin, Texas. Management anticipates capital
expenditures in fiscal 1998 will exceed the level of capital expenditures made
in fiscal 1997.
The Company has (i) a revolving line of credit for $10 million from a commercial
bank, (ii) a $3.3 million term loan facility, (iii) an unused equipment
financing facility for $1.3 million from a financial services company, and (iv)
a revolving line of credit for $3 million from Rohm. At December 27, 1997, the
Company had $3.3 million outstanding under the term loan facility, compared to
$-- at March 29, 1997. There were no outstanding balances under the commercial
bank revolving line of credit or the revolving line of credit with Rohm as of
December 27, 1997 and March 29, 1997.
The bank facility bears interest at LIBOR plus 1.25% or 1.75% and/or prime (such
rate determined based upon the amounts and period of loans), matures August 1998
and is secured by certain assets of the Company. The bank facility requires the
payment of a monthly commitment fee equal to one-eighth of 1% (1/8%) on the
unused balance, and borrowings are limited based upon certain collateral
availability requirements. The term loan facility bears interest at 9.2% with a
maturity of August 31, 2000. The line of credit from Rohm is secured by certain
equipment, bears interest at LIBOR plus 1.25%, is payable on demand and expires
on March 31, 1998. The equipment financing facility provides for the leasing of
equipment over a five-year period commencing on the date of acceptance of such
equipment.
<PAGE> 11
The financing facilities contain certain restrictions which, among other things,
require maintenance of a minimum level of tangible net worth and other operating
and financial ratios.
The Company believes that its working capital, together with cash generated from
operations and financing facilities, will be sufficient to satisfy anticipated
sales growth and investment in manufacturing facilities and equipment through
its 1998 fiscal year end.
In June 1997, the Financial Accounting Standards Board issued FAS 130 and
FAS 131. Neither FAS will have a material impact on the Company.
The Company is aware of the year 2000 issues and the effects it may have on its
business systems. The Company has assessed its year 2000 issues and believes
that implementation will be completed in a timely manner and that the related
costs will not be material.
BACKLOG
The Company's backlog as of December 27, 1997 was approximately $100.1 million
compared to approximately $76.8 million at September 27, 1997, $68.5 at June 28,
1997 and $66.1 million at March 29, 1997. Backlog consists of purchase orders
received by the Company and commitments under scheduled releases, both of which
generally specify delivery dates within twelve months. Variations in the size
and delivery schedules of purchase orders received by the Company, as well as
changes in customers' delivery requirements or the rescheduling or cancellation
of orders and commitments, has resulted in the past and may result in
substantial fluctuation in backlog from period to period. Accordingly, the
Company believes that backlog may not be a meaningful indicator of future
operating results. See "Variability of Customer Requirements" and "Fluctuations
in Operating Results."
EMPLOYEES
As of December 27, 1997, the Company had 625 full-time employees supplemented
from time to time by part-time employees. The employees are not represented by a
union, and the Company believes its employee relations to be satisfactory.
The Company's success depends to an extent upon the continued services of
several key employees. The loss of certain key personnel could have a material
adverse effect on the Company. The Company's business also depends upon its
ability to continue to attract and retain senior managers and skilled employees.
Failure to do so could adversely affect the Company's operations.
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
Number
<C> <S>
3.2(1) Second Restated Certificate of Incorporation.
3.3(1) Restated Bylaws of the Registrant, as amended.
3.4(1) Registration Rights, dated June 18, 1986 among the Registrant Rohm
Corporation, Julian C. Hart, David W. Gault and Emory C. Garth.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen Common Stock certificate.
10.1(1) Company's 1992 Stock Option Plan.
10.2(1) Form of Indemnification Agreement between the Registrant and each of
its directors and certain executive officers.
10.3(1) Lease Agreement dated September 22, 1992 between Mellon Bank, N.A.,
Trustee for the Consolidation Retirement Trust for the LTV Corporation
and Affiliates (the "LTV Trust"), as Landlord, and the Registrant, as
Tenant.
10.4(1) First Amendment to Lease Agreement effective April 1, 1994 between the
LTV Trust, as Landlord, and the Registrant, as Tenant.
10.5(1) Amended and Restated Guaranty of Lease effective April 1, 1994 between
Rohm USA, Inc., as Guarantor, and the LTV Trust, as Landlord.
10.6(1) Waiver of Right of First Refusal dated May 2, 1994 by the Registrant,
as Tenant, and the LTV Trust, as Landlord.
10.7(1) Security Agreement dated October 14, 1992 between the Registrant and
Rohm Corporation.
10.8(1) $570,000 Secured Promissory Note issued October 14, 1992 by the
Registrant in favor of Rohm Corporation.
10.9(1) $110,000 Secured Promissory Note issued October 22, 1992 by the
Registrant in favor of Rohm Corporation.
10.10(1) Security Agreement dated November 4, 1992 between Rohm Corporation, as
Secured Party, and the Registrant.
10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by the
Registrant in favor of Rohm Corporation.
10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the Registrant
in favor of Rohm Corporation.
10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.18(1) Manufacturing Services Agreement dated November 18, 1994 between
Primary Access and the Registrant.
10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
Corporation and the Registrant, as the Consenting Party.
10.20(1) Manufacturing Services Agreement February 22, 1989 between Motorola,
Inc., MOS Memory Products Division and the Registrant, and letter from
Motorola, Inc., Fast Static RAM Module Division related thereto.
10.21(1) Mobile Communication Standard Terms and Conditions dated August 5, 1994
for Westinghouse Electric.
10.22(2) Master Lease Agreement between the Registrant and General Electric
Capital Corporation.
10.23(2) $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.24(3) $7,000,000 Promissory Note between the Registrant and Texas Commerce
Bank National Association
10.25(3) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
10.26(4) Lease Agreement between Delta HP Limited, as Landlord, and the
Registrant, as Tenant.
10.27(4) First Amendment to Credit Agreement between the Registrant and Texas
Commerce Bank National Association
10.28(4) Letter of Commitment between the Registrant and General Electric
Capital Corporation.
10.29(4) Amended $3,000,000 Promissory Note between the Registrant and Rohm
U.S.A.
10.30(5) Registrant's 1997 Stock Incentive Plan
10.31(5) Registrant's Employee Stock Purchase Plan
10.32 Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
11.1 Computation of Net Income per Share.
24.1(1) Power of Attorney (see page II-4 of the Registration Statement as filed
on November 20, 1995).
24.2(1) Assistant Secretary's Certificate of Resolutions of the Board of
Directors.
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-99632 filed
with the Securities and Exchange Commission on February 14, 1996.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1996 Form 10-K.
<PAGE> 13
(3) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's September 1996 Form 10-Q.
(4) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 10-K.
(5) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 14-A.
(b) Reports on Form 8-K
During the fiscal quarter ended December 27, 1997 no current
reports on Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
XETEL CORPORATION
(Registrant)
Date: February 9, 1997 By: /s/ Angelo A. DeCaro, Jr.
-------------------------------
Angelo A. DeCaro, Jr.
President and Chief Executive Officer
Date: February 9, 1997 /s/ Richard S. Chilinski
-------------------------------
Richard S. Chilinski
Vice President,
Chief Financial Officer
and Assistant Secretary
(Principal Financial and
Accounting Officer)
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
Number
<C> <S>
3.2(1) Second Restated Certificate of Incorporation.
3.3(1) Restated Bylaws of the Registrant, as amended.
3.4(1) Registration Rights, dated June 18, 1986 among the Registrant Rohm
Corporation, Julian C. Hart, David W. Gault and Emory C. Garth.
4.1(1) Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2(1) Specimen Common Stock certificate.
10.1(1) Company's 1992 Stock Option Plan.
10.2(1) Form of Indemnification Agreement between the Registrant and each of
its directors and certain executive officers.
10.3(1) Lease Agreement dated September 22, 1992 between Mellon Bank, N.A.,
Trustee for the Consolidation Retirement Trust for the LTV Corporation
and Affiliates (the "LTV Trust"), as Landlord, and the Registrant, as
Tenant.
10.4(1) First Amendment to Lease Agreement effective April 1, 1994 between the
LTV Trust, as Landlord, and the Registrant, as Tenant.
10.5(1) Amended and Restated Guaranty of Lease effective April 1, 1994 between
Rohm USA, Inc., as Guarantor, and the LTV Trust, as Landlord.
10.6(1) Waiver of Right of First Refusal dated May 2, 1994 by the Registrant,
as Tenant, and the LTV Trust, as Landlord.
10.7(1) Security Agreement dated October 14, 1992 between the Registrant and
Rohm Corporation.
10.8(1) $570,000 Secured Promissory Note issued October 14, 1992 by the
Registrant in favor of Rohm Corporation.
10.9(1) $110,000 Secured Promissory Note issued October 22, 1992 by the
Registrant in favor of Rohm Corporation.
10.10(1) Security Agreement dated November 4, 1992 between Rohm Corporation, as
Secured Party, and the Registrant.
10.11(1) $6,500,000 Secured Promissory Note issued November 4, 1992 by the
Registrant in favor of Rohm Corporation.
10.12(1) $722,000 Secured Promissory Note issued March 1, 1993 by the Registrant
in favor of Rohm Corporation.
10.13(1) Security Agreement dated May 17, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.14(1) $2,500,000 Secured Promissory Note issued May 17, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.15(1) Security Agreement dated August 16, 1995 between Rohm U.S.A., Inc., as
Secured Party, and the Registrant, as Debtor.
10.17(1) $1,155,000 Secured Promissory Note issued August 16, 1995 by the
Registrant in favor of Rohm U.S.A., Inc.
10.18(1) Manufacturing Services Agreement dated November 18, 1994 between
Primary Access and the Registrant.
10.19(1) Consent Agreement dated March 29, 1995 between Primary Access
Corporation and the Registrant, as the Consenting Party.
10.20(1) Manufacturing Services Agreement February 22, 1989 between Motorola,
Inc., MOS Memory Products Division and the Registrant, and letter from
Motorola, Inc., Fast Static RAM Module Division related thereto.
10.21(1) Mobile Communication Standard Terms and Conditions dated August 5, 1994
for Westinghouse Electric.
10.22(2) Master Lease Agreement between the Registrant and General Electric
Capital Corporation.
10.23(2) $3,000,000 Promissory Note between the Registrant and Rohm U.S.A.
10.24(3) $7,000,000 Promissory Note between the Registrant and Texas Commerce
Bank National Association
10.25(3) Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
10.26(4) Lease Agreement between Delta HP Limited, as Landlord, and the
Registrant, as Tenant.
10.27(4) First Amendment to Credit Agreement between the Registrant and Texas
Commerce Bank National Association
10.28(4) Letter of Commitment between the Registrant and General Electric
Capital Corporation.
10.29(4) Amended $3,000,000 Promissory Note between the Registrant and Rohm
U.S.A.
10.30(5) Registrant's 1997 Stock Incentive Plan
10.31(5) Registrant's Employee Stock Purchase Plan
10.32 Lease Agreement between Braker Phase III, Ltd. as Landlord, and the
Registrant, as Tenant.
11.1 Computation of Net Income per Share.
24.1(1) Power of Attorney (see page II-4 of the Registration Statement as filed
on November 20, 1995).
24.2(1) Assistant Secretary's Certificate of Resolutions of the Board of
Directors.
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the like-numbered exhibits previously filed
with Registrant's Registration Statement on Form S-1, No. 33-99632 filed
with the Securities and Exchange Commission on February 14, 1996.
(2) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1996 Form 10-K.
(3) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's September 1996 Form 10-Q.
(4) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 10-K.
(5) Incorporated by reference to the like-numbered exhibits previously filed
with the Registrant's 1997 Form 14-A.
<PAGE> 1
Exhibit 10.32
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into by and between BRAKER
PHASE III, LTD., a Texas limited partnership, hereinafter referred to as
"Landlord," and XETEL CORPORATION, a Delaware corporation, hereinafter referred
to as "Tenant."
1. PREMISES AND TERM.
A. Demise and Premises. In consideration of the mutual obligations of
Landlord and Tenant set forth herein, Landlord leases to Tenant, and Tenant
hereby takes from Landlord, certain leased premises (the "Premises") situated
within the County of Travis, State of Texas located on the property described on
EXHIBIT "A" attached hereto and incorporated herein by reference (the
"Property"), as shown on EXHIBIT "B" attached hereto and incorporated herein by
reference, to have and to hold, subject to the terms, covenants and conditions
in this Lease. The Premises shall be comprised of a building (and related
improvements, amenities and parking areas) to be constructed by Landlord on the
Property and known as Braker Center III -Building C (collectively, the
"Building"), which Building shall be part of an industrial park owned by
Landlord and known as Braker Center III (the "Project").
B. Term. The term of this Lease shall commence on December 15, 1997
(the "Commencement Date") and, unless sooner terminated as provided herein,
shall end on October 31, 2009.
C. Delivery and Completion of Premises.
(1) Landlord has substantially completed construction of
the Building and the Premises as of the date hereof,
and by its execution of this Lease, Tenant hereby
accepts Landlord's delivery of the Building and
Premises to Tenant, subject to (i) Landlord's
completion of the punchlist items set forth on
Exhibit "F" hereto and (ii) Landlord's delivery to
A Tenant of a certificate of occupancy for the
building shell of the Premises. Landlord shall
diligently and promptly obtain the certificate of
occupancy for the building shell of the Premises and
complete the punchlist items on Exhibit "F." Tenant
shall be responsible for constructing improvements in
or making interior alterations to the Building (the
"Tenant Improvements") in accordance with EXHIBIT "C"
attached hereto and incorporated herein by reference
and the plans and specifications therefor previously
approved by Landlord and Tenant (the "Tenant
Improvement Plans"), an index of which is attached
hereto as EXHIBIT "C-1" and incorporated herein by
reference.
(2) Landlord grants Tenant, its employees and agents, a
license to enter the Premises for purposes of
commencing construction of the Tenant Improvements
prior to the Commencement Date. Tenant's entry upon,
and presence at, the Premises prior to the
Commencement Date shall otherwise be on and subject
to all of the terms and conditions set forth in this
Lease, except for the payment of rentals and other
charges reserved herein, but including, without
limitation, the insurance requirements set forth in
paragraph 9 and the indemnity obligations set forth
in paragraph 11.
(3) For a period of one (1) year after the date hereof,
Tenant shall be entitled to bring to Landlord's
attention by written notice any deficiencies in
Landlord's construction that come to Tenant's
attention, and Landlord shall thereafter promptly
correct the same at Landlord's expense; provided that
Landlord shall have no obligation to correct such
items after such 1-year period, nor to correct any
item subject to a warranty previously assigned to
Tenant. The foregoing warranty is in addition to any
warranty provided by any contractor, subcontractor,
materialmen or supplier in connection with
construction of the Premises.
Initials ___ ___
<PAGE> 2
(4) Within ninety (90) days after the Commencement Date,
(i) Landlord shall deliver to Tenant "as-built" plans
and specifications for the Building Shell and (ii)
Tenant shall deliver to Landlord "as-built" plans and
specifications for the Tenant Improvements.
2. BASE RENT AND ADDITIONAL RENT.
A. Base Rental. Tenant agrees to pay to Landlord, during the term of
this Lease, rent for the Premises ("Base Rental"), in advance, without demand,
deduction or set off (other than pursuant to express, limited rental abatement,
offset or credit provisions contained in this Lease), at the following rates:
<TABLE>
<S> <C> <C> <C>
Months 1 - 36 $.62/sq.ft. of Rentable Area $31,287.68 per month
Months 37 - 60 $.65/sq.ft. of Rentable Area $32,801.60 per month
Months 61 - 96 $.68/sq.ft. of Rentable Area $34,315.52 per month
Months 97 - 142 $.72/sq.ft. of Rentable Area $36,334.08 per month
</TABLE>
Monthly installments of Base Rental shall be due and payable on or before the
fifth (5th) day of each calendar month succeeding the Commencement Date, except
that all payments due hereunder for any fractional calendar month in which the
Commencement Date occurs shall be prorated and shall be added to and paid as
part of the first full month's Base Rental.
B. Tenant's Pro Rata Share of Operating Expenses. In addition to any
other sums due from Tenant under this Lease, Tenant shall pay to Landlord, as
additional rent, in the manner and at the times set forth in EXHIBIT "D"
attached hereto, Tenant's Pro Rata Share of Operating Expenses (as defined in
EXHIBIT "D") for each Lease Year (as defined in EXHIBIT "D"). As used herein,
"Tenant's Pro Rata Share" shall mean a fraction, the numerator of which is the
Rentable Area (as defined in EXHIBIT "D") contained in the Premises and the
denominator of which is the Rentable Area of the Project; provided, however, (i)
to the extent an Operating Expense is attributable only to the Building or the
Premises, Tenant's Pro Rata Share of that Operating Expense shall be the entire
amount of the Operating Expense, and (ii) with respect to the Operating Expenses
attributable to the Project, notwithstanding the provisions of "EXHIBIT D," such
Operating Expenses shall only include costs and expenses incurred in connection
with common area expenses and facilities benefitting the entire Project, such as
Project signage and common area landscaping.
Initials ___ ___
2
<PAGE> 3
3. LANDLORD'S REPAIRS AND MAINTENANCE. Landlord, at its own cost and
expense (except to the extent included within Operating Expenses), shall
maintain in good repair, reasonable wear and tear excluded, (i) the roof, slab
and foundation of the Building, (ii) the structural soundness of the exterior
walls and supports of the Building, (iii) the parking areas of the Premises and
(iv) the plumbing, pipes and conduits located within the Project but outside the
Premises. The term "walls" as used herein shall not include windows, glass or
plate glass, any doors, special store fronts or office entries, and the term
"foundation" as used herein shall not include loading docks. Tenant shall
promptly give Landlord written notice of defect or need for repairs. Landlord
shall cure such defects or complete its required repairs within thirty (30) days
after receipt of written notice from Tenant of such defects or the need for such
repairs, provided that if such cure or repairs cannot reasonably be completed
within such 30-day period, Landlord shall not be required to complete such cure
or repairs within such 30-day period so long as it commences to cure same within
such 30-day period and diligently pursues the same to completion. If Landlord
fails to commence any repairs which it is obligated to make pursuant to this
paragraph 3 within thirty (30) days after receipt of Tenant's written demand for
the same, or fails to complete such repairs in accordance with the preceding
sentence of this paragraph 3, Tenant shall have the right to complete such
repairs on Landlord's behalf, in which event Landlord shall promptly reimburse
Tenant in the amount of the reasonable, actual cost of such repairs, so long as
Tenant provides Landlord with written invoices and other documentation
evidencing the amount of such costs and, if Landlord does not so reimburse
Tenant within thirty (30) days after demand therefor, Tenant shall receive a
credit against its next accruing obligations for Base Rental under this Lease
for such amounts, but Landlord shall be liable for such reimbursement or credit
only to the extent such costs would not be included in Operating Expenses.
Notwithstanding the foregoing provisions of this paragraph 3, upon the
occurrence of an emergency need for repairs to any portion of the Premises for
which Landlord would otherwise be responsible hereunder, the party first
becoming aware of such emergency shall immediately notify the other of the
nature of the needed repair, whereupon Tenant and Landlord shall reasonably
cooperate with each other to agree upon the most expeditious and cost effective
means to accomplish the needed repairs and to prevent and remedy damages to the
Premises and the personal property situated therein. Without limiting the
generality of the foregoing, Tenant and Landlord shall each have the right to
take whatever immediate action they may reasonably deem necessary to protect any
person from injury or to protect the Premises and Tenant's inventory and
equipment therein from further damage. For purposes of this paragraph 3,
"emergency need for repairs" means any damage to, failure of or needed repair to
any portion of the Premises, the Building, or the Project that poses an
immediate threat to the safety of any person or material damage to Tenant's
inventory or equipment within the Premises. Unless otherwise expressly
stipulated herein, Landlord shall not be required to make any improvements or
repairs of any kind or character on or to the Property, or any portion thereof,
during the term of this Lease.
4. TENANT'S REPAIRS AND MAINTENANCE.
A. Maintenance of Premises and Appurtenances. Tenant, at its own cost
and expense, shall (i) maintain all parts of the Premises and promptly make all
necessary repairs and replacements to the Premises (except those for which
Landlord is expressly responsible hereunder) and (ii) keep the parking areas,
driveways and alleys surrounding the Premises in a clean and sanitary condition.
Tenant's obligation to maintain, repair and make replacements to the Premises
shall cover, but not be limited to, pest control (including termites), trash
removal and the maintenance, repair and replacement of all HVAC, electrical,
plumbing, sprinkler and other mechanical systems (the "Building Systems"),
subject, however, to Landlord's express obligations hereunder.
B. System Maintenance. Tenant, at its own cost and expense, shall enter
into a regularly scheduled preventive maintenance/service contract with a
maintenance contractor reasonably approved by Landlord for servicing all hot
water, heating and air conditioning systems and equipment within the Premises.
The service contract must include all services suggested by the equipment
manufacturer in its operations/maintenance manual and must become effective
within thirty (30) days of the date Tenant takes possession of the Premises. At
Tenant's option, such maintenance may be performed by employees of Tenant so
long as (i) Tenant maintains proper records and makes such records reasonably
available to Landlord for review and (ii) Tenant's performance of such
maintenance complies with the other requirements of this paragraph 4.B.
5. TENANT'S ALTERATIONS; PERSONAL PROPERTY TAXES. Except as
contemplated in EXHIBIT "C", Tenant shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
However, subject to the conditions described below, Landlord's consent shall not
Initials ___ ___
3
<PAGE> 4
be required for nonstructural interior alterations, additions or improvements
that (a) have an aggregate cost of no more than $100,000.00, (b) are not visible
from the exterior of the Premises, (c) may be removed and installed without
material injury to the Premises, and (d) do not alter or materially and
adversely affect the operation of any Building System. Tenant's right to
implement the alterations, additions and improvements described in the
immediately preceding sentence without Landlord's consent is expressly
conditioned upon all of the following: (i) Tenant shall provide Landlord with
plans and specifications for the proposed alterations, additions or improvements
no less than ten (10) days before the date on which Tenant anticipates
commencing implementation of the same, (ii) Tenant shall provide Landlord with
copies of the as-built plans and specifications reflecting all such alterations,
improvements or additions as completed within thirty (30) days after the
completion thereof, and (iii) Landlord shall have the right to prohibit any
proposed alterations, additions or improvements which it determines, in its
reasonable discretion, (W) will alter or materially and adversely affect the
operation of any Building System, (X) actually constitute structural
alterations, (Y) cannot be removed without material injury to the Premises, or
(Z) will adversely affect the structural integrity of any portion of the
Building. Notwithstanding anything to the contrary in the foregoing, Tenant
shall obtain all permits and governmental approvals necessary for the
performance of such alterations, additions or improvements prior to the
commencement thereof, and shall comply with all applicable governmental and
legal requirements in such performance. Additionally, Tenant, at its own cost
and expense, may erect such shelves, bins, machinery and trade fixtures as it
desires, provided that (a) such items do not alter the basic character of the
Premises or the Building; (b) such items do not overload or damage same; (c)
such items may be removed without injury to the Premises; and (d) the
construction, erection or installation thereof complies with all applicable
governmental laws, ordinances, regulations and with Landlord's specifications
and requirements. Without implying any consent of Landlord thereto, all
alterations, additions, improvements and partitions erected by Tenant shall be
and remain the property of Tenant during the term of this Lease. All shelves,
bins, machinery and trade fixtures installed by Tenant shall be removed on or
before the earlier to occur of the date of termination or expiration of this
Lease or vacating the Premises, at which time Tenant shall restore the Premises
to their original condition, ordinary wear and tear excepted. All alterations,
installations, removals and restorations shall be performed in a good and
workmanlike manner so as not to damage or alter the primary structure or
structural qualities of the Building or other improvements situated on the
Premises or of which the Premises are a part and, if not required to be removed,
shall become the property of Landlord upon the expiration or earlier termination
of this Lease. Tenant shall be liable for all taxes levied or assessed against
any personal property or fixtures placed in or on the Premises. If any such
taxes are levied or assessed against Landlord or Landlord's property and (i)
Landlord pays the same or (ii) the assessed value of Landlord's property is
increased by inclusion of such personal property and fixtures and Landlord pays
the increased taxes, then Tenant shall pay to Landlord, upon demand, the amount
of such taxes.
6. PARKING. Landlord shall provide Tenant and its employees, customers
and licensees with the exclusive use of one hundred and sixty-five (165) parking
spaces (reduced by the number of spaces eliminated due to Tenant's use of any
proposed spaces for non-parking purposes) as designated by Landlord within the
Premises in the areas outlined on EXHIBIT "B", subject to all reasonable rules
and regulations promulgated by Landlord. Landlord shall not be responsible for
enforcing Tenant's parking rights against any third parties.
7. SIGNS. Any signage Tenant desires for the Premises (excluding
signage provided for in the Tenant Improvement Plans as previously approved by
Landlord) shall be subject to Landlord's prior written approval, which approval
shall not be unreasonably withheld, conditioned or delayed, and which approval
shall not be withheld so long as such signage proposed by Tenant is consistent
in size, location and materials as the signage originally approved in the Tenant
Improvement Plans. Except as provided for in the Tenant Improvement Plans as
approved by Landlord, Tenant shall be obligated to reasonably repair, paint
and/or replace the Building facia surface to which its signs are attached upon
Tenant's vacation of the Premises or the removal or alteration of its signage.
Tenant shall not, without Landlord's prior written approval (which approval
shall not be unreasonably withheld, conditioned or delayed), (i) make any
changes to the exterior of the Premises, (ii) install any exterior lights,
decorations, balloons, pennants, banners or painting, or (iii) erect or install
any signs, windows or door lettering, placards, decorations or advertising media
of any type which can be viewed from the exterior of the Premises. All signs,
decorations, advertising media, blinds, draperies and other window treatment or
bars or other security installations visible from outside the Premises shall
conform in all respects to reasonable and uniformly enforced criteria
established by Landlord or shall be otherwise subject to Landlord's prior
written approval, which approval shall not be unreasonably withheld, conditioned
or delayed.
Initials ___ ___
4
<PAGE> 5
8. UTILITIES. Landlord agrees to provide to the Premises running water,
sanitary sewer, gas and electricity service and telephone service conduits and
pull boxes from the boundary of the Property. Tenant shall pay for all water,
gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities
and services used on or at the Premises, together with any taxes, penalties,
surcharges or the like pertaining to such services and utilities used in
connection with the Premises, and any maintenance charges for utilities. Such
services shall be separately metered. Except as hereinafter expressly provided
to the contrary, Landlord shall not be liable for any interruption or failure of
utility service on the Premises and Tenant shall have no rights or claims as a
result of any such failure. However, notwithstanding the foregoing, if Tenant is
prevented from carrying on its normal business operations within the Premises as
a direct result of an interruption of any of the utilities serving the Premises
that is caused by either (i) damage to or failure of utility systems, pipes or
transmission lines that are controlled by Landlord and situated within the
Project, but outside of the Premises, or (ii) damage to utility systems, pipes
or transmission lines that are situated within the Project which is caused by
the negligence of Landlord or Landlord's employees or agents, then if such
interruption continues for ten (10) consecutive days after written notice of the
same to Landlord, Tenant's obligation for Base Rental shall be abated after such
ten day period until the cessation of such interruption (provided, however, that
if such interruption of utilities affects less than the entirety of the
Premises, then Tenant's obligation for Base Rental shall be abated only by an
amount equal to the product of (A) a fraction, the numerator of which is the
Rentable Area of the portion of the Premises in which Tenant is unable to carry
on its normal business operations and the denominator of which is the Rentable
Area of the Premises, and (B) the then applicable Base Rental). If such
interruption continues for thirty (30) consecutive days after written notice of
the same to Landlord, then Tenant may terminate this Lease upon written notice
to Landlord at any time before the cessation of such interruption. To the extent
of any conflict between this paragraph 8 and paragraph 10, paragraph 10 shall
control.
9. INSURANCE.
A. Landlord's Insurance. Subject to reimbursement under paragraph 2.B
herein, Landlord shall maintain fire and extended coverage insurance covering
the Building and all alterations, additions and improvements thereto not made by
Tenant in an amount not less than ninety percent (90%) (or such greater
percentage as is necessary to comply with the coinsurance requirements of any
insurance policy) of the "replacement cost" thereof (as defined in the
Replacement Cost Endorsement to be attached to such policy), insuring against
the perils of, among other things, fire, lightning, vandalism and malicious
mischief.
B. Tenant's Insurance. Tenant, at its own expense, shall maintain
during the term of this Lease a policy or policies of worker's compensation and
comprehensive general liability insurance, including personal injury and
property damage, with contractual liability endorsement, in the amount of Five
Hundred Thousand Dollars ($500,000.00) for property damage and One Million
Dollars ($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00)
in the aggregate for personal injuries or deaths of persons occurring in or
about the Premises in connection with Tenant's use or occupancy thereof and
Tenant's construction of the Tenant Improvements. Tenant, at its own expense,
also shall maintain during the term of this Lease, fire and extended coverage
insurance covering not less than ninety percent (90%) of the replacement cost
(as defined in the Replacement Cost Endorsement to be attached to such policy)
of (i) all alterations, additions, partitions and improvements installed or
placed on the Premises by Tenant and (ii) all of Tenant's personal property
contained within the Premises. Said policies shall (i) name Landlord as an
additional insured and insure Landlord's contingent liability under or in
connection with this Lease (except for the worker's compensation policy), (ii)
be issued by an insurance company which is acceptable to Landlord, and (iii)
provide that said insurance shall not be cancelled unless thirty (30) days prior
written notice has been given to Landlord. Said policy or policies or
certificates thereof shall be delivered to Landlord by Tenant on or before the
Commencement Date and upon each renewal of said insurance.
C. Prohibited Uses. Tenant will not permit the Premises to be used for
any purpose or in any manner that would (i) void the insurance thereon, (ii)
increase the insurance risk or cost thereof, or (iii) cause the disallowance of
any sprinkler credits; including without limitation, use of the Premises for the
receipt, storage or handling of any product, material or merchandise that is
explosive or highly inflammable, unless such use is permitted under paragraph 13
hereof.
D. Blanket Policies. Either Landlord or Tenant may satisfy their
respective insurance obligations hereunder under one or more blanket policies.
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10. FIRE AND CASUALTY DAMAGE.
A. Total or Substantial Damage and Destruction. If the Premises or the
Building should be damaged or destroyed by fire or other peril, Tenant shall
immediately give written notice to Landlord of such damage or destruction. If
(i) the Premises or the Building should be totally destroyed by any peril
covered by the insurance to be provided by Landlord under paragraph 9.A above,
(ii) the Premises or the Building should be so damaged thereby that, in
Landlord's reasonable, good faith estimation, rebuilding or repairs cannot be
completed within two hundred seventy (270) days after the date of such damage,
or (iii) such damage or destruction occurs during the last eighteen (18) months
of the term of the Lease and Landlord makes a good faith determination that it
is impractical to rebuild or restore the Building and the Premises, then
Landlord may, at its option, terminate the Lease by notifying Tenant in writing
of such termination at any time prior to the forty-fifth (45th) day after the
date on which Landlord receives written notice from Tenant of such damage or
destruction, and the rent shall be abated during the unexpired portion of this
Lease effective upon the date of the occurrence of such damage or destruction;
provided, however, that Tenant, at its sole cost and expense, shall have the
option, but not the obligation, to restore the Premises to substantially its
previous condition, in which event this Lease shall thereafter continue in full
force and effect upon the same terms and conditions as existed prior to the
casualty (subject to a fair diminution of rent during the time of such
rebuilding or repairs to the extent the Premises are unfit for Tenant's use
thereof consistent with Tenant's use immediately prior to such casualty), so
long as (i) the damage or destruction did not occur during the last eighteen
(18) months of the term of the Lease and Landlord makes a good faith
determination that it is impractical to rebuild or restore the Building and the
Premises, (ii) Tenant's restoration work can be completed within twelve (12)
months of the date such casualty occurred and (iii) Tenant notifies Landlord in
writing of its intention to restore the Premises within thirty (30) days of
Landlord's aforesaid termination notice. If Landlord elects to rebuild or repair
such damage or destruction and such rebuilding and repair cannot reasonably be
completed within two hundred seventy (270) days after Landlord's receipt of
notice from Tenant of such damage or destruction, Landlord shall notify Tenant
of the number of days in which Landlord shall be obligated to restore the
Premises to substantially its previous condition, during which period Landlord
shall allow Tenant a fair diminution of rent to the extent the Premises are
unfit for Tenant's use thereof; provided, however, Tenant may elect to terminate
this Lease by delivering written notice of such election to Landlord within
thirty (30) days after Tenant receives such notice from Landlord. If this Lease
is terminated pursuant to this paragraph 10.A, then Landlord shall promptly
reimburse to Tenant any rent or other sums paid by Tenant that relate to periods
of time after the effective date of such termination. If this Lease is
terminated pursuant to this paragraph 10.A, Landlord shall promptly reimburse to
Tenant any rent or other sums paid by Tenant that relate to periods of time
after the effective date of such termination. For purposes of this paragraph 10,
a "fair diminution of rent" shall mean a proportionate reduction of Tenant's
rent obligation based on the portion of the Rentable Area that is rendered
unusable as a result of the damage to the Premises until rebuilding and repair
of the damaged or destroyed portion of the Premises are substantially completed.
B. Partial Damage or Destruction. If the Premises or the Building
should be damaged by any peril covered by the insurance to be provided by
Landlord under paragraph 9.A above and, in Landlord's reasonable, good faith
estimation, rebuilding or repairs can be substantially completed within two
hundred seventy (270) days after the date of such damage, then this Lease shall
not terminate and Landlord shall, with all reasonable dispatch but not longer
than two hundred seventy (270) days after the date of such damage, restore the
Premises to substantially its previous condition, except that Landlord shall not
be required to rebuild, repair or replace any part of the partitions, fixtures,
additions and other improvements that may have been constructed, erected or
installed in or about the Premises for the benefit of or by or for Tenant after
the Commencement Date. Landlord shall allow Tenant a fair diminution of rent
during the time of such rebuilding or repairs to the extent the Premises are
unfit for Tenant's use thereof.
C. Lienholders' Rights in Proceeds. Notwithstanding anything herein to
the contrary, in the event the holder of any indebtedness secured by a mortgage
or deed of trust covering the Premises requires that the insurance proceeds be
applied to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within fifteen
(15) days after such requirement is made known to Landlord by any such holder,
whereupon all rights and obligations hereunder shall cease and terminate;
provided that Tenant shall continue to have the option, but not the obligation,
to restore the Premises under the terms set forth in paragraph
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10.A. Landlord shall provide Tenant with a copy of any such mortgage or deed of
trust instrument and related relevant documentation created after the date
hereof.
D. Waiver of Subrogation. Notwithstanding anything in this Lease to the
contrary, Landlord and Tenant hereby waive and release each other of and from
any and all rights of recovery, claims, actions or causes of action against each
other, or their respective agents, officers and employees, for any loss or
damage that may occur to the Premises, improvements to the Building or personal
property and Building contents within the Building and/or Premises, for any
reason regardless of cause or origin, including, without limitation, the
negligence or fault of the other party to the extent insurance coverage exists
for such loss or damage or would exist if such other party were in full
compliance with its insurance obligations under paragraph 9 hereof. Each party
to this Lease agrees immediately after execution of this Lease to give written
notice of the terms of the mutual waivers contained in this subparagraph to each
insurance company that has issued to such party policies of fire and extended
coverage insurance and, if necessary, to have the insurance policies properly
endorsed to provide that the carriers of such policies waive all rights of
recovery under subrogation or otherwise against the other party.
E. Substantial Completion of Restoration Work. For purposes of this
paragraph 10, Landlord's rebuilding and repairs shall be considered
"substantially complete" when Landlord has restored the damaged or destroyed
portion of the Premises to substantially the same condition as existed
immediately before the happening of the casualty and to such a degree as to
allow Tenant to fully use the Premises as permitted under this Lease, subject to
Landlord's completion of Punchlist Items and Tenant's completion of Tenant's
required repairs hereunder. The term "Punchlist Items" means details of
construction, decoration and mechanical adjustment which, in the aggregate, are
minor in character and do not, either by their nature or because of the repair
or completion work necessary, materially interfere with Tenant's use or
enjoyment of the Premises or the Building.
F. Tenant's Rights. If Landlord fails to substantially complete the
rebuilding and repair of the Premises within two hundred seventy (270) days as
required by paragraph 10.B above or such other period as may be specified in the
notice from Landlord to Tenant pursuant to paragraph 10.A above, as applicable,
then this Lease shall terminate thirty (30) days after Landlord receives written
notice, if any, from Tenant that Tenant has elected to terminate this Lease
pursuant to this paragraph 10.F; provided that, if Landlord substantially
completes such rebuilding and repairs prior to the expiration of thirty (30)
days following Landlord's receipt of Tenant's termination notice, this Lease
shall not so terminate and shall continue in full force and effect.
11. LIABILITY AND INDEMNIFICATION. Except for any claims, rights of
recovery and causes of action that Landlord has released, and except for those
matters for which Landlord is obligated to indemnify Tenant pursuant to this
Lease, Tenant shall hold Landlord harmless from and defend Landlord against any
and all claims or liability (i) for any injury or damage to any person or
property whatsoever occurring in, on or about the Premises or any part thereof,
the Building and/or other common areas, the use of which Tenant may have in
accordance with this Lease, if (and only if) such injury or damage shall be
caused primarily by the act, neglect, fault or omission of any duty by Tenant,
its agents, servants, employees or invitees, (ii) arising primarily from the
conduct or management of any work done by the Tenant in or about the Premises,
(iii) arising primarily from transactions of the Tenant, and (iv) for all costs,
reasonable counsel fees, expenses and liabilities incurred in connection with
any such claim or action or proceeding brought thereon. The provisions of this
paragraph 11 shall survive the expiration or termination of this Lease. Landlord
shall not be liable in any event for personal injury or loss of Tenant's
property caused by fire, flood, water leaks, rain, hail, ice, snow, smoke,
lightning, wind, explosion, interruption of utilities or other occurrences
unless due to the gross negligence or willful misconduct of Landlord. Tenant
shall give prompt notice to Landlord of any significant accidents known to
Tenant involving injury to persons or property. Furthermore, Landlord shall not
be responsible for lost or stolen personal property, equipment, money or
jewelry from the Premises or from the public areas of the Building or the
Project, regardless of whether such loss occurs when the area is locked against
entry, unless such loss is due to the gross negligence or willful misconduct of
Landlord. Unless otherwise expressly provided in this Lease, Landlord shall not
be liable to Tenant or Tenant's employees, customers or invitees for any
damages or losses to persons or property caused by any lessees in the Building
or the Project, or for any damages or losses caused by theft, burglary,
assault, vandalism or other crimes. Landlord strongly recommends that Tenant
provide its own security systems and services and secure Tenant's own insurance
in excess of the amounts required elsewhere in this Lease, to protect against
the above occurrences if Tenant desires additional protection or coverage for
such risks. Tenant shall give Landlord prompt notice of any
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criminal or suspicious conduct known to Tenant within or about the
Premises, the Building or the Project, and/or any personal injury or property
damage caused thereby. Landlord may, but is not obligated to, enter into
agreements with third parties for the provision, monitoring, maintenance and
repair of any courtesy patrols or similar services or fire protective systems
and equipment and, to the extent same is provided in Landlord's sole discretion,
Landlord shall not be liable to Tenant for any damages, costs or expenses which
occur for any reason (unless due to the gross negligence or willful misconduct
of Landlord) in the event any such system or equipment is not properly
installed, monitored or maintained or any such services are not properly
provided. Landlord shall use reasonable diligence in the maintenance of existing
lighting, if any, in the parking garage or parking areas servicing the Premises,
and Landlord shall not be responsible for additional lighting or any security
measures in the Project, the Premises or the parking areas.
12. USE. The Premises shall be used and occupied by Tenant during the
term of this Lease for the purpose of conducting a manufacturing and assembly
services facility, with, at Tenant's option, attendant office areas and dining
amenities, and for receiving, storing, shipping and selling (other than retail)
products, materials and merchandise made and/or distributed by Tenant, and for
research and development and general office purposes, and for no other purpose
or use without the prior written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises, and shall promptly comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon or
connected with the Premises and arising out of Tenant's use thereof, all at
Tenant's sole expense. Tenant shall not take any action that would constitute a
nuisance or would unreasonably interfere with or endanger Landlord or any other
lessees of the Project.
13. HAZARDOUS WASTE. The term "Hazardous Substances," as used in this
Lease, shall mean pollutants, contaminants, toxic or hazardous wastes,
radioactive materials or any other substances, the use and/or the removal of
which is required or the use of which is restricted, prohibited or penalized by
any "Environmental Law," which term shall mean any currently effective federal,
state or local statute, ordinance, regulation or other law of a governmental or
quasi-governmental authority relating to pollution or protection of the
environment or the regulation of the storage or handling of Hazardous
Substances. Tenant hereby agrees that: (i) no activity will be conducted on the
Premises that will produce any Hazardous Substance, except for such activities
that are part of the ordinary course of Tenant's business activities (the
"Permitted Activities"), provided said Permitted Activities are conducted in
accordance with all Environmental Laws and have been approved in advance in
writing by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed, and, in connection therewith, Tenant shall be
responsible for obtaining any required permits or authorizations and paying any
fees and providing any testing required by any governmental agency; (ii) the
Premises will not be used in any manner for the storage of any Hazardous
Substances, except for the temporary storage of such materials that are used in
the ordinary course of Tenant's business (the "Permitted Materials"), provided
such Permitted Materials are properly stored in a manner and location meeting
all Environmental Laws and have been approved in advance in writing by Landlord,
which approval shall not be unreasonably withheld, conditioned or delayed, and,
in connection therewith, Tenant shall be responsible for obtaining any required
permits or authorizations and paying any fees and providing any testing required
by any governmental agency; (iii) no portion of the Premises will be used as a
landfill or a dump; (iv) Tenant will not install any underground tanks of any
type; (v) Tenant will not allow any surface or subsurface conditions to exist or
come into existence that constitute, or with the passage of time may constitute,
a public or private nuisance; (vi) Tenant will not permit any Hazardous
Substances to be brought onto the Premises, except for the Permitted Materials,
and if so brought or found located thereon, the same shall be immediately
removed, with proper disposal, and all required clean-up procedures shall be
diligently undertaken by Tenant at its sole cost pursuant to all Environmental
Laws. Landlord hereby consents to Tenant's use, storage and disposal of the
substances listed on the attached EXHIBIT "E" and agrees that such substances
are additional "Permitted Materials" as such term is used herein, provided that
Tenant comply with the terms of this paragraph 13 in the storage, use and
disposal of such additional Permitted Materials. Landlord and Landlord's
representatives shall have the right but not the obligation to enter the
Premises pursuant to the terms of paragraph 14 for the purpose of inspecting the
storage, use and disposal of any Permitted Materials to ensure compliance with
all Environmental Laws. Should it be determined, in Landlord's reasonable, good
faith opinion, that any Permitted Materials are being improperly stored, used or
disposed of, then Tenant shall immediately take such corrective action as
reasonably requested by Landlord. Should Tenant fail to commence such corrective
action within twenty-four (24) hours of Landlord's request to Tenant to do so
and thereafter diligently prosecute the same to completion, Landlord shall have
the right to perform
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such work and Tenant shall reimburse Landlord, on demand, for any and all
reasonable costs associated with said work. If at any time during or after the
term of this Lease, the Premises is found to be contaminated with Hazardous
Substances in violation of Environmental Law, Tenant shall diligently institute
proper and thorough clean-up procedures, at Tenant's sole cost, but only to the
extent such contamination was caused by Tenant or arose out of Tenant's use or
occupancy of the Premises. Tenant agrees to indemnify and hold Landlord harmless
from all claims, demands, actions, liabilities, costs, expenses, damages,
penalties and obligations of any nature arising from or as a result of any
contamination of the Premises with Hazardous Substances arising from the use of
the Premises by Tenant, but excluding any such contamination caused by the
activities of third parties not within Tenant's reasonable control. Landlord
shall indemnify, defend and hold harmless Tenant from and against any and all
claims, demands, actions, liabilities, costs, expenses, damages, penalties and
obligations of any nature arising from or as a result of any contamination of
the Project, the Building or the Premises with Hazardous Substances existing
prior to the date Tenant occupies the Premises and any such contamination caused
by the acts or omissions of Landlord, its employees, agents and contractors. The
foregoing indemnifications, and the other responsibilities of Tenant and
Landlord under this paragraph 13, shall survive the termination or expiration of
this Lease.
14. INSPECTION. After at least one (1) business day's prior written
notice to Tenant (or without prior notice, if under emergency circumstances),
Landlord's agents and representatives shall have the right to enter the Premises
at any reasonable time during business hours (or at any time in case of
emergency) (i) to inspect the Premises; (ii) to make such repairs as may be
required or permitted pursuant to this Lease; and/or (iii) during the last six
(6) months of the Lease term, for the purpose of showing the Premises to
prospective tenants, purchasers or lenders. In addition, Landlord shall have the
right to erect a suitable sign (subject to Tenant's prior written and reasonable
approval) on the Premises stating the Premises are available for lease during
the last six (6) months of the term of this Lease. Landlord shall (i) make a
good faith effort to minimize disruption to Tenant's business operations when
exercising its rights pursuant to this paragraph 14 and (ii) reasonably
cooperate with Tenant for purposes of exercising its right of entry into the
Premises in accordance with such reasonable security procedures as Tenant may
implement from time to time. Except under emergency circumstances (which shall
mean circumstances that pose an immediate threat to the safety of any person or
material damage to property), Tenant may require that a representative of Tenant
accompany Landlord on any such entry and inspection. Tenant shall notify
Landlord in writing at least thirty (30) days prior to vacating the Premises and
shall arrange to meet with Landlord for a joint inspection of the Premises prior
to vacating. If Tenant fails to give such notice or to arrange for such
inspection, then Landlord's inspection of the Premises shall be deemed correct
for the purpose of determining Tenant's responsibility for repairs and
restoration of the Premises, so long as Landlord's inspection is reasonable and
done in good faith.
15. ASSIGNMENT AND SUBLETTING. Tenant shall not have the right to
sublet, assign or otherwise transfer or encumber this Lease, or any interest
therein, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing,
Tenant shall have the right, without Landlord's prior written consent, to
sublease up to fifteen percent (15%) of the Rentable Area of the Premises for
purposes related to Tenant's business in the Premises, provided that space
subleased shall not have a separate external entrance. In the event of a
proposed sublease or assignment requiring Landlord's consent under this
paragraph 15, Landlord shall have the option (to be exercised within thirty (30)
days from submission of Tenant's written request) to cancel this Lease (i) as to
all of the Premises if Tenant proposes to assign this Lease or sublease
seventy-five percent (75%) or more of the Premises or (ii) as to the portion of
the Premises proposed to be sublet if Tenant proposes to sublet less than
seventy-five percent (75%) of the Premises. Any attempted assignment,
subletting, transfer or encumbrance by Tenant in violation of the terms and
covenants of this paragraph 15 shall be void. No assignment, subletting or other
transfer, whether or not consented to by Landlord or permitted hereunder, shall
relieve Tenant of its liability under this Lease. If an Event of Default occurs
while the Premises or any part thereof are assigned or sublet, then Landlord, in
addition to any other remedies herein provided or provided by law, may collect
directly from the assignee or sublessee all rents payable to the Tenant and
apply such rent against any sums due Landlord hereunder. No such collection
shall be construed to constitute a novation or a release of Tenant from the
further performance of Tenant's obligations hereunder. The following shall
additionally constitute an assignment of this Lease by Tenant for the purposes
of this paragraph 15: (i) the sale, transfer, exchange, liquidation or other
distribution of more than fifty percent (50%) of Tenant's assets (other than
this Lease) which is not in the ordinary course of Tenant's business; or (ii)
the mortgage, pledge, hypothecation or other encumbrance of or grant of a
security interest by Tenant in this Lease, or of any of Tenant's rights
hereunder.
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Notwithstanding any other provision in this Lease to the contrary, Landlord's
consent shall not be required for (i) any assignment of this Lease or any
sublease of all or any portion of the Premises to an affiliate of Tenant,
provided that Tenant provides Landlord with written notice thereof no less than
fifteen (15) days prior to the effective date or commencement of such assignment
or sublease, or (ii) Tenant's reincorporation in another state. For purposes of
this paragraph 15, an "affiliate" means any partnership, association or
corporation or other entity at least fifty-one percent (51%) of the legal and
equitable ownership interest of which is owned by, or under common ownership
with, Tenant.
16. CONDEMNATION. If all or substantially all of the Premises are taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain or private purchase in lieu thereof,
then this Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective on the date of such taking. If less
than all or substantially all of the Premises are taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or private purchase in lieu thereof and if the taking
does not prevent or materially interfere with the use of the remainder of the
Premises for the purpose for which they were leased to Tenant, then this Lease
shall not terminate, but Tenant shall receive a fair diminution of rent. If less
than all or substantially all of the Premises are taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or private purchase in lieu thereof, and such taking
prevents or materially interferes with the use of the remainder of the Premises
for the purpose for which they were leased to Tenant, then this Lease, at the
option of Tenant, exercised by written notice to Landlord within thirty (30)
days after such taking, shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective on the date of such taking. If this
Lease does not terminate, then this Lease will continue and Landlord will
promptly restore the Premises to substantially its previous condition, to the
extent reasonably possible under the circumstances, and allow Tenant a fair
diminution of rent. For purposes of this paragraph 16, a "fair diminution of
rent" shall mean a proportionate reduction of Tenant's rent obligation based on
the portion of the Rentable Area that is subject to the taking or that is
rendered unusable as a result of the taking. If this Lease terminates pursuant
to this paragraph 16, Landlord shall promptly reimburse to Tenant any rent or
other sums paid by Tenant that relate to periods of time after the effective
date of such termination. All compensation awarded in connection with or as a
result of any of the foregoing proceedings shall be the property of Landlord,
and Tenant hereby assigns any interest in any such award to Landlord; provided,
however, Landlord shall have no interest in any separate award made to Tenant
for loss of business or goodwill, for the taking of Tenant's trade fixtures,
personal property and unamortized leasehold improvements, or relating solely to
Tenant's statutory right of compensation for its moving expenses. Nothing herein
shall prevent Tenant's pursuit of such separate award for the foregoing items.
17. HOLDING OVER. At the termination of this Lease by its expiration or
otherwise, Tenant shall immediately deliver possession of the Premises to
Landlord with all repairs and maintenance required herein to be performed by
Tenant completed. If, for any reason, Tenant retains possession of the Premises
after the expiration or termination of this Lease, unless the parties hereto
otherwise agree in writing, such possession shall be deemed to be a tenancy at
will only, and all of the other terms and provisions of this Lease shall be
applicable during such period, except that Tenant shall pay Landlord from time
to time, upon demand, as rental for the period of such possession, an amount
equal to one and one-half times the rent in effect on the date of such
termination of this Lease, computed on a daily basis for each day of such
period. No holding over by Tenant, whether with or without consent of Landlord,
shall operate to extend this Lease except as otherwise expressly provided. The
preceding provisions of this paragraph 17 shall not be construed as consent for
Tenant to retain possession of the Premises in the absence of written consent
thereto by Landlord.
18. QUIET ENJOYMENT. Landlord represents that it has the authority to
enter into this Lease and that, so long as Tenant pays all amounts due hereunder
and is not in default under all other covenants and agreements herein set forth
(after lapse of any applicable notice and cure periods), Tenant shall peaceably
and quietly have, hold and enjoy the Premises for the term hereof without
hindrance or molestation from Landlord or any party claiming by, through or
under Landlord, subject to the terms and provisions of this Lease.
19. EVENTS OF DEFAULT. The following events (herein individually
referred to as an "Event of Default") each shall be deemed to be a default in or
breach of Tenant's obligations under this Lease:
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A. Tenant shall fail to pay any installment of the rent herein reserved
when due, or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of ten (10) after the date
Tenant receives written notice thereof from Landlord; provided, however,
Landlord shall be obligated to provide such notice to Tenant, and Tenant shall
have the benefit of such 10-day notice and grace period, only twice during any
twelve-month period.
B. Tenant shall fail to discharge, bond around or otherwise dispose of
any lien placed upon the Premises in violation of paragraph 22 hereof within
thirty (30) days after Tenant receives written notice from Landlord that any
such lien or encumbrance has been filed against the Premises; provided, however,
Tenant may contest such lien as provided in paragraph 22.
C. Tenant shall default in the performance of any of its obligations
under any other lease to Tenant from Landlord, and same shall remain uncured
after the lapsing of any applicable cure periods provided for under such other
lease.
D. Tenant shall fail to comply with any term, provision or covenant of
this Lease (other than those listed above in this paragraph), and shall not cure
such failure within thirty (30) days after written notice thereof from Landlord;
provided, however, if such failure may not reasonably be cured within such
30-day period, then Tenant shall have such additional time as may be necessary
to cure such failure so long as Tenant promptly commenced such cure and
diligently prosecutes it to completion.
20. REMEDIES. Upon each occurrence of an Event of Default, Landlord
shall have the option to pursue any one or more of the following remedies
without any notice or demand, except as otherwise indicated:
(a) Terminate this Lease by giving Tenant written notice thereof;
(b) Enter upon and take possession of the premises without
terminating this Lease, accompanied by written notice to Tenant thereof;
(c) Make such payments and/or take such reasonable action and pay
and/or perform whatever Tenant is obligated to pay or perform under the terms of
this Lease, and Tenant agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action, unless taken in bad faith; and/or
(d) In the case of an Event of Default under paragraph 19A above,
alter all locks and other security devices at the Premises, with or without
terminating this Lease, and pursue, at Landlord's option, one or more remedies
pursuant to this Lease, and Tenant hereby expressly agrees that Landlord shall
not be required to provide to Tenant the new key to the Premises, regardless of
hour, including Tenant's regular business hours; provided that Landlord shall
give Tenant notice of from whom, on a 24-hour basis, Tenant may obtain a new key
to the Premises upon payment in full by Tenant of all past due amounts then
owing under this Lease;
and in any such event Tenant shall immediately vacate the Premises, and if
Tenant fails so to do, Landlord, without waiving any other remedy it may have,
may, to the maximum extent permitted by law and without breaching the peace,
enter upon and take possession of the Premises and expel or remove Tenant and
any other person who may be occupying such Premises or any part thereof, without
being liable for prosecution or any claim of damages therefor, except as
otherwise provided by applicable law.
A. Damages Upon Termination. If Landlord terminates this Lease, at
Landlord's option, Tenant shall be liable for and shall pay to Landlord the sum
of all rental and other payments owed to Landlord hereunder accrued to the date
of such termination, plus, as liquidated damages, an amount equal to (1) the
present value of the total rental and other payments owed hereunder for the
remaining portion of the Lease term discounted at the rate of eight percent (8%)
per annum, calculated as if such term expired on the date set forth in paragraph
1, less (2) the present value of the then fair market rental for the Premises
for such period discounted at the rate of eight percent (8%) per annum.
B. Damages Upon Repossession. If Landlord repossesses the Premises
without terminating this
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Lease, Tenant, at Landlord's option, shall be liable for and shall pay Landlord
on demand all rental and other payments owed to Landlord hereunder, accrued to
the date of such repossession, plus all amounts required to be paid from time to
time by Tenant to Landlord until the date of expiration of the term as stated in
paragraph 1, diminished by all amounts actually received by Landlord through
reletting the Premises during such remaining term (but Tenant shall have no
claim in any amounts received by Landlord in excess of rental and other payments
owed to Landlord hereunder). Actions to collect amounts due by Tenant to
Landlord under this paragraph 20B may be brought when such amounts become due,
without the necessity of Landlord's waiting until expiration of the Lease term.
C. Costs of Reletting, Removing, Repairs and Enforcement. Upon an Event
of Default, in addition to any sum provided to be paid under this paragraph 20,
Tenant also shall be liable for and shall pay to Landlord (i) reasonable
brokers' fees and all other reasonable costs and expenses incurred by Landlord
in connection with reletting the whole or any part of the Premises; (ii) the
reasonable costs of removing, storing or disposing Tenant's or any other
occupant's property; (iii) the reasonable costs of repairing, altering,
remodeling or otherwise putting the Premises into condition acceptable to a new
Tenant or Tenants; (iv) any and all reasonable costs and expenses incurred by
Landlord in effecting compliance with Tenant's obligations under this Lease; and
(v) all reasonable expenses incurred by Landlord in enforcing or defending
Landlord's rights and/or remedies hereunder, including without limitation, all
reasonable attorneys' fees and all court costs incurred in connection with such
enforcement or defense.
D. Late Charge. In the event Tenant fails to make any payment due
hereunder within ten (10) days after the date Tenant receives written notice
thereof from Landlord, including without limitation any rental or escrow
payment, in order to help defray the additional cost to Landlord for processing
such late payments and not as interest, Tenant shall pay to Landlord a late
charge in an amount equal to five percent (5%) of such payment; provided,
however, Landlord shall be obligated to provide such notice to Tenant, and
Tenant shall have the benefit of such 10-day notice and grace period, only twice
during any twelve-month period. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law, and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner.
E. Interest on Past Due Amounts. If Tenant fails to pay any sum which
at any time becomes due to Landlord under any provision of this Lease as and
when the same becomes due hereunder, and such failure continues for sixty (60)
days after the due date for such payment, then Tenant shall pay to Landlord
interest on such overdue amounts from the date due until paid at an annual rate
which equals the lesser of (i) fourteen percent (14%) or (ii) the highest rate
then permitted by law.
F. No Implied Acceptances or Waivers. Exercise by Landlord of any one
or more remedies hereunder granted or otherwise available shall not be deemed to
be an acceptance by Landlord of Tenant's surrender of the Premises, it being
understood that such surrender can be effected only by the written agreement of
Landlord. Tenant and Landlord further agree that forbearance by Landlord to
enforce any of its rights under this Lease or at law or in equity shall not be a
waiver of Landlord's right to enforce any one or more of its rights, including
any right previously forborne, in connection with any existing or subsequent
default. No re-entry or taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease, unless a written
notice of such intention is given to Tenant, and, notwithstanding any such
reletting or re-entry or taking possession of the Premises, Landlord may at any
time thereafter elect to terminate this Lease for a previous default. Pursuit of
any remedies hereunder shall not preclude the pursuit of any other remedy herein
provided or any other remedies provided by law, nor shall pursuit of any remedy
herein provided constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages occurring to Landlord by reason of the violation of
any of the terms, provisions and covenants contained in this Lease. Landlord's
acceptance of any rent following an Event of Default hereunder shall not be
construed as Landlord's waiver of such Event of Default. No waiver by Landlord
of any violation or breach of any of the terms, provisions and covenants of this
Lease shall be deemed or construed to constitute a waiver of any other violation
or default. Notwithstanding anything to the contrary in the foregoing, no
violation or breach of this Lease which has been waived by Landlord or for which
Landlord has forborne its enforcement rights shall constitute an Event of
Default, provided any conditions to such waiver or forbearance have been
satisfied.
G. Reletting of Premises. In the event of any termination of this Lease
and/or repossession of the
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Premises for an Event of Default, Landlord shall use reasonable efforts to relet
the Premises and to collect rental after reletting, with no obligation to accept
any lessee that Landlord deems undesirable or to expend any funds in connection
with such reletting or collection of rents therefrom. Tenant shall not be
entitled to credit for or reimbursement of any proceeds of such reletting in
excess of the rental and other amounts owed hereunder for the period of such
reletting. Landlord may relet the whole or any portion of the Premises for any
period, to any Tenant and for any use or purpose.
H. Landlord's Default. If Landlord fails to comply with or observe any
agreement or perform any of its obligations hereunder within thirty (30) days
after written notice from Tenant specifying such failure (unless such failure
cannot reasonably be cured within such 30-day period and Landlord commences to
cure such failure within such 30-day period and thereafter continuously and
diligently pursues such cure to completion or unless another time period for
such cure is expressly provided for elsewhere in this Lease), then Tenant's
exclusive remedies shall be an action for damages, an action for specific
performance and any other relief expressly granted to Tenant under any other
provision of this Lease. No waiver by Tenant of any violation or breach of any
of the terms contained in this Lease shall waive Tenant's rights regarding any
future violation of such term or violation of any other term. Unless and until
Landlord fails to so cure any default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. All obligations of Landlord
hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of its
possession of the Premises and not thereafter. In the event of the transfer by
Landlord of its interest in the Premises, Landlord shall thereupon be released
and discharged from all covenants and obligations of the Landlord thereafter
accruing, provided, however, that (i) Landlord's transferee must first assume in
writing (a copy of which must be delivered to Tenant) all obligations of
Landlord thereafter arising under this Lease, and (ii) Landlord shall remain
liable for all obligations under this Lease arising from or relating to the
period preceding such transfer. Notwithstanding any other provision of this
Lease, Landlord shall not have any personal liability hereunder. In the event of
any breach or default by Landlord in any term or provision of this Lease, Tenant
agrees to look solely to the equity or interest then owned by Landlord in the
Premises or the Building; however, in no event, shall any deficiency judgment or
any money judgment of any kind be sought or obtained against any Landlord.
I. Tenant's Personal Property. If Landlord repossesses the Premises
pursuant to the authority herein granted, or if Tenant vacates or abandons all
or any part of the Premises, then, in addition to Landlord's rights under
paragraph 26 hereof, Landlord shall have the right to remove and store, all of
the furniture, fixtures and equipment at the Premises, including that which is
owned by or leased to Tenant, at all times prior to any foreclosure thereon by
Landlord or repossession thereof by any lessor thereof or third party having a
lien thereon. In addition to the Landlord's other rights hereunder, Landlord may
dispose of the stored property if Tenant does not claim the property within
thirty (30) days after the date the property is stored. Landlord shall give
Tenant at least thirty (30) days prior written notice of such intended
disposition. Landlord shall also have the right to relinquish possession of all
or any portion of such furniture, fixtures, equipment and other property to any
person ("Claimant") who presents to Landlord a copy of any instrument
represented by Claimant to have been executed by Tenant (or any predecessor of
Tenant) granting Claimant the right under various circumstances to take
possession of such furniture, fixtures, equipment or other property, without the
necessity on the part of Landlord to inquire into the authenticity or legality
of said instrument. The rights of Landlord herein stated shall be in addition to
any and all other rights that Landlord has or may hereafter have at law or in
equity; and Tenant stipulates and agrees that the rights granted Landlord under
this paragraph 20 are commercially reasonable. Landlord hereby waives and
disclaims all statutory, contractual and other Landlord's liens and security
interests relating to Tenant's obligations under this Lease.
J. Abandonment of Premises. If Tenant vacates or abandons all or
substantially all of the Premises for a period of ninety (90) or more
consecutive days, then Landlord shall have the right and option to terminate
this Lease upon written notice to Tenant at any time after the expiration of
such 90-day period and prior to the date on which Tenant re-occupies the
Premises.
21. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter constituting a lien
or charge upon the Premises or the improvements situated thereon or the
Building, provided, however, that if the mortgagee, trustee or holder of any
such mortgage or deed of trust elects to have Tenant's interest in this Lease
superior to any such instrument, then by notice to Tenant from such mortgagee,
trustee or holder, this Lease shall be deemed superior to such lien, whether
this lease was executed
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before or after said mortgage or deed of trust. Tenant, at any time hereafter on
demand, shall execute any instruments, releases or other documents that may be
required by any mortgagee for the purpose of subjecting and subordinating this
Lease to the lien of any such mortgage; provided that (i) such instruments,
releases or other documents shall contain a written agreement that, in the event
of a foreclosure sale or conveyance in lieu of foreclosure, the purchaser at
foreclosure shall not disturb Tenant's possession of the Premises and shall
recognize Tenant's rights under the Lease so long as Tenant is not in default
under the Lease (or the holder of such mortgage has delivered such
non-disturbance agreement to Tenant in a separate instrument), (ii) such
instruments, releases or other documents shall not modify the terms of the Lease
or increase Tenant's obligations or liabilities under the Lease and (iii) so
long as Landlord is not in default under such Mortgage and Tenant is not in
default under the Lease, such instrument will provide that insurance proceeds
will be applied to restoration of the Premises as required under this Lease.
Tenant shall not terminate this Lease or pursue any other remedy available to
Tenant hereunder for any default on the part of Landlord without first giving
written notice by certified or registered mail, return receipt requested, to any
mortgagee, trustee or holder of any such mortgage or deed of trust, the name and
post office address of which Tenant has received written notice, specifying the
default in reasonable detail and affording such mortgagee, trustee or holder the
same opportunity given to Landlord hereunder to make performance, at its
election, for and on behalf of Landlord.
22. MECHANIC'S LIENS. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Landlord or Tenant in the Premises.
Tenant will save and hold Landlord harmless from any and all loss, cost or
expense, including without limitation attorneys' fees, based on or arising out
of asserted claims or liens against the leasehold estate or against the right,
title and interest of the Landlord in the Premises or under the terms of this
Lease. Tenant shall have the right to contest in good faith the validity or
existence of any such lien by appropriate procedures, provided that Tenant shall
bond around or otherwise dispose of such lien within thirty (30) days after
Tenant receives written notice from Landlord that such lien has been filed
against the Premises.
23. MISCELLANEOUS.
A. Interpretation. The captions inserted in this Lease are for
convenience only and in no way define, limit or otherwise describe the scope or
intent of this Lease, or any provision hereof, or in any way affect the
interpretation of this Lease. Unless the context otherwise requires, when used
in this Lease words of any gender contain the other gender, words in the
singular include the plural, words in the plural include the singular, and words
such as, "without limitation", "herein" and "hereof" refer to this Lease, in its
entirety (including the Exhibits attached to this Lease) or as expressly limited
in connection with the use of such words.
B. Binding Effect. Except as otherwise herein expressly provided, the
terms, provisions and covenants and conditions in this Lease shall apply to,
inure to the benefit of and be binding upon the parties hereto and upon their
respective heirs, executors, personal representatives, legal representatives,
successors and assigns. Landlord shall have the right to transfer and assign, in
whole or in part, its rights and obligations in the Premises and in the Building
and other property that are the subject of this Lease.
C. Evidence of Authority. Tenant and Landlord agree to furnish to the
other, promptly upon demand, a corporate resolution, proof of due authorization
by partners or other appropriate documentation evidencing the due authorization
of such party to enter into this Lease.
D. Force Majeure. Whenever a period of time is herein prescribed for
action to be taken by either Landlord or Tenant, other than for obligations
which can be cured by the payment of money (e.g., maintaining insurance or
payment of rent), if the performance by Landlord or Tenant of its obligations
hereunder is delayed or prevented by material shortages, acts of God, labor
disputes or other events beyond the control of Landlord or Tenant, then the
period for performance by Landlord or Tenant shall be automatically extended for
the same amount of time that Landlord or Tenant has been so delayed or hindered.
E. Payments Constitute Rent. Notwithstanding anything in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated as rent, shall constitute rent.
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<PAGE> 15
22. MECHANIC'S LIENS. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Landlord or Tenant in the Premises.
Tenant will save and hold Landlord harmless from any and all loss, cost or
expense, including without limitation attorneys' fees, based on or arising out
of asserted claims or liens against the leasehold estate or against the right,
title and interest of the Landlord in the Premises or under the terms of this
Lease. Tenant shall have the right to contest in good faith the validity or
existence of any such lien by appropriate procedures, provided that Tenant shall
bond around or otherwise dispose of such lien within thirty (30) days after
Tenant receives written notice from Landlord that such lien has been filed
against the Premises.
23. MISCELLANEOUS.
A. Interpretation. The captions inserted in this Lease are for
convenience only and in no way define, limit or otherwise describe the scope or
intent of this Lease, or any provision hereof, or in any way affect the
interpretation of this Lease. Unless the context otherwise requires, when used
in this Lease words of any gender contain the other gender, words in the
singular include the plural, words in the plural include the singular, and words
such as, "without limitation", "herein" and "hereof" refer to this Lease, in its
entirety (including the Exhibits attached to this Lease) or as expressly limited
in connection with the use of such words.
B. Binding Effect. Except as otherwise herein expressly provided, the
terms, provisions and covenants and conditions in this Lease shall apply to,
inure to the benefit of and be binding upon the parties hereto and upon their
respective heirs, executors, personal representatives, legal representatives,
successors and assigns. Landlord shall have the right to transfer and assign, in
whole or in part, its rights and obligations in the Premises and in the Building
and other property that are the subject of this Lease.
C. Evidence of Authority. Tenant and Landlord agree to furnish to the
other, promptly upon demand, a corporate resolution, proof of due authorization
by partners or other appropriate documentation evidencing the due authorization
of such party to enter into this Lease.
D. Force Majeure. Whenever a period of time is herein prescribed for
action to be taken by either Landlord or Tenant, other than for obligations
which can be cured by the payment of money (e.g., maintaining insurance or
payment of rent), if the performance by Landlord or Tenant of its obligations
hereunder is delayed or prevented by material shortages, acts of God, labor
disputes or other events beyond the control of Landlord or Tenant, then the
period for performance by Landlord or Tenant shall be automatically extended for
the same amount of time that Landlord or Tenant has been so delayed or hindered.
E. Payments Constitute Rent. Notwithstanding anything in this Lease to
the contrary, all amounts payable by Tenant to or on behalf of Landlord under
this Lease, whether or not expressly denominated as rent, shall constitute rent.
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F. Estoppel Certificates. Landlord and Tenant agree, from time to time,
within ten (10) business days after written request of the other party, to
deliver to the other party or such party's designee, an estoppel certificate
stating whether this Lease is in full force and effect, the date to which rent
has been paid, the unexpired term of this Lease, any defaults existing under
this Lease (or the absence thereof) and such other factual or legal matters
pertaining to this Lease as may be reasonably requested by the requesting party.
G. Entire Agreement. This Lease constitutes the entire understanding
and agreement of Landlord and Tenant with respect to the subject matter of this
Lease, and contains all of the covenants and agreements of Landlord and Tenant
with respect thereto. Landlord and Tenant each acknowledge that no
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises, negotiations
or representations not expressly set forth in this Lease are of no force or
effect. THIS LEASE, INCLUDING ONLY THE EXHIBITS ATTACHED HERETO, EMBODIES THE
ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ALL PRIOR AGREEMENTS AND
UNDERSTANDINGS, INCLUDING ANY LETTERS OF INTENT, IF ANY, RELATING TO THE SUBJECT
MATTER HEREOF. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, LANDLORD HAS NOT
MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR WARRANTIES WITH REGARD
TO THE BUILDING, PREMISES OR OTHERWISE, EXPRESSED OR IMPLIED. IN PARTICULAR,
LANDLORD HAS NOT AUTHORIZED ANY AGENT OR BROKER TO MAKE A REPRESENTATION OR
WARRANTY IN ADDITION TO OR INCONSISTENT WITH THE TERMS OF THIS LEASE AND TENANT
MAY NOT RELY ON ANY SUCH ADDITIONAL OR INCONSISTENT REPRESENTATION OR WARRANTY.
Landlord's agents and employees do not and will not have authority to make
exceptions, changes or amendments to this Lease, or factual representations not
expressly contained in this Lease. Under no circumstances shall Landlord or
Tenant be considered an agent of the other. This Lease may not be altered,
changed or amended except by an instrument in writing signed by both parties
hereto. Notwithstanding the foregoing, Landlord and Tenant acknowledge their
execution of that certain Escrow Agreement of even date herewith relating to a
prior lease by Tenant of other space in Travis County, Texas.
H. Survival of Obligations. All obligations of Landlord and Tenant
hereunder not fully performed as of the expiration or earlier termination of the
term of this Lease shall survive the expiration or earlier termination of the
term hereof, including without limitation all payment obligations with respect
to taxes and insurance and all obligations concerning the condition and repair
of the Premises. Upon the expiration or earlier termination of the term hereof,
and prior to Tenant vacating the Premises, Tenant shall deliver to Landlord the
Premises in substantially the same condition as on the Commencement Date,
reasonable wear and tear, permitted alterations and improvements and casualty
and condemnation excluded. Tenant shall also, within thirty (30) days after
vacating the Premises, pay to Landlord the amount, as reasonably estimated by
Landlord in good faith, of Tenant's obligation hereunder for real estate taxes
and insurance premiums for the year in which the Lease expires or terminates.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for Tenant's share of
any additional costs therefor within thirty (30) days after demand by Landlord,
or with any excess to be returned to Tenant within thirty (30) days after all
such obligations have been determined and satisfied, as the case may be.
I. Severability of Terms. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws effective during
the term of this Lease, then, in such event, it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and it is
also the intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, there be
added, as a part of this Lease, a clause or provision as similar in terms to
such illegal, invalid or unenforceable clause or provision as may be possible
and be legal, valid and enforceable.
J. Effective Date. All references in this Lease to "the date hereof" or
similar references shall be deemed to refer to the last date, in point of time,
on which all parties hereto have executed this Lease.
K. Brokers' Commissions. Landlord and Tenant represent and warrant to
each other that neither has dealt with nor will deal with any broker, agent or
other person in connection with this transaction or future related
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transactions and that no broker, agent or other person brought about this
transaction, and Landlord and Tenant each agree to indemnify and hold the other
harmless from and against any claims by any broker, agent or other person
claiming a commission or other form of compensation by virtue of having dealt
with the indemnifying party with regard to this leasing transaction.
L. Equal Participation; Ambiguity. Landlord and Tenant hereby agree and
acknowledge that this Lease has been fully reviewed and negotiated by both
Landlord and Tenant, and that Landlord and Tenant have each had the opportunity
to have this Lease reviewed by their respective legal counsel, and, accordingly,
in the event of any ambiguity herein, Tenant and Landlord hereby waive the rule
of construction that such ambiguity shall be resolved against the party who
prepared the final version or any earlier draft of this Lease.
M. Third Party Rights. Nothing herein expressed or implied is intended,
or shall be construed, to confer upon or give to any person or entity, other
than the parties hereto, any right or remedy under or by reason of this Lease.
N. Exhibits and Attachments. All exhibits, attachments, riders and
addenda referred to in this Lease, and the exhibits listed herein below and
attached hereto, are incorporated into this Lease and made a part hereof for all
intents and purposes as if fully set out herein. All capitalized terms used in
such documents shall, unless otherwise defined therein, have the same meanings
as are set forth herein.
O. Applicable Law. This Lease has been executed in the State of Texas
and shall be governed in all respects by the laws of the State of Texas. It is
the intent of Landlord and Tenant to conform strictly to all applicable state
and federal usury laws. All agreements between Landlord and Tenant, whether now
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency or event whatsoever shall the amount
contracted for, charged or received by Landlord for the use, forbearance or
retention of money hereunder or otherwise exceed the maximum amount which
Landlord is legally entitled to contract for, charge or collect under the
applicable state or federal law. If, from any circumstance whatsoever,
fulfillment of any provision hereof at the time performance of such provision
shall be due shall involve transcending the limit of validity prescribed by law,
then the obligation to be fulfilled shall be automatically reduced to the limit
of such validity, and if from any such circumstance Landlord shall ever receive
as interest or otherwise an amount in excess of the maximum that can be legally
collected, then such amount which would be excessive interest shall be applied
to the reduction of rent hereunder, and if such amount which would be excessive
interest exceeds such rent, then such additional amount shall promptly be
refunded to Tenant.
24. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing, telecopying or delivering of notice or the making of
any payment by Landlord to Tenant or with reference to the sending, mailing,
telecopying or delivering of any notice or the making of any payment by Tenant
to Landlord shall be deemed to be complied with when and if the following steps
are taken:
(i) All rent and other payments required to be made by Tenant
to Landlord hereunder shall be payable to Landlord at the address for Landlord
set forth below or at such other address as Landlord may specify from time to
time by written notice delivered in accordance herewith. Tenant's obligation to
pay rent and any other amounts to Landlord under the terms of this Lease shall
not be deemed satisfied until such rent and other amounts have been actually
received by Landlord.
(ii) All payments required to be made by Landlord to Tenant
hereunder shall be payable to Tenant at the address set forth below, or at such
other address within the continental United States as Tenant may specify from
time to time by written notice delivered in accordance herewith.
(iii) Except as expressly provided herein, any written
notice, document or payment required or permitted to be delivered by hand or
facsimile transmission (in the later case, subject to electronic confirmation)
hereunder shall be deemed to be delivered when received, and any other notice
hereunder shall be deemed to be delivered, whether actually received or not,
when deposited in the United States Mail, postage prepaid, Certified or
Registered Mail, addressed to the parties hereto at the respective addresses
set out below, or at such
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other address as they have theretofore specified by written notice delivered in
accordance herewith.
25. CONDITION OF PREMISES. TENANT WAIVES THE BENEFIT OF ANY AND ALL
IMPLIED WARRANTIES, INCLUDING IMPLIED WARRANTIES OF FITNESS OR SUITABILITY FOR
PURPOSE.
EXECUTED BY LANDLORD, this ___ day of ________________, 1997.
BRAKER PHASE III, LTD.
By: 2800 Industrial, Inc.
General Partner
By: _____________________
D. Kent Lance, Jr.
Vice President
Address: c/o Hill Partners, Inc.
2800 Industrial Terrace
Austin, Texas 78758
Telecopy No. 512-835-1222
EXECUTED BY TENANT, this ____ day of _______________, 1997.
XETEL CORPORATION
By: _____________________________
Name: _____________________________
Title: _____________________________
Address: 2525 Brockton Drive
Austin, Texas 78758
Telecopy No. 512-834-9250
EXHIBIT "A" - Property Description
EXHIBIT "B" - Site Plan of Premises
EXHIBIT "C" - Tenant Improvements
EXHIBIT "C-1" - Index to Tenant Improvement Plans
EXHIBIT "D" - Operating Expenses
EXHIBIT "E" - Additional Permitted Materials
EXHIBIT "F" - Punchlist Items
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EXHIBIT "A"
Property Description
Lot 2B, Resubdivision of Lot 2, STONEHOLLOW SECTION TWO, a subdivision
of Travis County, Texas, according to the map or plat thereof recorded
in Volume 99, Pages 142-143, of the Plat Records of Travis County,
Texas.
<PAGE> 20
EXHIBIT "B"
Site Plan of Premises
[To be attached by agreement between Landlord and Tenant prior to
the Commencement Date.]
<PAGE> 21
EXHIBIT "C"
Tenant Improvements
Tenant shall construct the Tenant Improvements in accordance with the
Tenant Improvement Plans. Prior to commencing the Tenant Improvements, Tenant
shall deliver to Landlord a current certificate of insurance evidencing Tenant's
maintenance of insurance as required under paragraph 9.B of the Lease with
respect to Tenant's construction of the Tenant Improvements. Subject to the
conditions hereinafter set forth, Landlord will thereafter provide Tenant with
an allowance of up to Two Hundred Forty-Two Thousand Nine Hundred Twenty and
19/100 Dollars ($242,920.19) (the "Tenant Improvement Allowance"). The Tenant
Improvement Allowance shall be used for architectural and engineering fees and
costs for actual construction material and labor associated with construction of
the Tenant Improvements. Landlord neither presumes nor insures that the Tenant
Improvement Allowance will completely cover the improvements as contemplated by
Tenant. Landlord shall pay the Tenant Improvement Allowance to Tenant within
thirty (30) days after Tenant's delivery to Landlord of all of the following
items: (i) all permits or approvals required by appropriate governmental
authority, if any, in connection with construction of the Tenant Improvements
and Tenant's occupancy of the Premises, including, without limitation, a
building permit and certificate of occupancy, (ii) invoices for all labor and
materials used in constructing the Tenant Improvements, (iii) final and
unconditional lien releases and waivers, in proper form, from all contractors
and subcontractors providing labor or materials for construction of the Tenant
Improvements and (iv) certificates of substantial completion from Tenant's
architect and original contractor(s) certifying to Landlord that the Tenant
Improvements have been substantially completed in accordance with the Tenant
Improvement Plans and in compliance with all applicable governmental codes and
ordinances. The exact amount of the Tenant Improvement Allowance paid to Tenant
hereunder shall be the sum total of all invoices submitted to Landlord in
connection with construction of the Tenant Improvements, up to the maximum
stated above.
<PAGE> 22
EXHIBIT "C-1"
Index to Tenant Improvement Plans
<PAGE> 23
D-3
EXHIBIT "D"
Operating Expenses
1. Tenant shall pay to Landlord Tenant's Pro Rata Share of Operating
Expenses in accordance with the following:
a. "Operating Expenses" shall be computed in accordance with good
accounting practice on an accrual basis and shall mean all noncapital costs,
expenses and disbursements of every kind and nature, to the extent customarily
included within the definition of "operating expenses" in leases of similar
buildings in Austin, Texas, that Landlord shall pay or become obligated to pay
in connection with the ownership, management, operation and/or maintenance of
the Building or the Project (provided that references to the "Project" in this
paragraph 1a of EXHIBIT "D" shall not refer to the buildings within the Project
unless the context requires otherwise), which costs and expenses shall include,
but not be limited to, the following:
I. all taxes, assessments, and other governmental charges,
whether federal, state, county or municipal, and whether they be by taxing
districts or authorities, taxing the Premises, including any tax levied against
rent payable under this Lease, but excluding federal and state income taxes, net
profits taxes, franchise taxes and estate and inheritance taxes;
<PAGE> 24
ii. all costs and expenses of operating, maintaining and
repairing the Building or the Project in connection with Landlord's
performance of its obligations under paragraph 3 of the Lease or
otherwise, except those costs and expenses which are paid by Tenant or
reimbursed to Landlord by other tenants;
iii. costs of all utilities for the Building or the Project,
including the cost of electricity, gas, water, and sewer services, but
excluding the cost of any such utilities charged directly to and paid
by Tenant or any other tenant of the Building or the Project.
iv. all supplies and materials used in the operation
and maintenance of the Building or the Project, but excluding the cost
or value of rent reductions, tenant improvement allowances and other
concessions given by Landlord to any other tenant of the Building or
the Project;
v. the cost of all insurance relating to the Building
or the Project, including the cost of casualty and liability insurance
applicable to the Building or the Project and Landlord's personal
property used in connection therewith;
vi. amortization in accordance with generally
accepted accounting principles of costs of, or rental expenses for, any
machinery, equipment or other improvements installed by Landlord for
the purpose of (i) reducing energy costs in the Building or the Project
or other Operating Expenses or (ii) causing the Building or the Project
to comply with any applicable law, ordinance or regulation enacted
after the Commencement Date, but excluding such amortization costs or
rental expenses incurred with respect to machinery, equipment or
improvements installed for the exclusive benefit of another tenant in
the Project;
vii. amortization in accordance with generally
accepted accounting principles of the costs of capital improvements
reasonably made by Landlord to the Building or the Project (A) for
purposes of improving the Building or the Project in connection with
Landlord's performance of its obligations under paragraph 3 of the
Lease, or (B) for purposes of reducing Operating Expenses, but in all
events excluding improvements installed for the exclusive benefit of
another tenant of the Project;
viii. general maintenance costs and expenses incurred
in connection with the Building or the Project (including security,
maintenance of all landscaping, waste removal, nontenant alterations
and decorations, repairs to any part of the Building or the Project,
and all labor utilized and supplies consumed with respect to any
general Building or Project maintenance);
ix. management costs of the Building or the Project
(including any management fee payable by Landlord with respect to the
Building or the Project (but in no event to exceed customary and
standard management fees paid in arms length transactions), audit and
accounting expenses, and legal fees) but excluding leasing and
brokerage commissions and legal fees incurred in connection with
Landlord's leasing of the Building or the Project or involving disputes
with other tenants of the Project; and
x. wages, salaries, fees, pension benefits, taxes,
unemployment and disability insurance, worker's compensation insurance,
social security benefits and any other expenses reasonably incurred
with respect to all personnel engaged in the operation, maintenance,
leasing or security of the Building or the Project.
Operating Expenses shall exclude expenses due to:
i. personal property taxes owed by other tenants of
any building of the Project;
ii. penalties and interest for late payment of taxes
due by Landlord and timely paid by Tenant, or due to violation of laws
or governmental regulations;
iii. casualty losses and public liability claims paid
by third parties or which would be paid by third parties in the event
Landlord was in full compliance with its insurance obligations under
paragraph 9A of the Lease;
iv. interest or principal payments on debts of
Landlord secured by the Premises, the Building or the Project;
v. costs of work or services furnished or performed
on behalf of other tenants at such tenant's costs;
vi. fees payable to affiliates of Landlord outside
the range of fees payable for similar services in the Austin area in an
arms length transaction;
vii. costs of maintaining and repairing buildings or
parking areas within the Project outside of the Premises; and
viii. capital repairs or improvements made to the
Building which are covered by Landlord's warranties under the Lease or
which are performed to correct design or structural defects or to bring
the Building into conformity with applicable building codes in effect
at the time of the construction of the Building.
b. Tenant's Pro Rata Share of Operating Expenses. Tenant's Pro
Rata Share of Operating Expenses for any Lease Year shall be equal to the
product of (i) Tenant's Pro Rata Share as determined pursuant to paragraph 2C of
the Lease multiplied by (ii) the Operating Expenses for a Lease Year. As used
herein, "Lease Year" shall mean a period of twelve (12) consecutive calendar
months commencing on the first (1st) day of January and ending on the
thirty-first (31st) day of December; provided that, the first (1st) Lease Year
shall commence on the Commencement Date and end on the thirty-first (31st) day
of December of the same calendar year as the Commencement Date, and the last
Lease Year shall end on the last day of the term of the Lease.
c. Estimated Expenses. Tenant's Pro Rata Share of Operating
Expenses for each Lease Year of the term of the Lease shall be estimated in good
faith by Landlord, and notice of the estimated amounts will be given to Tenant
at least fifteen (15) days before the Commencement Date and at least thirty (30)
days before the beginning of each Lease Year thereafter. For each full Lease
Year of the Lease term, Tenant shall pay to Landlord each month, as additional
rent, at the same time the monthly installment of Base Rental is due, an amount
equal to one-twelfth (1/12) of the estimated Tenant's Pro Rata Share of
Operating Expenses due for that Lease Year. If the first and last Lease Years
are less than full calendar years, then Tenant shall pay to Landlord, each month
for those Lease Years, an amount equal to the amount of estimated Tenant's Pro
Rata Share of Operating Expenses for the partial Lease Year divided by the
number of full calendar months in the partial year.
d. Estimate Revisions. At any time, and from time to time,
during the Lease term, Landlord may, by giving notice to Tenant, change the
monthly amount then payable by Tenant for Tenant's estimated Pro Rata Share of
Operating Expenses to reflect the actual Tenant's Pro Rata Share of Operating
Expenses for the then current Lease Year more accurately. If Landlord's notice
increases the estimated amount of Tenant's Pro Rata Share of Operating Expenses,
Landlord shall include with such notice copies of operating statements, invoices
or other information reasonably supporting the revised estimation. Tenant shall
begin paying the revised estimated amount with the next monthly payment of Base
Rental due after receipt by Tenant of Landlord's notice.
e. Annual Adjustments. On or before June 1 of each Lease Year,
Landlord will prepare and deliver to Tenant a statement setting forth the
calculation of the actual Tenant's Pro Rata Share of Operating Expenses for the
previous Lease Year. Within thirty (30) days after receipt of the statement of
the actual Tenant's Pro Rata Share of Operating Expenses, Tenant shall pay to
Landlord, or Landlord will credit against the next rental or other payment or
payments due from Tenant, as the case may be, the difference between the actual
Tenant's Pro Rata Share of Operating Expenses for the preceding Lease Year and
the estimated Tenant's Pro Rata Share of Operating Expenses paid by Tenant
during that Lease Year; provided, however, if Tenant is entitled to a credit
against its next rental or other payment due to Landlord as provided above,
Tenant may, at its option, within five (5) days after receipt of Landlord's
statement of the actual Tenant's Pro Rata Share of Operating Expenses, request
in writing a cash payment in lieu of such credit, which cash payment Landlord
shall deliver to Tenant within thirty (30) days after receipt of such request.
f. Final Partial Year. If the Lease term expires, or this
Lease terminates, before a final determination of the actual Tenant's Pro Rata
Share of Operating Expenses, then the amount of adjustment between the estimated
Tenant's Pro Rata Share and the actual Tenant's Pro Rata Share of Operating
Expenses payable for the preceding Lease Year and/or the final partial Lease
Year of the Lease term will be estimated by Landlord, in good faith, based on
the best data available to Landlord at the time of the estimate. Before the
scheduled last day of the Lease term, or as soon as possible (but in no event
more than sixty (60) days) after an earlier termination date, an adjustment will
be made between Landlord and Tenant. The obligations set forth in the preceding
sentence shall survive the expiration or earlier termination of this Lease.
g. Calculation of Rentable Area. As used in the Lease, the
term "Rentable Area" shall mean and refer to the gross area as determined by the
roofline of the building in question. The Rentable Area of the Premises has been
calculated on the basis of the foregoing definition in general, and is hereby
stipulated for all purposes hereof to be 50,464 square feet, whether the same
should be more or less as a result of minor variations resulting from actual
construction and completion of the Premises or the Building. The term "Rentable
Area of the Project" shall mean the aggregate total of the Rentable Area of all
buildings constructed within the Project, including the Premises. If during the
term of this Lease the dimensions of the Premises are amended to increase or
decrease the space included within the Premises, the Rentable Area of the
Premises shall be amended accordingly.
2. Within ninety (90) days after Landlord provides Tenant with the
notice required by paragraph 1c above, Tenant may question the amount of or
propriety of any item included therein or excluded therefrom. Landlord agrees to
maintain complete and accurate records of all Operating Expenses for two (2)
years after the close of the calendar year (or portion thereof) to which they
pertain. Tenant shall have the right to audit Landlord's books and records
relating to Tenant's Pro Rata Share of Operating Expenses for the two (2)
immediately preceding Lease Years. If such audit is performed by a certified
public accountant, reasonably approved by Landlord, and establishes that
Landlord's computation of Tenant's Pro Rata Share of Operating Expenses for any
such Lease Year exceeds the actual amount of Tenant's Pro Rata Share of
Operating Expenses for such year by more than five percent (5%) of such actual
amount, then Landlord shall reimburse Tenant for Tenant's reasonable expenses
incurred in connection with such audit. If such audit establishes that
Landlord's computation of Tenant's Pro Rata Share of Operating Expenses does not
exceed the actual amount of Tenant's Pro Rata Share of Operating Expenses for
such year by five percent (5%) or less of such actual amount, then Tenant shall
reimburse Landlord for Landlord's reasonable expenses incurred in connection
with such audit. According to the findings of such audit, Landlord shall, at
Tenant's election, credit Tenant's rent or refund to Tenant all overpaid
amounts, if applicable, or Tenant shall pay to Landlord all underpaid amounts,
if applicable.
E-2
<PAGE> 25
EXHIBIT "E"
Additional Permitted Materials
<PAGE> 26
EXHIBIT "F"
Punchlist Items
[To be attached by agreement between Landlord and Tenant prior to
the Commencement Date.]
<PAGE> 1
Exhibit 11.1
XETEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted average shares outstanding 8,840 8,772 8,824 8,683
======== ======== ======== ========
Net (loss) income $ (388) $ (334) $ 128 $ 144
======== ======== ======== ========
Basic (loss) earnings per share $ (0.04) $ (0.04) $ 0.01 $ 0.02
======== ======== ======== ========
Diluted earnings per share:
Weighted average shares outstanding 8,840 8,772 8,824 8,683
Common stock equivalents: stock options(1) (2) -- -- 734 649
-------- -------- -------- --------
8,840 8,772 9,558 9,332
======== ======== ======== ========
Net (loss) income $ (388) $ (334) $ 128 $ 144
======== ======== ======== ========
Diluted (loss) earnings per share $ (0.04) $ (0.04) $ 0.01 $ 0.02
======== ======== ======== ========
</TABLE>
(1) Stock options based on the treasury stock method using average market price.
(2) Common stock equivalents were 577,000 and 649,000 for the three months ended
December 27, 1997 and December 28, 1996, respectively. Common stock equivalents
are included in the computation of diluted weighted average shares outstanding
only during periods that their inclusion would be dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> MAR-30-1997
<PERIOD-END> DEC-27-1997
<CASH> 5,983
<SECURITIES> 0
<RECEIVABLES> 16,484
<ALLOWANCES> 240
<INVENTORY> 16,169
<CURRENT-ASSETS> 39,683
<PP&E> 17,016
<DEPRECIATION> 8,715
<TOTAL-ASSETS> 48,774
<CURRENT-LIABILITIES> 18,635
<BONDS> 0
0
0
<COMMON> 21,020
<OTHER-SE> 6,097
<TOTAL-LIABILITY-AND-EQUITY> 48,774
<SALES> 27,772
<TOTAL-REVENUES> 27,772
<CGS> 26,842
<TOTAL-COSTS> 28,378
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (20)
<INCOME-PRETAX> (626)
<INCOME-TAX> (238)
<INCOME-CONTINUING> (388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (388)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
