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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: SEPTEMBER 27, 1997
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4817
BOWMAR INSTRUMENT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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INDIANA 35-0905052
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
5080 NORTH 40TH STREET, SUITE 475 85018
PHOENIX, ARIZONA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 602/957-0271
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, WITHOUT PAR VALUE AMERICAN STOCK EXCHANGE
(STATED VALUE $.10 PER SHARE)
$3.00 SENIOR VOTING CUMULATIVE CONVERTIBLE AMERICAN STOCK EXCHANGE
PREFERRED STOCK
(PAR VALUE $1.00 PER SHARE)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 15, 1997, the aggregate market value of the Registrant's Common
Stock and Preferred Stock held by non-affiliates (based upon the closing price
of the shares on the American Stock Exchange on December 15, 1997) was
approximately $14,221,000.
On December 15, 1997 6,674,492 shares of the Registrant's Common Stock and
119,906 shares of the Registrant's Preferred Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement prepared in connection with the 1998
Annual Meeting of Shareholders are incorporated by reference into PART III of
this Annual Report.
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TABLE OF CONTENTS
PART I
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PAGE
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Item 1 Business
Forward Looking Statements and Associated Risks............................... 2
General....................................................................... 2
Narrative Description of Business............................................. 2
Recent Developments........................................................... 2
Microelectronic Circuits and Components....................................... 3
Microelectronic Segment Review................................................ 3
Electromechanical and Mechanical Equipment and Components..................... 4
Electromechanical Segment Review.............................................. 4
Principal Customers........................................................... 5
Research, Engineering and Development......................................... 5
Regulatory Matters............................................................ 5
Employees..................................................................... 6
Executive Officers of the Company............................................. 6
Item 2 Properties.................................................................... 7
Item 3 Legal Proceedings............................................................. 7
Item 4 Submission of Matters to a Vote of Security Holders........................... 7
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters..... 8
Item 6 Selected Financial Data....................................................... 8
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 9
Item 8 Financial Statements and Supplementary Data................................... 11
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 11
PART III
Item 10 Directors and Executive Officers of the Registrant............................ 11
Item 11 Executive Compensation........................................................ 12
Item 12 Security Ownership of Certain Beneficial Owners and Management................ 12
Item 13 Certain Relationships and Related Transactions................................ 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............... 12
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PART I
ITEM 1 BUSINESS
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for the historical information contained herein, certain matters
discussed in this document contain forward-looking statements. The words
"believe", "expect" and "anticipate" identify forward-looking statements which
speak only as of the date the statement is made. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risk and uncertainties, some of which cannot be predicted or
quantified and are beyond the Company's control. Potential risks and
uncertainties include but are not limited to such factors as the ability of the
Company to identify a potential buyer for the Technologies division and to
conclude a beneficial agreement in a timely fashion, the ability of the Company
to conclude such a sale without substantial disruption to the business of the
Technologies division, demand for the products of the White Microelectronics
division, the ability of the Company to penetrate successfully the commercial
market for microelectronic products, demand for microelectronic products
generally, industry competitiveness, reductions in price and other risks of
doing business generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this document
will in fact transpire or prove to be accurate. Actual results may differ
materially from those in the forward-looking statements.
GENERAL
Bowmar Instrument Corporation ("Bowmar") was incorporated in the State of
Indiana in 1951. Bowmar and its subsidiaries (hereinafter referred to
collectively as the "Company") manufacture and sell microelectronic and
electromechanical products. The Company manufactures and sells electromechanical
and mechanical equipment and components, which include electromechanical display
devices, electromechanical components and packages, turnkey interface systems,
electromechanical packages and systems and microelectronic circuits and
components, which include high density solid state memory modules and
microprocessor modules and multichip modules.
NARRATIVE DESCRIPTION OF BUSINESS
RECENT DEVELOPMENTS
Acting upon the recommendations of management, on December 4, 1997, the Board of
Directors determined to implement a series of actions designed to strategically
reposition the Company, reduce Corporate overhead and realign management. The
Board of Directors has concluded that these steps are in the best interest of
the Company and its shareholders.
First, the Board of Directors has determined to seek a buyer for the Company's
Technologies division in Ft. Wayne, Indiana. Although the Company has received
several unsolicited inquiries from third parties interested in acquiring the
division, it is not yet in serious discussions with any particular potential
buyer. Changes over the past few years in U.S. defense spending have had a
negative impact on the Technologies division. The Company has sought to minimize
that negative impact by pursuing commercial business for the division. Although
in fiscal 1997 the Technologies division made progress by substantially
increasing its new business bookings in the third and fourth quarters of the
year, the rapid growth in business during that time strained the division's
capacities. New personnel hired to handle the increased demand drove up costs.
As a result, the division experienced a $51,000 pre-tax loss for the year.
Meanwhile, the Company's White Microelectronics division has continued to grow.
The division's sales for fiscal 1997 were almost 18% over sales for fiscal 1996.
Gross margin in the Microelectronics division also increased 15% over fiscal
1996. Changes in U.S. defense spending have not had the same adverse effect on
the Microelectronics division because of the nature of its products and its
competitive advantages in the military niche market that it services.
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The Company has retained an investment advisor to assist it in its efforts to
sell the Technologies division. There can be no assurance that the Board of
Directors will be able to identify a suitable buyer, or any buyer at all, or
that if a sale is concluded it will be on terms and conditions advantageous to
the Company.
In light of the decision to sell the Technologies division, the Board of
Directors concluded that the Company could realize additional overhead savings
by closing the Company's Corporate headquarters in Phoenix, Arizona as soon as
reasonably possible, but in any event by the end of January, 1998. The Company
will operate exclusively out of the new White Microelectronics division facility
also located in Phoenix, Arizona.
The Board of Directors believes that these steps will result in a strategic
repositioning of the Company as a pure Microelectronics company, focused
exclusively on that segment of the business which has demonstrated the greatest
probability of long-term success. The Company's President and Chief Executive
Officer, Tom Lanin, has submitted his resignation effective January 2, 1998. The
Board has determined to appoint Hamid Shokrgozar, the White Microelectronics
division's current President, as President and CEO of the Company. Mr. Lanin
will remain with the Company in his capacity as a Director, serving on the Board
of Directors through his current term. Management expects to nominate Mr. Lanin
for reelection to the Board in fiscal 1998. Mr. Lanin also will remain available
to the Company to facilitate the transition and to assist Mr. Shokrgozar as he
assumes his duties.
MICROELECTRONIC CIRCUITS AND COMPONENTS
The products designed, manufactured and sold by the Company in its
microelectronic division (also referred to as the White Microelectronics
division) include high density, solid state memory products and microprocessor
circuits in both monolithic and modular form (multichip modules) for use in
commercial, industrial and military markets in U.S. and abroad.
High Density, Solid State Memory and Microprocessor Modules
The Company designs and manufactures high density, solid state memory modules
and microprocessor microcircuits. The memory modules are designed specifically
for use in adverse environmental conditions. They are designed to provide larger
amounts of mass memory, space reduction and faster data processing speeds. They
are used in both military and commercial applications and include static RAM
modules (SRAM), electronically erasable PROM modules (EEPROM), and Flash PROM
modules. The family of microprocessor modules supports the development of highly
complex systems including application-specific analog, mixed analog-digital and
logic functions. These products are designed to serve state-of-the-art high end
industrial and military markets and are intended to be used in portable, mobile
land-based, airborne and naval applications as well as high end data
communication and data processing systems.
Multichip Modules
The Company designs and manufactures highly reliable, compact multichip modules
(MCM's). Multichip modules are used as components in a broad spectrum of
electronic devices where circuit reliability and size reduction is important. A
multichip module is a packaging technique that places several semiconductor
chips, interconnected with a high density substrate, into a compact package.
These can be designed to perform a wide variety of electronic functions, such as
amplifiers, regulators, switches, data converters, oscillators and decoders.
They are sold to original equipment manufacturers serving principally the
military market, as well as the aerospace, medical and high temperature markets.
MICROELECTRONIC SEGMENT REVIEW
The products designed, manufactured, and sold by the Company in its
microelectronic segment are sold to private industry and to the United States
and foreign governments both through Company sales personnel and independent
sales representatives and distributors. In a time of strong demand for memory
and microprocessor products, as at present, sources of supply of IC (integrated
circuit) die and other components may be constrained and subject to shortages. A
multichip module manufacturer's ability to compete is heavily dependent on its
ability to maintain access to steady sources of supply. To address these needs,
the Company
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has maintained strong relationships with leading semiconductor fabricators in
the United States and the far east. The Company has no specific long-term
contractual arrangement with its vendors. None of the business of the
microelectronic segment is seasonal. The Company does not provide extended
payment terms to its customers. Products in the microelectronic segment are sold
under a standard one year warranty and may be returned for repair or replacement
during the warranty period.
The backlog for products was approximately $10,967,000 and $9,444,000, at the
end of fiscal years 1997 and 1996, respectively. Approximately 99% of the
segment's fiscal 1996 backlog was shipped during fiscal 1997. Approximately 93%
percent of the fiscal 1997 year-end backlog is expected to be shipped during
fiscal 1998.
Management believes that the key competitive factors are product reliability,
the ability to meet delivery schedules and price. The Company competes with
numerous other companies, many of which have greater financial strength and
technical and marketing resources than does the Company. It is not possible to
predict the extent of competition which present or future activities of the
Company in this segment will encounter because of changing competitive
conditions, government requirements, technological developments and other
factors.
ELECTROMECHANICAL AND MECHANICAL EQUIPMENT AND COMPONENTS
The products designed, manufactured and sold by the Company in its discontinued
electromechanical segment (also referred to as the Technologies division)
include electromechanical components and packages, electromechanical display
devices, electronic display devices, interface systems including keyboards and
related sub-systems.
Electromechanical Components and Packages
The Company's electromechanical components and instrument packages consist of
rotating devices, including gearheads, mechanical counters, dial drives,
mechanical packages and related devices. Specific applications for these
products include controls for automatically tuning airborne radio transmitters
and receivers, controls for fuel flow in jet engines and selected automatic
flight control servomechanisms. These products are sold principally to aircraft
instrument manufacturers as information displays in aerospace and ground
equipment.
Electromechanical Display Devices
The Company also produces digital displays which permit a more accurate readout
of information than is feasible with analog meters. These include display
devices which respond electromagnetically to electronic input signals, thus
eliminating mechanical transmission delays. These products are sold primarily to
aircraft instrument manufacturers.
Turnkey Interface Systems
The Company designs and manufactures, to customer specification, a variety of
keyboard assemblies for commercial and military applications. The Company has
the capability of meeting demanding requirements such as backlighting to meet
night vision goggle (NVG) compatibility, adverse environments, and the
integration of displays, including LCD's, and microprocessor technology.
Electromechanical Packages and Systems
The Company designs and manufacturers complex specialized systems used in
interface control of cable handling systems aboard submarines and antenna
control systems in satellite communications systems. These products are sold
directly to the U.S. Government or to U.S. Government prime contractors.
ELECTROMECHANICAL SEGMENT REVIEW
The customers for the products of the electromechanical segment include original
equipment manufacturers, primarily in the aerospace industry and agencies of the
U.S. Government. The materials, products and services
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used by the Company to manufacture its products in the electromechanical segment
are readily available from a variety of sources. None of the business of the
electromechanical segment is seasonal.
Neither the needs of the Company for a continuing allotment of goods from its
suppliers nor the requirements of its customers for the products of the
electromechanical segment require the carrying of finished goods inventory. In
its purchase of components (some of which must be ordered months in advance),
the Company has not encountered, and does not anticipate encountering any
significant difficulty. The Company does not provide extended payment terms to
its customers. Products are sold under a standard one year warranty and may be
returned for repair or replacement during the warranty period.
The electromechanical segment backlog was approximately $6,049,000 and
$2,226,000, at the end of fiscal years 1997 and 1996, respectively.
Approximately 99% percent of this segment's 1996 backlog was shipped during
fiscal 1997. Approximately 87% percent of the fiscal 1997 year-end backlog is
expected to be shipped during fiscal 1998.
Management believes that price, product reliability and the ability to meet
delivery schedules are the key competitive factors. Many of the Company's
competitors in this segment are larger and have greater financial resources,
larger technical and marketing resources and different technologies than the
Company. It is not possible to predict the extent of competition which present
or future activities of the Company in this segment will encounter because of
changing competitive conditions, government requirements, technological
developments and other factors.
PRINCIPAL CUSTOMERS
In fiscal 1997 no single customer sales accounted for 10% of the Company's
sales. The majority of the Company's sales are made to the U.S. Government or to
U.S. Government prime contractors. These contracts can be for relatively large
dollar amounts, sometimes calling for deliveries over more than one year. The
award of new contracts or the expiration of old contracts could have a
significant short-term impact on sales and operating results.
RESEARCH, ENGINEERING AND DEVELOPMENT
Current research and product development activities are directed primarily
toward the improvement of existing standard products while some projects are
focused on the development of new products or processes. The Company devotes
minimal resources to pure research and development, but emphasizes the
application of its engineering expertise to the development and refinement of
proprietary products or technologies. Expenditures by the Company on research
and product development for fiscal years 1997, 1996 and 1995 amounted to
approximately $480,000, $423,000, and $362,000 for continuing operations
respectively and $130,000, $157,000 and $450,000 from discontinued operations
respectively. The Company principally utilizes its engineering staff in its
research and product development efforts.
REGULATORY MATTERS
Government Contracting Regulation
Most of the Company's business is derived from subcontracts with prime
contractors of the U.S. Government. As a U.S. Government subcontractor, the
Company is subject to Federal Government contracting regulation. Under these
regulations, the U.S. Government is entitled for three years after final payment
on certain negotiated contracts or contract modifications to examine all of the
Company's cost records with respect to such contracts to determine whether the
Company furnished complete, accurate and current cost or pricing data to the
Government in connection with the negotiation of the price of the contract or
modification. The U.S. Government also has the right after final payment to seek
a downward adjustment to the price of a contract or modification if it
determines that the contractor failed to disclose complete, accurate and current
data.
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In addition, the Federal Acquisition Regulation governs the allowability of
costs incurred by the Company in the performance of U.S. Government contracts to
the extent that such costs are included in its proposals or are allocated to its
U.S. Government contracts during performance of those contracts.
The Company's subcontracts provide that they may be terminated at the
convenience of the U.S. Government. Upon such termination, the contractor is
normally entitled to receive the purchase price for delivered items,
reimbursement for allowable costs incurred and allocable to the contract and an
allowance for profit on the allowable costs incurred or adjustment for loss if
completion of performance would have resulted in a loss. In addition, the
Company's subcontracts provide for termination for default if the Company fails
to perform or breaches a material obligation. In the event of a termination for
default, the customer may have the unilateral right at any time to require the
Company to return unliquidated progress payments pending final resolution of the
propriety of the termination for default. The Company may also have to pay the
excess, if any, of the cost of purchasing a substitute item from a third party.
If the customer has suffered other ascertainable damages as a result of a
sustained default, the customer could demand payment of such damages by the
Company.
In connection with the Company's U.S. Government business, the Company also is
subject to Government investigations of its policies, procedures and internal
controls for compliance with procurement regulations and applicable laws. The
Company may be subject to downward contract price adjustments, refund
obligations or civil and criminal penalties. In certain circumstances in which a
contractor has not complied with the terms of a contract or with regulations or
statutes, the contractor might be debarred or suspended from obtaining future
contracts for a specified period of time. Any such suspension or debarment of
the Company could have a material adverse effect on the Company's business.
It is the Company's policy to cooperate with the Government in any
investigations of which it has knowledge, but the outcome of any such Government
investigations cannot be predicted with certainty. In the opinion of management
of the Company, it has complied in all material respects with applicable
government requirements.
Environmental Protection
Compliance with federal, state and local laws or regulations which govern the
discharge of materials into the environment has not had a material adverse
effect upon the capital expenditures, earnings or competitive position of the
Company.
EMPLOYEES
As of September 27, 1997, the Company employed 226 persons. Of such employees,
115 were employed in the microelectronic segment, 106 in the electromechanical
segment and 5 were employed on the corporate staff. A total of 66 of the
Company's employees in the electromechanical segment were employed pursuant to
collective bargaining agreements covering workers at the Company's Technologies
division in Fort Wayne, Indiana. This agreement will expire on November 15,
1998. The Company believes its labor relations are satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages, positions and business experience of all of the executive
officers of Bowmar are listed below. Officers are appointed annually by the
Board of Directors at the meeting of directors immediately following the Annual
Meeting of Shareholders and serve until the next annual election or until their
successors have been elected and qualified or as otherwise provided in the
Company's By-Laws.
There are no family relationships between any of the directors and executive
officers of the Company, nor any arrangement or understanding between any such
executive officer and any other person pursuant to which he was elected as an
executive officer.
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NAME, AGE & POSITION BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
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Thomas K. Lanin, 54....................... Elected President and Chief Executive Officer on
President and Chief Executive Officer June 2, 1995. Served as Vice President Finance
and Chief Financial Officer from March 1987 to
June 1995, and Secretary and Treasurer from
April 1987. Elected as a Director of the Company
in July 1988.
Edward A. White, 69....................... Elected Chairman of the Board of the Company on
Chairman of the Board October 22, 1983. Served as Chief Executive
Officer from October 22, 1983 to January 31,
1992 and as President from July 31, 1987 until
December 10, 1990.
Joseph G. Warren, Jr., 52................. Elected Vice President Finance and Treasurer on
Vice President Finance, Treasurer, July 12, 1995. From 1994 to 1995 served as Vice
Chief Financial Officer, Secretary President Finance & Chief Financial Officer of
Axxess Technologies, Inc. From 1993 to 1994
served as Secretary Treasurer and Vice President
of Golden Technologies, Inc. From 1992 to 1993
served as President of Coors Ceramicon Designs,
Ltd., and from 1985 to 1992 served as Vice
President Finance of Coors Ceramics Company.
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ITEM 2 PROPERTIES
The following table sets forth the information as to the Company's principal
properties:
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LOCATION APPROXIMATE SIZE TYPE OF OWNERSHIP OPERATION/FUNCTION
- --------------------------- --------------------- ---------------------- ---------------------
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Ft. Wayne, IN.............. 75,000 sq. ft (plus Owned Manufacture of
10 acres of vacant electromechanical and
land adjacent mechanical equipment
thereto) and components
Phoenix, AZ................ 28,000 sq. ft Lease (expired 10/97) Manufacture of
microelectronic
circuits and
components
Phoenix, AZ................ 53,000 sq. ft. Lease (expires Manufacture of
7/31/2007) microelectronic
circuits and
components
Phoenix, AZ................ 2,900 sq. ft. Lease (expires 3/98) Corporate executive
office
Acton, MA.................. 80,000 sq, ft. Owned Held for sale
</TABLE>
Management considers these properties to be well maintained and adequate for
their use. See Note 6 to the Consolidated Financial Statements in this Annual
Report for description of the mortgages and liens on these properties.
ITEM 3 LEGAL PROCEEDINGS
On April 25, 1996 the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Government. The investigation is centering on the
interpretation of certain Government contract specified testing requirements on
incoming material. The Company is cooperating fully with the investigation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock and $3.00 Preferred Stock are traded on the American
Stock Exchange under the symbols BOM and BOM.PR, respectively. See Note 18 to
the Consolidated Financial Statements in this Form 10-K for the high and low
sales prices for each of the Common Stock and $3.00 Preferred Stock over the
last two fiscal years.
As of December 18, 1997, there were approximately 5,555 holders of record of the
Company's Common Stock and approximately 782 holders of record of the Company's
$3.00 Preferred Stock. The Company has not paid cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
intends to retain all earnings to provide funds for the operation and expansion
of its business. One of the Company's credit agreements precludes the payment of
cash dividends for both preferred and Common Stock in excess of $500,000 per
year. Another agreement prohibits all dividends. This prohibition has been
waived through October 3. 1998.
ITEM 6 SELECTED FINANCIAL DATA
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FISCAL YEAR
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OPERATIONS: 1997 1996 1995 1994 1993
- --------------------------------------- ------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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Net sales.............................. $22,189 $18,840 $18,067 $17,986 $ 7,577
-------- -------- -------- -------- --------
- - - - -
Gross margin........................... $ 9,020 $ 7,838 $ 7,388 $ 6,448 $ 1,989
-------- -------- -------- -------- --------
- - - - -
Income (loss) from continuing $ 2,119 $ 2,056 $ 1,554 $ 1,440 $(1,685)
operations before income taxes (Note
1)...................................
-------- -------- -------- -------- --------
- - - - -
Weighted average number of common:
shares and equivalents -- primary.... 6,662,285 6,564,987 6,615,241 6,554,441 6,236,590
--------- --------- --------- --------- ---------
shares and equivalents -- fully 8,214,708 8,156,853
diluted (Note 2)..................
------- -------
Income (loss) per common share:
Continuing operations -- primary..... $ 0.14 $ 0.14 $ 0.57 $ 0.16 $ (0.33)
Continuing operations -- fully $ 0.50 $ 0.17
diluted (Note 2)..................
-------- --------
- -
Net income per share -- primary........ $ 0.02 $ 0.14 $ 0.54 $ 0.28 $ 0.06
Net income per share -- fully diluted $ 0.48 $ 0.27
(Note 2).............................
-------- --------
- -
Financial Positions (at year end):
Working capital...................... $ 9,822 $ 8,502 $ 6,889 $ 5,209 $ 3,817
Total assets......................... $21,509 $16,538 $17,432 $13,783 $10,910
Long-term debt....................... $ 4,546 $ 3,675 $ 3,992 $ 4,617 $ 5,078
</TABLE>
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Note 1 -- See footnote 16 of the Consolidated Financial Statement provided
elsewhere herein for discussion of discontinued operations.
Note 2 -- In 1997,1996 and 1993, fully diluted net income per share is
considered to be the same as primary net income per share since the
effect of the potentially dilutive convertible preferred is
antidilutive.
Note 3 -- No dividends have been declared or paid on Bowmar common shares. There
were 5,555 holders of record of Bowmar common stock on December 18,
1997.
This table should be read in conjunction with the Consolidated Financial
Statements provided elsewhere herein.
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document contain forward-looking statements. The words
"believe", "expect" and "anticipate" identify forward-looking statements which
speak only as of the date the statement is made. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risk and uncertainties, some of which cannot be predicted or
quantified and are beyond the Company's control. Potential risks and
uncertainties include but are not limited to such factors as the ability of the
Company to identify a potential buyer for the Technologies division and to
conclude a beneficial agreement in a timely fashion, the ability of the Company
to conclude such a sale without substantial disruption to the business of the
Technologies division, demand for the products of the White Microelectronics
division, the ability of the Company to penetrate successfully the commercial
market for microelectronic products, demand for microelectronic products
generally, industry competitiveness, reductions in price and other risks of
doing business generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this document
will in fact transpire or prove to be accurate. Actual results may differ
materially from those in the forward-looking statements.
Introduction
As previously disclosed, the Board of Directors has determined to implement a
series of actions expected to strategically reposition the Company, reduce
corporate overhead and realign management. See Part I, Item 1,
"Business -- Recent Developments," above. First, the Board of Directors has
determined to seek a buyer for the Company's Technologies division. Although the
Company has received several unsolicited inquiries from third parties interested
in acquiring the division, it is not yet in serious discussions with any
particular potential buyers. The Company has retained an investment advisor, to
assist in its efforts to sell this division. There can be no assurance that the
Board of Directors will be able to identify a suitable buyer, or any buyer at
all, or that if a sale is concluded it will be on terms and conditions
advantageous to the Company.
Second, the Board of Directors determined to close the Company's corporate
headquarters in Phoenix, Arizona as soon as reasonably possible, but in any
event by the end of January, 1998. The Company will operate exclusively out of
the new White Microelectronics division facility also located in Phoenix,
Arizona.
Third, the Company's President and Chief Executive Officer, Tom Lanin, has
submitted his resignation effective January 2, 1998. The Board has determined to
appoint Hamid Shokrgozar, the White Microelectronics division's current
president, as President and CEO of the Company. Mr. Lanin will remain with the
Company in his capacity as a Director. Mr. Lanin also will remain available to
the Company to facilitate the transition and to assist Mr. Shokrgozar as he
assumes his new duties.
Based on the decision to sell the Technologies division, the division has been
accounted for as a "discontinued operation". Accordingly, a $1.3 million reserve
for anticipated losses and the cost of disposition was recorded in the fourth
quarter of fiscal 1997. In addition, the Company estimates that the changes
associated with the closing of the corporate office and related severance
payments will result in a net charge to earnings during the first quarter of
fiscal 1998 of approximately $340,000. The following discussion takes into
account the treatment of the Technologies division as a discontinued operation.
Results of Operations
Fiscal 1997, 1996 and 1995 net sales attributable to the microelectronics
division were $22,189,000, $18,840,000 and $18,067,000 respectively. The
increase in net sales between fiscal 1997 and 1996 was caused by the initial
stocking orders for distributors in the second quarter, increased custom orders
in the fourth quarter, and new products which were introduced in the prior year.
The increase in net sales from 1995 to 1996 was the result of an increase in the
standard military memory product line partially offset by a decrease in custom
military products.
9
<PAGE> 11
The Company continues to believe that changes in U.S. defense spending will not
have a material adverse effect on the Company's overall results, particularly on
the White Microelectronics division. In 1997, the Company nevertheless continued
to pursue its goal of reduced dependency on the defense industry by pursuing
commercial business while emphasizing niche military markets where it has a
competitive advantage.
Gross margins in the microelectronics division were approximately $9.0 million
or 40.7% as compared to $7.8 million or 41.6% in the prior fiscal year. The
increase in gross margin dollars was due to the increased sales. The 0.9%
decline in the gross margin percentage was a result of strong downward pressure
on pricing brought about by a very competitive market which the Company expects
will continue in fiscal 1998. Gross margins in fiscal 1996 for this division
were approximately 41.6% as compared to $7.3 million or 40.9% in fiscal 1995.
The increase was due to improved margins in the standard military memory product
line.
Selling, general and administrative expenses in fiscal 1997 were 9.5% above 1996
expenses. The main reason for the increase was an increase in advertising and
sales commissions relating to the increased sales volume. Legal expenses also
increased in 1997 primarily as a result of the investigation by the U.S.
Attorney's office as discussed in Item 3. The remainder of the increase in
selling, general and administrative expense was attributed to higher payroll
related expenses due to the increased number of employees. The 1996 selling,
general and administrative expenses approximated the 1995 expenses.
Product development expense in fiscal 1997 increased by $57,000 or 13.5% from
1996. The main reason for the increase was the additional spending on developing
a microprocessor module in conjunction with the Diehl business development
alliance. 1996 product development expense was $61,000 higher than 1995 due to
increased spending on new products in fiscal 1996.
Interest expense in fiscal 1997 declined as a result of both lower rates and
decreased average borrowing levels as compared to 1996. This also explains the
lower interest expense in fiscal 1996 as compared to fiscal 1995.
Other expense in fiscal 1997 consists primarily of a one time $425,000
write-down on the Company's Acton, Massachusetts property held for sale. The
building is currently under contract for sale, and as a result of the write-down
the Company anticipates no further loss on the sale. However, the loss of rental
income from this property will lower other income by approximately $120,000 for
the first quarter of fiscal 1998 as compared to the same quarter in 1997. Until
the building is sold, it is anticipated that the cost of maintaining the
building and the related taxes will be $45,000 per quarter. The offsetting other
income is attributed to the proceeds from the Acton leased facility until lease
expiration in February, 1997 and a $91,000 gain on the sale of a stock
investment by the Company. There was no significant difference in other income
between fiscal 1996 and 1995.
The Company is subject to the alternative minimum tax which, when combined with
state taxes, and deferred taxes resulted in a tax provision (benefit) from
continuing operations of $786,000, $784,000, and $(2,556,000) in fiscal years
1997, 1996, and 1995, respectively.
Financial Condition, Capital Resources and Liquidity
Fiscal year-end 1997 working capital increased to $9,822,000 from $8,502,000 at
September 28, 1996. Changes in the components of working capital are detailed in
the Company's Consolidated Statements of Cash Flows. The Company's current ratio
at fiscal year-end 1997 is approximately 2.3 to 1. Its total debt-to-equity
ratio improved to approximately 1.3 to 1.
The Company's capital expenditure plans are principally to expand manufacturing
capacity and are expected to be financed largely through leasing arrangements
and, to a lesser extent, through funds provided from operations.
Management believes that cash generated by operations, in addition to the
Company's borrowing capability, should be sufficient to fund the Company's cash
needs for the foreseeable future.
In fiscal 1997 and 1996, the Company generated $1,295,000 and $309,000
respectively of cash from operating activities. Management anticipates that
operations will continue to generate cash in the foreseeable future.
10
<PAGE> 12
Management also anticipates that for the near term its cash payments for Federal
income taxes will be based on rates applicable to the alternative minimum tax as
it uses its net operating loss carryforwards.
The Company has reviewed the effect of the year 2000 on its various systems.
Management has devised and is implementing a plan to ensure that this problem
does not affect the operations of the Company. The plan consists of both
modifying existing systems and implementing new systems where there are
additional factors that would warrant a new system, it is not anticipated that
the costs related to resolving this issue will be material.
Discontinued Operations
The $846,000 decline in sales between fiscal 1997 and 1996 is a result of the
sale of the Rapid Heat Sterilizer (RHT) and ordnance product lines in late
fiscal 1996 which was partially offset by an increase in mechanical products.
The $2,325,000 decline in sales when fiscal 1996 is compared to fiscal 1995 was
a result of declines in sales in the ordnance and RHT product lines, which were
sold in the fourth quarter of fiscal 1996. Interface product sales also declined
as a result of increased competition.
Gross margin dollars in fiscal 1997 were only slightly lower than fiscal 1996,
even though sales declined 13%. This was a result of improved product mix and
improved efficiency in the manufacturing process. Gross margin dollars declined
in fiscal 1996 as compared to fiscal 1995 as a result of decreased sales, which
were partially offset by improved product mix in the latter part of fiscal 1996.
Operating expenses increased $97,000 in fiscal 1997 as compared to fiscal 1996,
which was primarily due to increased sales and marketing expenses related to an
effort to increase bookings. The $1,198,000 decrease in fiscal 1996 from fiscal
1995 was a result of write-offs in fiscal 1995 related to the RHT product line
and lower costs in fiscal 1996 as a result of lower sales and cost reduction
efforts.
Product development decreased significantly in fiscal 1996 as compared to fiscal
1995 because the product development expenses related to the RHT and the dental
market were curtailed in fiscal 1996.
In addition to the previous expenses in the fourth quarter of fiscal 1997 a
$1,300,000 reserve was recorded for costs associated with the sale of the
Technologies division. This amount includes $600,000 for estimated future
operating losses during the phase out period. The actual performance of the
discontinued operation may be different than management estimates.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Annual Report for required financial statements and
supplementary data.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item for directors is set forth in the
Company's 1997 Proxy Statement under the heading "Election of Directors" and the
heading "Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein by this reference as if set forth in full. The information
required by this Item for Executive Officers of the Company is set forth in Part
I of this Form 10-K as a separate item following Item 1 entitled "Executive
Officers of the Company."
11
<PAGE> 13
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's 1997 Proxy
Statement under the heading "Executive Compensation" and is incorporated herein
by this reference as if set forth in full.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's 1997 Proxy
Statement under the heading "Principal Shareholders" and under the heading
"Election of Directors-Nominees" and is incorporated herein by this reference as
if set forth in full.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth in the Company's 1997 Proxy
Statement under the heading "Certain Transactions" and under the heading
"Compensation Committee Interlocks and Insider Participation" and is
incorporated herein by this reference as if set forth in full.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Consolidated Financial Statements
14
Report of Independent Accountants..........................................
15
Consolidated Balance Sheets as of September 27, 1997 and September 28,
1996.....................................................................
16
Consolidated Statements of Income for the Years Ended September 27, 1997,
September 28, 1996 and September 30, 1995................................
17
Consolidated Statements of Shareholders' Equity for the Years Ended
September 27, 1997, September 28, 1996 and September 30, 1995............
18
Consolidated Statements of Cash Flows for the Years Ended September 27,
1997, September 28, 1996 and September 30, 1995..........................
19
Notes to Consolidated Financial Statements.................................
</TABLE>
Financial Statement Schedules for the Years Ended September 27, 1997,
September 28, 1996 and September 30, 1995.
Financial statement schedules have been omitted because either they are not
required or are not applicable, or because the information has been included in
the consolidated financial statements or notes thereto.
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <S>
3.1 Amended and Restated Articles of Incorporation. (Previously filed as Exhibit A to
the Registrant's definitive Proxy Statement prepared in connection with the 1993
Annual Meeting of Shareholders, which is incorporated herein by reference.)
3.2 Amended and Restated Code of By-Laws, as further amended on December 4, 1997.*
4.1 Indenture, Bowmar Instrument Corporation 13 1/2% Convertible Subordinated
Debentures due December 15, 1995. (Previously filed as Exhibit 4.4 to the
Registration Statement on Form S-7, File No. 2-70025, on November 25, 1980, which
is incorporated herein by reference.)
4.2 Amended and Restated Articles of Incorporation. (See Exhibit 3.1 above.)
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <S>
4.3 Rights Agreement, dated as of December 6, 1996 between Bowmar Instrument
Corporation and American Stock Transfer and Trust Corporation. (Previously filed
as Exhibit 5C to the Form 8-K filed by the Registrant on December 19, 1996, which
is incorporated herein by reference).
10.1(b) Lease dated February 23, 1990, by and between Bowmar/Ali, Inc. as landlord and
LAU Acquisition Corporation as tenant. (Previously filed as Exhibit 10.1(bb) to
the Registrant's Annual Report of Form 10-K for the fiscal year ended September
30, 1990, which is incorporated herein by reference.)
**10.1(d) Employment agreement dated August 15, 1991, as amended as of August 15, 1992, and
as of June 1, 1995 between Gardiner S. Dutton and Bowmar Instrument Corporation.
(The first two having been previously filed as Exhibit 10.1(ff) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended September 30,
1992, and the last having been filed as Exhibit 5(b) to Form 8-K dated June 26,
1995, all which are incorporated herein by reference.)
**10.2(a) Form of Incentive Stock Option Agreement covering incentive stock options granted
under the Corporation's now terminated 1986 Plan, as amended October 23, 1987.
(Previously filed as Exhibit 10.2(c) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1987, which is incorporated herein
by reference.)
**10.2(b) Form of Non-Incentive Stock Option Agreement covering non-incentive stock options
granted under the Corporation's now terminated 1986 Plan, as amended October 23,
1987. (Previously filed as Exhibit 10.2(c) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1987, which is incorporated
herein by reference.)
**10.2(c) Bowmar Instrument Corporation Stock Option Plan for Non-Employee Directors as
amended February 4, 1994. (Incorporated herein by reference to Exhibit B to the
Registrant's definitive Proxy Statement, prepared in connection with the 1994
Annual Meeting of Shareholders.)
**10.2(d) Non-Incentive Stock Option Agreement dated August 16, 1991, as amended August 15,
1992, between Bowmar Instrument Corporation and Gardiner S. Dutton. (Previously
filed as Exhibit 10.1(ff) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992, which is incorporated herein by reference.)
**10.2(e) 1994 Flexible Stock Plan. (Previously filed as Exhibit A to the Registrant's
definitive Proxy Statement prepared in connection with the 1994 Annual Meeting of
Shareholders, which is incorporated herein by reference.)
**10.3(a) Form of Agreement governing awards of restricted stock under the Corporation's
now terminated Restricted Plan. (Incorporated by reference to the exhibit to
Amendment No. 1 to the Registrant's Registration Statement of Form S-8 (No.
2-67645).)
10.4(a) Loan documents by and between Bank One, Arizona, NA and Bowmar Instrument
Corporation and its wholly owned subsidiary, Bowmar/ALI, Inc. (Previously filed
as exhibits 10.4a through 10.4g to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 which is incorporated herein by
reference).
10.4(b) Modification Agreement dated April 26, 1996, pursuant to the Loan Agreement dated
August 28, 1995 by and between Bank One, Arizona, NA and the Registrant.
(Previously filed as Exhibit 10.4(b) to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 28, 1996, which is incorporated herein
by reference).
10.4(c) Second Modification Agreement dated August 9, 1996, pursuant to the Loan
Agreement dated August 28, 1995 by and between Bank One, Arizona, NA and the
Registrant. (Previously filed as Exhibit 10.4(c) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 28, 1996, which is
incorporated herein by reference)
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ----------
<C> <S>
10.4(d) Third Modification Agreement dated March 28, 1997 pursuant to the Loan Agreement
dated August 28, 1995 by and between Bank One, Arizona NA and the Registrant.
(Previously filed as Exhibit 10.4(d) to the Form 10-Q for the quarter ended March
29, 1997, which is incorporated herein by reference).
10.4(e) Modification of Mortgage (Massachusetts) dated March 28, 1997 by and between Bank
One, Arizona NA and the Registrant and its wholly owned subsidiary, Bowmar/ALI.
(Previously filed as Exhibit 10.4(e) to the Form 10-Q for the quarter ended March
29, 1997, which is incorporated herein by reference).
10.4(f) Modification of Mortgage (Indiana) dated March 28, 1997 by and between Bank One,
Arizona NA and the Registrant. (Previously filed as Exhibit 10.4(f) to the Form
10-Q for the quarter ended March 29, 1997 which is incorporated herein by
reference).
10.4(g) Revolving Promissory Note (RLT) dated March 28, 1997 by and between Bank One,
Arizona NA and the Registrant, for up to $1,200,000. (Previously filed as Exhibit
10.4(g) for the quarter ended March 29, 1997, which is incorporated herein by
reference).
10.5* Lease dated February 4, 1997 by and between Bowmar Instrument Corporation as
tenant and Gus Enterprises-XII, LLC as landlord.*
11* Computation of Earnings per share
21 Subsidiaries of the Registrant -- The Registrant has one subsidiary, Bowmar/Ali,
Inc., a Massachusetts Corporation.
27* Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
There are no reports for the quarter ended September 27, 1997.
(c) Not applicable.
(d) Not applicable.
- ---------------
* filed herewith
** management compensatory contract, plan or arrangement
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
BOWMAR INSTRUMENT CORPORATION
We have audited the consolidated financial statements of Bowmar Instrument
Corporation and Subsidiaries as of September 27, 1997 and September 28, 1996,
and for each of the three years in the period ended September 27, 1997, as
listed in Item 14(a) of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bowmar
Instrument Corporation and Subsidiaries as of September 27, 1997 and September
28, 1996, and the results of their operations and their cash flows for each of
the three years in the period ended September 27, 1997, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Phoenix, Arizona
December 2, 1997 (except for Notes 16 and 17
for which the date is December 19, 1997)
15
<PAGE> 17
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................ $ 1,218 $ 108
Accounts receivable, less allowance for doubtful accounts of $43
and $136..................................................... 4,476 3,992
Inventories..................................................... 8,158 6,059
Prepaid expenses................................................ 539 402
Deferred income taxes........................................... 2,782 1,652
------- -------
Total Current Assets............................................ 17,173 12,213
Property, Plant and Equipment, net................................ 2,642 1,122
Deferred Income Taxes............................................. 492 1,524
Other Assets, net................................................. 1,202 1,679
------- -------
Total Assets............................................ $21,509 $16,538
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt............................... $ 1,608 $ 556
Accounts payable................................................ 1,987 933
Accrued salaries and benefits................................... 1,953 1,503
Other accrued expenses.......................................... 503 719
Reserve for loss on discontinued operation...................... 1,300 0
------- -------
Total Current Liabilities............................... 7,351 3,711
Long term Debt.................................................... 4,546 3,675
Other Long term Liabilities....................................... 339 339
------- -------
Total Liabilities............................................... 12,236 7,725
------- -------
Commitments and Contingencies (see Note 11)
Shareholders' Equity
Preferred stock, $1.00 par value, authorized 500,000 shares,
issued 119,906 and 119,948 shares............................ 120 120
Common stock, $0.10 stated value, authorized 15,000,000 shares,
issued 6,718,934 and 6,527,675 shares........................ 672 653
Treasury stock, 44,442 shares, at stated value.................. (4) (4)
Additional paid-in capital........................................ 6,609 6,330
Retained earnings................................................. 1,876 1,714
------- -------
Total Shareholders' Equity...................................... 9,273 8,813
------- -------
Total Liabilities and Shareholders' Equity.............. $21,509 $16,538
======= =======
</TABLE>
See notes to Consolidated Financial Statements.
16
<PAGE> 18
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................. $ 22,189 $ 18,840 $ 18,067
Cost of sales............................................. 13,169 11,002 10,679
--------- --------- ---------
Gross margin.............................................. 9,020 7,838 7,388
--------- --------- ---------
Expenses:
Selling, general and administrative..................... 5,870 5,360 5,224
Product development..................................... 480 423 362
Interest expense........................................ 416 522 751
Other expense (income), net............................. 135 (523) (503)
--------- --------- ---------
Total expenses.......................................... 6,901 5,782 5,834
--------- --------- ---------
Income from continuing operations before income taxes..... 2,119 2,056 1,554
Income tax expense (benefit).............................. 786 784 (2,556)
--------- --------- ---------
Income from continuing operations......................... 1,333 1,272 4,110
--------- --------- ---------
Discontinued operations (Note 16):
Electromechanical segment
(Loss) income from operations, net of income tax
expense (benefit) of ($20), $12, and ($770)............. (31) 18 (207)
Loss on disposition including provision of $600,000
for operating losses during the phase-out period,
net of deferred income tax benefit of $520.............. (780)
--------- --------- ---------
Loss (income) from discontinued operations................ (811) 18 (207)
--------- --------- ---------
Net income................................................ $ 522 $ 1,290 $ 3,903
========= ========= =========
Income (loss) per common share-primary:
Continuing operations................................... $ 0.14 $ 0.14 $ 0.57
Discontinued operations................................. (0.12) 0.00 (0.03)
--------- --------- ---------
Net income per share -- primary........................... $ 0.02 $ 0.14 $ 0.54
========= ========= =========
Income (loss) per common share-fully diluted:
Continuing operations................................... $ 0.50
Discontinued operations................................. (0.02)
--------- --------- ---------
Net income per share -- fully diluted..................... $ 0.48
--------- --------- ---------
Weighted average number of common shares and equivalents:
Primary................................................. 6,662,285 6,564,987 6,615,241
Fully diluted........................................... 8,214,708
========= ========= =========
</TABLE>
- ---------------
Note -- In 1997 and 1996 fully diluted net income per share is considered to be
the same as primary net income per share since the effect of the
potentially dilutive convertible preferred is antidilutive.
See notes to Consolidated Financial Statements.
17
<PAGE> 19
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
PREFERRED COMMON TREASURY PAID-IN EARNINGS SHAREHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) EQUITY
--------- ------ -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1994.............. $ 120 $646 $ (4) $6,047 $ (2,759) $ 4,050
---- ---- --- ------ ------- ------
Net income............................ 3,903 3,903
Issuance of common stock:
Exercise of options and awards and
related tax benefits 35,500
shares........................... 4 158 162
Deferred compensation costs........... 40 40
Payment of preferred dividends........ (360) (360)
---- ---- --- ------ ------- ------
BALANCE, SEPTEMBER 30, 1995........... 120 650 (4) 6,245 784 7,795
---- ---- --- ------ ------- ------
Net income............................ 1,290 1,290
Issuance of common stock:
Exercise of options and awards and
related tax benefits 27,800
shares........................... 3 70 73
Deferred compensation costs........... 15 15
Payment of preferred dividends........ (360) (360)
---- ---- --- ------ ------- ------
BALANCE, SEPTEMBER 28, 1996........... 120 653 (4) 6,330 1,714 8,813
---- ---- --- ------ ------- ------
Net income............................ 522 522
Issuance of common stock:
Exercise of options and awards and
related tax benefits 190,700
shares........................... 19 270 289
Deferred compensation costs........... 9 9
Payment of preferred dividends........ (360) (360)
---- ---- --- ------ ------- ------
BALANCE, SEPTEMBER 27, 1997........... $ 120 $672 $ (4) $6,609 $ 1,876 $ 9,273
==== ==== === ====== ======= ======
</TABLE>
See notes to Consolidated Financial Statements.
18
<PAGE> 20
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1997 1996 1995
------- ----------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................... $ 522 $ 1,290 $ 3,903
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization........................... 540 496 552
Amortization of debt issue costs........................ 0 0 52
Reserve for loss from discontinued operations........... 1,300 0 0
Deferred income tax (benefit) expense................... (98) 689 (3,526)
Net changes in balance sheet accounts:
Accounts receivable................................... (484) (110) 952
Inventories........................................... (2,099) (639) (554)
Prepaid expenses...................................... (137) 55 21
Other assets.......................................... 462 19 319
Accounts payable...................................... 1,055 (520) 417
Accrued salaries and benefits......................... 450 (589) 537
Other accrued expenses................................ (216) (382) 350
Other................................................. 0 0 (6)
------- ------- -------
Net cash provided by operating activities.................... 1,295 309 3,017
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment................... (1,802) (365) (454)
Proceeds from sales of property, plant and equipment......... 0 135 5
Net change in other assets................................... 0 0 (41)
------- ------- -------
Net cash used in investing activities........................ (1,802) (230) (490)
------- ------- -------
FINANCING ACTIVITIES:
Borrowings under (payments on) notes payable................. 2,204 4,200 (1,135)
Retirement of long-term debt................................. (516) (4,623) (602)
Issuance of common stock..................................... 289 73 162
Payment of preferred stock dividends......................... (360) (360) (360)
------- ------- -------
Net cash provided by (used in) financing activities.......... 1,617 (710) (1,935)
------- ------- -------
Net change in cash........................................... 1,110 (631) 592
Cash at beginning of year.................................... 108 739 147
------- ------- -------
Cash at end of year.......................................... $ 1,218 $ 108 $ 739
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest................................... $ 412 $ 511 $ 689
Net cash paid for income taxes............................... $ 280 $ 139 $ 164
Non-cash Investing and Financing Activities:
Capital lease agreements................................... $ 235 $ 0 $ 88
</TABLE>
See notes to Consolidated Financial Statements.
19
<PAGE> 21
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Company is a U.S. designer and manufacturer of high density, solid state
memory modules, multichip modules, interface products, and electromechanical
components and packages. The Company's customers include both domestic and
international government contractors and commercial businesses. The majority of
the sales and earnings are generated by the memory and multichip module product
lines.
2. SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bowmar
Instrument Corporation and its subsidiary (collectively the "Company"). All
significant inter-company accounts and transactions are eliminated. Certain
amounts in prior fiscal years consolidated financial statements have been
reclassified to conform to current presentation.
B. FISCAL YEAR-END
The Company's fiscal year-end is the Saturday nearest September 30.
C. CASH AND CASH EQUIVALENTS
The Company considers all investments with original maturities of three months
or less to be cash equivalents.
D. INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out)
or market.
E. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including property under capital lease
agreements, are stated at cost. Depreciation is determined on a straight-line
basis over the estimated useful lives ranging from 5 to 33 years for buildings
and improvements and 3 to 10 years for machinery and equipment. Leasehold
improvements are amortized over the lives of the leases or estimated useful
lives of the assets, whichever is less. When assets are sold or otherwise
retired, the cost and accumulated depreciation are removed from the books and
the resulting gain or loss is included in operating results.
F. GOVERNMENT CONTRACTS
Sales under government contracts are recorded when the units are shipped and
accepted by the government. Applicable earnings are recorded pro rata based
upon total estimated earnings at completion of the contracts; projected losses
are provided for in their entirety when identified.
G. SALES RECOGNITION
Sales are recognized when the Company's products are shipped. When shipments
are to distributors, the Company records at the time of shipment commissions
related to the sales and reserves for estimated returned goods and future
pricing adjustments.
H. INCOME TAXES
The Company files a consolidated tax return with its wholly owned subsidiary.
Temporary differences in the recognition of taxable income for financial
reporting and income tax purposes relate primarily to the use of
20
<PAGE> 22
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
different depreciation methods and useful lives for tax purposes, the
allowances for doubtful accounts, inventory obsolescence and the timing of
reporting bonus expense.
I. NET INCOME PER COMMON SHARE
Primary net income per share is computed by deducting preferred dividends from
net income to determine net income available to common shareholders. This
amount is then divided by the weighted average number of common shares
outstanding and Common Stock equivalents. Net income per share assuming full
dilution is determined by dividing net income by the weighted average number
of common shares outstanding during the year after giving effect to Common
Stock equivalents arising from stock options and preferred stock assumed
converted to Common Stock.
J. NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 Earnings Per Share (FAS 128) which
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS). FAS 128 replaces the presentation of primary and
fully diluted EPS pursuant to Accounting Principles Board Opinion No. 15
Earnings Per Share (APB 15) with the presentation of basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing net income available
to common stockholders by the weighted average number of shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company is required to adopt FAS 128 with its
December 28, 1997 financial statements and restate all prior period EPS
information. The Company will continue to account for EPS under APB 15 until
that time. The adoption of FAS 128 is not expected to have a significant
impact on the Company's reported earnings per share.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130), which establishes standards
for reporting and display of comprehensive income and its components. This
statement requires a separate statement to report the components of
comprehensive income for each period reported. The provisions of this
statement are effective for fiscal years beginning after December 15, 1997.
Management believes that the Company currently does not have items that would
require presentation in a separate statement of comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
(SFAS 131), which establishes standards for the way the public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
This statement is effective for financial statements for periods beginning
after December 15, 1997. Management believes this statement may require
expanded disclosure in the Company's future financial statements.
K. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
21
<PAGE> 23
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials............................................. $ 3,277,000 $ 3,330,000
Work-in-process........................................... 4,258,000 2,531,000
Finished goods............................................ 623,000 198,000
---------- ----------
Total Inventories......................................... $ 8,158,000 $ 6,059,000
========== ==========
</TABLE>
The inventories are net of reserve for excess and obsolete for $978,000 and
$865,000 for fiscal 1997 and 1996 respectively.
4. OTHER ASSETS
Other assets include $1,457,000 for certain land and buildings in Acton, MA. and
a reserve of $425,000 for the disposition of the building. The reserve of
$425,000 for the estimated loss on the disposition of the building was included
in other income and expense in fiscal 1997. The property is currently under
contract for sale pending the performance of certain actions by the Company
including environmental testing. The building was leased to the purchasers of
the Bowmar/ALI Military Systems division under an operating lease agreement
which ended February, 1997. Rental income during fiscal years 1997, 1996, and
1995 was $233,000, $572,000 and $552,000, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Land...................................................... $ 123,000 $ 123,000
Buildings and improvements................................ 956,000 935,000
Machinery and equipment................................... 7,525,000 5,566,000
Leasehold improvements.................................... 316,000 316,000
---------- ----------
Total, at cost............................................ 8,920,000 6,940,000
Less accumulated depreciation and amortization............ 6,278,000 5,818,000
---------- ----------
Net Property, Plant and Equipment......................... $ 2,642,000 $ 1,122,000
========== ==========
</TABLE>
At fiscal year-end 1997 and 1996, property, plant and equipment includes
approximately $608,000 and $467,000, respectively, of equipment under leases
that have been capitalized. Accumulated amortization for such equipment
approximated $379,000 and $344,000 for fiscal years 1997 and 1996, respectively.
22
<PAGE> 24
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Bank One term loan........................................ $ 3,405,000 $ 3,825,000
Bank One revolving line of credit......................... 2,331,000 0
Industrial revenue bonds.................................. 270,000 360,000
Obligations under capital leases.......................... 148,000 46,000
---------- ----------
6,154,000 4,231,000
Less current portion...................................... 1,608,000 556,000
---------- ----------
Total long term debt...................................... $ 4,546,000 $ 3,675,000
========== ==========
</TABLE>
The financing agreement with Bank One provides for a $4.0 million revolving line
of credit which expires February 28, 1999 and bears interest at .5% over the
Bank's prime rate (on September 27, 1997 the loan rate was 9.0%); and a term
loan in the principal amount of $3,405,000 which bears interest at the rate of
1.25% over the bank's prime rate. The term loan's rate on September 27, 1997 was
9.75% with principal payments of $35,000 per month and the balance due on July
31, 2000. The Bank One financing is collateralized by all of the assets of the
Company, subject to the prior lien associated with the industrial revenue bonds
and includes certain restrictions on the Company including a limitation on cash
dividends of $500,000 maximum per year. The agreement also includes certain
other restrictive covenants, the most restrictive of which is currently a debt
coverage ratio of 3 to 1.
The availability of cash under the revolving line of credit is based on eligible
accounts receivable and inventories. There is a charge of 1/4 of 1% per month on
the unused portion of the line of credit. The Company entered into the agreement
with Bank One in November 1995 and the proceeds were used to retire convertible
subordinated debentures and certain Foothill Capital Corporation loans.
The industrial revenue bonds are payable quarterly through September 30, 2000 at
the rate of $22,500 per quarter, plus interest at the reference rate of the Fort
Wayne National Bank. The interest rate at September 27, 1997 was 6.38%. The
bonds are collateralized by real property in Acton, Massachusetts with a net
book value of $1,032,000 which is included in other assets. At September 27,
1997 the Company was not in compliance with certain covenants related to the
industrial revenue bonds. The sole holder of these bonds has consented to the
Company's noncompliance with these covenants through October 3, 1998, thereby
effectively waiving compliance through that date. The most restrictive covenant
is that no dividends may be paid. These bonds will be retired if the Acton
facility is sold.
The aggregate maturities of the above term debt are approximately $1,608,000 in
1998, $1,879,000 in 1999 and $2,667,000 in 2000.
The weighted average interest rate on long term debt for fiscal 1997, 1996 and
1995 was approximately 9.9%, 9.9%, and 11.4% respectively.
23
<PAGE> 25
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision (credit) for income taxes on continuing operations consists of the
following:
<TABLE>
<CAPTION>
FISCAL YEAR
1997 1996 1995
-------- ----------- -----------
<S> <C> <C> <C>
Current......................................... $364,000 $ 95,000 $ 588,000
Deferred........................................ 422,000 689,000 (3,144,000)
-------- -------- ----------
Income tax provision (credit)................... $786,000 $ 784,000 $(2,556,000)
======== ======== ==========
</TABLE>
Based on the Company's taxable income in recent years and projecting future
taxable income over the period in which the deferred income tax assets are
deductible, the Company believes that it is more likely than not that it will
realize the benefit of the deferred tax assets. As a result, during fiscal 1995,
the Company recorded a $3.3 million tax credit due to the elimination of the
valuation allowance related to the Company's deferred tax asset. There can be no
assurance, however, that the Company will generate a specific level of continued
earnings.
A reconciliation of the (credit) provision for income taxes on continuing
operations between the U.S. statutory and effective rates follows:
<TABLE>
<CAPTION>
FISCAL YEAR
1997 1996 1995
----- ----------- ------
<S> <C> <C> <C>
Provision at statutory rate............................. 34.0% 34.0% 34.0%
State taxes, net of federal benefit..................... 4.5 6.4 5.9
1995 utilization of federal net operating loss
carryover............................................. (34.0)
Adjustment related to prior years tax returns........... (1.4) (2.3) 0.0
Elimination of valuation allowance for deferred tax
assets................................................ 0.0 0.0 (170.4)
---- ---- -----
Effective Tax Rate...................................... 37.1% 38.1% (164.5)%
==== ==== =====
</TABLE>
The income tax effect of loss carryforwards, tax credit carryforwards and
temporary differences between financial and tax reporting give rise to the
deferred income assets and liabilities. Deferred income taxes consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Current:
Inventories............................................. 646,000 $ 540,000
Accrued salaries, benefits, interest, expenses and
reserves............................................. 1,360,000 667,000
Net operating loss carryforwards........................ 776,000 532,000
Other................................................... 0 (87,000)
----------- -----------
Subtotal.................................................. 2,782,000 1,652,000
Long Term:
Depreciation............................................ 264,000 303,000
Net operating loss carryforwards........................ 84,000 1,172,000
Alternative minimum tax credits......................... 144,000 101,000
Other................................................... 0 (52,000)
----------- -----------
Subtotal.................................................. 492,000 1,524,000
----------- -----------
Total..................................................... $ 3,274,000 $ 3,176,000
=========== ===========
</TABLE>
24
<PAGE> 26
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the fourth quarter of fiscal 1994, the Company became aware of a
potential liability with regard to certain state income taxes for taxable years
1990 through 1994 as a result of a ruling by that state's Supreme Court. There
have been no tax assessments nor has the state audited the Company's tax returns
for those years. The Company recorded an estimated liability of approximately
$176,000 in the fourth quarter of fiscal 1994.
As of September 27 1997, the Company had federal net operating loss carryovers
for tax purposes of approximately $2,663,000 which expire from 2003 through
2005. Additionally, the Company has an alternative minimum tax credit
carryforward of approximately $144,000.
8. BENEFIT PLANS
The Company has a defined benefit pension plan for union employees at its Fort
Wayne, Indiana facility pursuant to a collective bargaining agreement. Benefits
are based primarily on a benefits multiplier and years of service. The Company
funds the amount equal to the minimum funding required plus additional amounts
which may be approved by the Company from time to time. Net periodic pension
cost included the following components:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost benefits earned.................... $ 84,000 $ 71,000 $ 69,000
Interest cost................................... 138,000 135,000 130,000
Return on plan assets........................... (384,000) (110,000) (132,000)
Amortization of transition asset................ (10,000) (10,000) (10,000)
Amortization of prior service costs............. 15,000 (17,000) 12,000
Deferral of gain to future years................ 245,000 0 0
--------- --------- ---------
Total pension cost.............................. $ 88,000 $ 69,000 $ 69,000
========= ========= =========
</TABLE>
At September 27, 1997, the actuarial present value of accumulated benefit
obligations was $1,954,961 of which $1,915,726 was vested. The vested benefit
obligation is the actuarial present value of the vested benefits to which the
employee would be entitled if the employee separated immediately. Prepaid
pension cost at September 27, 1997 and September 28, 1996, was calculated as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Projected benefit obligation.............................. $ 1,955,000 $ 1,920,000
Market value of plan assets............................... 2,279,000 2,047,000
---------- ----------
Plan assets over projected benefit obligation............. 324,000 127,000
Unrecognized transition assets............................ (10,000) (19,000)
Unrecognized past service costs........................... 92,000 107,000
Unrecognized net loss (gain).............................. (199,000) 72,000
---------- ----------
Prepaid Pension Cost...................................... $ 207,000 $ 287,000
========== ==========
</TABLE>
Plan assets primarily consist of investments in mutual funds, corporate bonds
and money market funds. The weighted-average assumed discount rate was 7.5% and
the long-term rate of return on assets was 7.0%.
In addition, the Company has an Incentive Savings 401(k) Plan covering non-union
employees of the Company who have completed six months of service. The Company
matches employee contributions equal to 50% of the first 3% of a participant's
wage base. During each of the fiscal years 1997, 1996 and 1995, the Company made
contributions to the plan of approximately $64,000, $60,000, and $45,000
respectively.
25
<PAGE> 27
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. STOCK OPTIONS AND AWARDS
The Company has adopted the disclosure only provisions of SFAS No. 123
"Accounting for Stock Based Compensation". Accordingly, since all options are
issued with exercise prices greater than or equal to the market price on the
grant date, no compensation cost has been recognized for the stock option plans.
Under the Company's shareholder approved 1994 Flexible Stock Plan, Common Stock
is available for the grant of options, appreciation rights, restricted stock
awards, performance shares and other stock-based awards. The vesting and terms
of the options granted under this plan are determined when awarded by the Board
of Directors. At September 27,1997 there were 189,519 shares available for
future grants to officers and employees at prices not less than the fair value
at the date of grant by the Board of Directors. At fiscal year-end 1997, 504,000
shares from the Company's 1994 plan are under option.
During fiscal 1995, the Board of Directors terminated the Company's shareholder
approved 1986 Stock Option Plan. At fiscal year-end 1997, 44,500 shares from the
Company's 1986 Plan remain under option.
The Company's shareholder approved Non-Qualified Stock Option Plan for Directors
provides for shares of Common Stock for issuance to directors, at an exercise
price equal to the fair market value on the date of issuance. At fiscal year end
September 27, 1997, there were 82,760 shares available for future grants to the
directors. The options are exercisable as early as six months after date of
grant and expire in ten years. A total of 114,000 options under this
Non-Qualified Plan have been issued to non-employee directors and remain
unexercised at September 27, 1997.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock option plans under the fair value based method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997:
risk free interest rate varied depending on grant date, ranging from 5.72% to
6.69%, no common dividend, volatility factor of the expected market price of the
Company's Common Stock of 65%, and an expected average life of the option of 5.5
years.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------
1997 1996 1995
------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance outstanding... 705,200 $ 2.41 582,000 $ 2.52 361,000 $ 1.85
Granted......................... 373,500 1.98 172,500 2.00 257,000 3.31
Exercised....................... (190,700) 1.40 (27,800) 1.42 (35,500) 1.48
Canceled........................ (225,500) 3.33 (21,500) 3.42 (500) 1.69
Ending balance outstanding...... 662,500 $ 2.14 705,200 $ 2.41 582,000 $ 2.52
======== ===== ======= ===== ======= =====
Exercisable at end of year...... 402,625 $ 2.18 426,825 $ 2.50 309,250 $ 1.94
======== ===== ======= ===== ======= =====
Shares available for future
grant......................... 272,279 23,530 88,429
======== ======= =======
</TABLE>
26
<PAGE> 28
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The pro forma
information for 1997 and 1996 follows (in thousands except for per share
information):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------
1997 1996
---- ------
<S> <C> <C>
Net income.......................................................... $522 $1,290
Option compensation expense......................................... 245 47
---- ------
Pro forma net income................................................ $277 $1,243
==== ======
</TABLE>
Had the Company elected to adopt the recognition provisions of SFAS No. 123, net
income per share would have been reduced by $.03 and $.01 for fiscal 1997 and
1996 respectively.
The following table summarizes additional information about the Company's stock
options outstanding as of September 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED ------------------------
WEIGHTED AVERAGE WEIGHTED-
SHARES AVERAGE REMAINING AVERAGE
UNDER EXERCISE CONTRACTUAL EXERCISABLE EXERCISE
OPTION PRICE LIFE SHARES PRICE
------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Range of exercise price:
$1.250 - $2.625............. 630,500 $ 1.99 8.46 years 370,625 $ 2.01
$3.125 - $3.562............. 32,000 $ 3.38 7.77 years 32,000 $ 3.38
------- ----- ---------- ------- -----
662,500 $ 2.14 8.43 years 402,625 $ 2.18
======= ===== ========== ======= =====
</TABLE>
On December 6, 1996, the Board of Directors adopted a program to permit the
repricing of 213,500 options that were granted to officers and employees in 1995
under the Company's 1994 Flexible Stock Plan. The revised exercise price is
$2.00 per share (approximately 25% over the market price on the date of the
repricing) instead of the original exercise prices which ranged from $3.125 to
$3.375 per share. In the above table these options are shown as being canceled
and new options granted.
During fiscal 1995, the Board of Directors terminated the Company's Restricted
Stock Award Plan under which shares of the Company's Common Stock were available
to certain officers and employees without the payment of consideration. The cost
of such awards at the date of grant was considered to be compensation and was
expensed over the vesting period. Amounts charged to expense in fiscal years
1997, 1996, and 1995, net of forfeitures, were $8,700, $15,000, and $40,000,
respectively. At September 27, 1997, all of the shares previously awarded were
unrestricted.
10. FINANCIAL INSTRUMENTS
The financial position of the Company at September 27, 1997, includes certain
financial instruments which may have a fair value that is different from the
value currently reflected on the financial statements. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practical to estimate that value.
Cash and Cash Equivalents
Cash is invested in overnight securities, therefore the fair value is
equal to the carrying amount.
Long Term Debt
The carrying amount of long term debt is a reasonable estimate of fair
value as the stated rates of interest approximate current market rates.
27
<PAGE> 29
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under noncancelable lease
agreements some of which include renewal options of up to five years. Total rent
expense for 1997, 1996, and 1995 was $376,000, $356,000, and $399,000
respectively. Future minimum annual fixed rentals required under noncancelable
operating leases having an original term of more than one year are $651,000 in
1998, $636,000 in 1999, $543,000 in 2000, $520,000 in 2001, $458,000 in 2002,
and $2,431,000 thereafter.
On April 25, 1996 the U.S. Attorney's Office for the State of Arizona undertook
an investigation of certain aspects of White Microelectronics contracts with
prime contractors with the Federal government. The investigation is centering on
the interpretation of certain government contract specified testing requirements
on incoming material. The Company is cooperating fully with the investigation.
Management believes a potential prosecution is remote.
12. PREFERRED STOCK
Preferred shareholders vote equally with common shareholders. Each share of
preferred stock has one vote, is convertible into 13.33 shares of the Company's
Common Stock (stated value $0.10 per share), and pays annual dividends totaling
$3.00, payable quarterly on March 31, June 30, September 30 and December 31 of
each year. The preferred stock is redeemable at the option of the Company at
$25.00 per share on and after January 1, 1998, and is not subject to mandatory
redemption.
13. CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily to the defense and commercial
industries in the United States. In fiscal 1997, no customer sales accounted for
10% or more of the Company's sales. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. At certain times throughout the year the Company
may maintain certain bank accounts in excess of the FDIC insured limits. As of
September 27, 1997 and September 28, 1996, there was $949,000 and $0 of
uninsured cash respectively.
14. DISPOSITIONS
The Company sold a certain stock investment in February, 1997. This transaction
resulted in a gain of approximately $91,000 which was recorded in other income.
The Company sold the production equipment and tooling used in the ordnance
product line in May, 1996. Additionally, in June, 1996, the Company sold the
inventory, production equipment, test equipment and drawings that pertained to
the rapid heat transfer sterilizer product line. These transactions resulted in
a combined gain of approximately $90,000 which was recorded as other income.
Both product lines were a part of electromechanical segment sales. The combined
net sales were $1,038,000, $2,150,000, and $448,000 and the combined operating
losses were $83,000, $991,000 and $11,000 in fiscal 1996, 1995 and 1994
respectively.
15. SHAREHOLDERS RIGHTS PLAN
On December 6, 1996, the Board of Directors adopted a shareholder rights plan to
protect shareholders against unsolicited attempts to acquire control of the
Company which do not offer what the Company believes to be an adequate price for
all shareholders. To implement the plan, the Board declared a dividend of one
common share purchase right (a "Right" or "Rights") for each outstanding share
of the Corporation's Common Stock and entered into a rights agreement with
American Stock Trust and Transfer, as Rights Agents (the "Rights Agreement"). If
and when the Rights become exercisable, each Right will entitle the registered
holder to purchase from the Company one share of Common Stock of the Company at
a purchase
28
<PAGE> 30
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of $20.00 (subject to adjustment pursuant to certain anti-dilution
provisions) (the "Purchase Price"). The terms of the rights are set forth in the
Rights Agreements.
Separate certificates representing the Rights will be distributed only upon an
event triggering a distribution. Pursuant to the Rights Agreement, if a person
or group (an "Acquiring Person") acquires 15% or more of the Company's
outstanding voting stock or announces a tender or exchange offer that would
result in the ownership by the Acquiring Person of 15% or more of the
outstanding voting stock, the Rights certificates will be distributed and each
holder of the rights (other than the Acquiring Person) may either exercise the
Rights to acquire Common Stock of the Company at the then Purchase Price or
convert the Rights into that number of shares of Common Stock equal to the
Purchase Price times the number of Rights held by the holder divided by 50% of
the then current market price of the Common Stock.
In the event that the Company is acquired in a merger or other transaction where
it is not the surviving corporation or where all or part of its Common Stock is
exchanged for securities, cash or property of another person, or in the event
that 50% or more of the Company's assets are sold, proper provision will be made
so that each holder of the right (other than the Acquiring Person) will have the
right to receive, upon exercise thereof, that number of shares of common stock
of the acquiring corporation which at the time of such transaction will have a
market value of two times the exercise price of the Right. Similarly, in the
event that a person acquires 15% or more of the outstanding Common Stock of the
Company, proper provision will be made so that each holder of a Right (other
than the Acquiring Person) will thereafter have the right to receive upon
exercise that number of shares of Common Stock of the Company having a market
value of two times the exercise price of the Right.
The Rights Agreement also contains an exchange option. At any time after a
person becomes an Acquiring Person, and prior to the acquisition by such
Acquiring Person of 50% or more of the outstanding Common Stock of the Company,
the Board of Directors may exchange the Rights (other than Rights owned by the
Acquiring Person, which Rights shall become void), in whole or in part, at an
exchange ratio of one share of Common Stock per Right.
Finally, the Rights are subject to redemption. At any time prior to the tenth
calendar day following the date of a public announcement that a person or group
has become an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not part, at a price of $.01 per Right.
The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that from and after such time as
any person becomes an Acquiring Person, no such amendment may adversely affect
the interests of the holders of the Rights. Until a Right is exercised, the
holder thereof, as such, will have no rights as a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends. The
Rights cannot be bought, sold or otherwise traded separately from the Common
Stock. Certificates for Common Stock issued after the date of the Rights
Agreement carry a notation that indicates the Rights are attached. The Rights
will expire on December 5, 2006 unless extended or unless the Rights are earlier
redeemed by the Company.
16. DISCONTINUED OPERATIONS
In December, 1997 the Board of Directors decided to sell its Technologies
division. This operation is reflected as discontinued operations for all periods
presented in the Company's Statement of Income. During 1997, the Company
recorded a reserve of $1,300,000 for estimated future operating losses of the
Technologies division, and the estimated costs and losses associated with the
disposition.
While the estimated net loss is based on management analysis it is difficult to
estimate what the Company may ultimately realize on the sale of this division.
Therefore, what the Company could eventually realize may differ materially in
the near term from the amounts assumed in arriving at the estimated net loss.
29
<PAGE> 31
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The historical statements of operations have been adjusted to show the results
of the discontinued operations separately.
The following table reflects the results of the discontinued operation for the
periods presented in the Company's Consolidated Statements of Income:
<TABLE>
<CAPTION>
FISCAL YEAR
TECHNOLOGIES DIVISION -----------------------------------------
OPERATING RESULTS 1997 1996 1995
----------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Net sales...................................... $5,631,000 $ 6,477,000 $8,802,000
Gross margin................................... $1,682,000 $ 1,692,000 $2,176,000
Product development............................ $ 130,000 $ 157,000 $ 450,000
---------- ---------- ----------
Operating expenses............................. $1,602,000 $ 1,505,000 $2,703,000
========== ========== ==========
</TABLE>
The components of net assets of discontinued operations included in the
Company's Consolidated Balance Sheets at September 27, 1997 and September 28,
1996 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
TECHNOLOGIES DIVISION 1997 1996
---------------------------------------------------------- ------------- -------------
<S> <C> <C>
Receivables, net.......................................... $ 1,089,000 $ 932,000
Inventories............................................... 1,958,000 841,000
Other current assets...................................... 385,000 361,000
Property and equipment
Intangible and other assets (net)......................... 700,000 640,000
Accounts payable and other current liabilities............ (694,000) (593,000)
Long-term debt............................................ (41,000) 0
---------- ----------
Net Assets................................................ $ 3,397,000 $ 2,181,000
========== ==========
</TABLE>
17. CLOSURE OF THE CORPORATE OFFICE
As a result of the divestiture of the Technologies division, it was decided that
there was no continuing need for the Company's corporate office. Therefore, the
corporate office will be eliminated in the first quarter of fiscal 1998 which
will result in an estimated charge in the first quarter of fiscal 1998 of
$340,000 for severance and other closing costs.
30
<PAGE> 32
BOWMAR INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. INTERIM FINANCIAL RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
------------------------------------------------------- ------------------
DEC. 30 MAR. 29 JUN. 28 SEP. 27 YEAR DEC. 30 MAR. 30
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $5,036 $5,577 $5,752 $5,824 $22,189 $4,797 $4,851
Gross margin............................ $2,072 $2,266 $2,309 $2,373 $ 9,020 $1,922 $2,056
Income from continuing operations before
income taxes.......................... $ 624 $ 733 $ 631 $ 131 $ 2,119 $ 539 $ 493
Income from continuing operations....... $ 383 $ 450 $ 387 $ 112 $ 1,333 $ 334 $ 305
Discontinued operations (Note 16)
Technologies Division
Income (loss) from operations, net
of tax............................ $ 46 $ (52) $ (36) $ 11 $ (31) $ (130) $ 3
Loss on disposition net of deferred
income tax credit of $520(a)...... $ (780) $ (780)
Income (loss) from discontinued
operations............................ $ 46 $ (52) $ (36) $ (769) $ (811) $ (130) $ 3
NET INCOME.............................. $ 429 $ 398 $ 351 $ (657) $ 522 $ 204 $ 308
Net income per share -- primary(b)...... $ 0.05 $ 0.05 $ 0.04 $(0.12) $ 0.02 $ 0.02 $ 0.03
Common stock market price:(c)
High.................................. 1 3/4 2 3/16 2 15/16 2 13/16 3 2 15/16
Low................................... 1 3/4 1 5/8 1 13/16 2 1/4 2 1/4 2 3/16
Preferred market price:(c)
High.................................. 32 34 40 39 1/2 41 37 3/4
Low................................... 28 5/8 30 1/2 31 1/2 37 33 34
<CAPTION>
JUN. 29 SEP. 28 YEAR
------- ------- --------
<S> <<C> <C> <C>
Net sales............................... $4,042 $5,150 $ 18,840
Gross margin............................ $1,781 $2,079 $ 7,838
Income from continuing operations before
income taxes.......................... $ 471 $ 553 $ 2,056
Income from continuing operations....... $ 291 $ 342 $ 1,272
Discontinued operations (Note 16)
Technologies Division
Income (loss) from operations, net
of tax............................ $ 37 $ 108 $ 18
Loss on disposition net of deferred
income tax credit of $520(a)......
Income (loss) from discontinued
operations............................ $ 37 $ 108 $ 18
NET INCOME.............................. $ 329 $ 450 $ 1,290
Net income per share -- primary(b)...... $ 0.04 $ 0.05 $ 0.14
Common stock market price:(c)
High.................................. 2 11/16 2 1/16
Low................................... 1 7/8 1 1/2
Preferred market price:(c)
High.................................. 36 1/2 33 1/2
Low................................... 30 28 5/8
</TABLE>
- ---------------
(a) Discontinued operations loss on disposition includes a provision of $600,000
for losses during the phase-out period.
(b) Fully diluted net income per share is considered to be the same as primary
net income per share since the effect of the potentially dilutive
convertible preferred stock is currently antidilutive.
(c) Both common and preferred shares are traded on the American Stock Exchange.
31
<PAGE> 33
ITEM 15 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BOWMAR INSTRUMENT CORPORATION
<TABLE>
<S> <C>
Date: December 10, 1997 /s/ JOSEPH G. WARREN, JR.
--------------------------------------- --------------------------------------------
Joseph G. Warren, Jr.
Vice President Finance, Secretary,
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated:
<TABLE>
<S> <C>
/s/ THOMAS K. LANIN /s/ STEVEN P. MATTEUCCI
- --------------------------------------------- --------------------------------------------
Thomas K. Lanin Steven P. Matteucci
President, Chief Executive Officer and Director
Director Date: December 10, 1997
Date: December 10, 1997 --------------------------------------
---------------------------------------
/s/ JOSEPH G. WARREN, JR. /s/ EDWARD A. WHITE
- --------------------------------------------- --------------------------------------------
Vice President Finance, Secretary, Treasurer Edward A. White
and Chief Financial and Accounting Officer Chairman of the Board and Director
Date: December 10, 1997 Date: December 10, 1997
--------------------------------------- --------------------------------------
/s/ DAN L. MCGURK /s/ THOMAS M. REAHARD
- --------------------------------------------- --------------------------------------------
Dan L. McGurk Thomas M. Reahard
Director Director
Date: December 10, 1997 Date: December 10, 1997
--------------------------------------- --------------------------------------
</TABLE>
32
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CODE OF BY-LAWS
OF
BOWMAR INSTRUMENT CORPORATION
ARTICLE 1
Identification, Records, Seal and Fiscal Year
Section 1.01. Name. The name of the Corporation is Bowmar Instrument
Corporation ("Corporation").
Section 1.02. Place of Keeping Corporate Books and Records. The
Corporation shall keep at its principal office a copy of (a) its Articles of
Incorporation and all amendments thereto currently in effect ("Articles"); (b)
its Code of By-Laws and all amendments thereto currently in effect ("By-Laws");
(c) resolutions adopted by the Board of Directors ("Board") with respect to one
or more classes or series of shares and fixing their relative rights,
preferences, and limitations, if shares issued pursuant to these resolutions are
outstanding; (d) minutes of all meetings of the Shareholders of the Corporation
("Shareholders") and records of all actions taken by the Shareholders without a
meeting (collectively, "Shareholders Minutes") for the prior three years; (e)
all written communications by the Corporation to the Shareholders including the
financial statements furnished by the Corporation to the Shareholders for the
prior three years; (f) a list of the names and business addresses of the current
directors of the Corporation ("Directors") and the current officers of the
Corporation ("Officers"); and (g) the most recent Annual Report of the
Corporation as filed with the Secretary of State of Indiana. The Corporation
shall also keep and maintain at its principal office, or at such other place or
places within or without the State of Indiana as may be provided, from time to
time, in these By-Laws, (a) minutes of all meetings of the Board and of each
committee, and records of all actions taken by the
<PAGE> 2
Board and by each committee without a meeting; (b) Shareholders Minutes; (c)
appropriate accounting records of the Corporation; and (d) a record of the
Shareholders in a form that permits preparation of a list of the names and
addresses of all the Shareholders, in alphabetical order by class of shares,
stating the number and class of shares held by each Shareholder. All of the
records of the Corporation described in this Section shall be maintained in
written form or in another form capable of conversion into written form within a
reasonable time.
Section 103. Seal. The Board may designate the design and cause the
Corporation to obtain and use a corporate seal, but the failure of the Board to
designate a seal or the absence of the impression of the corporate seal from any
document does not affect in any way the validity or effect of such document.
Section 1.04. Fiscal Year. The fiscal year of the Corporation shall
begin at 12:01 A.M. Phoenix time on October 1 of each year and end at 12:00
Midnight on September 30 of the next succeeding calendar year.
ARTICLE 2
Shares
Section 2.01. Certificates for Shares. Each holder of the shares of the
Corporation shall be entitled to a certificate in such form as the Board may
prescribe from time to time. However, unless the Articles provide otherwise, the
Board may authorize the issue of some or all of the shares of any or all of the
Corporation's classes or series without certificates. Within a reasonable time
after the issue or transfer of shares without certificates, the Corporation
shall send the Shareholder a written statement of the information required on
certificates by the Indiana Business Corporation Law, as amended from time to
2
<PAGE> 3
time ("Act"), and the information required by the Indiana Uniform Commercial
Code, as in effect from time to time. A holder of such shares may request that a
certificate be provided to him by giving notice to the Secretary of the
Corporation. The certificate shall be provided in the form prescribed by the
Board.
Section 2.02. Transfer of Shares. The shares of the Corporation shall
be transferable only on the books of the Corporation upon delivery to the
Corporation of the certificate(s) representing the same or, in the case of
shares without certificates, an instrument of assignment in respect of the
shares being transferred, in form and substance satisfactory to the Corporation,
properly endorsed by the registered holder or by his duly authorized attorney,
such endorsement or endorsements to be witnessed by one witness or guaranteed by
a bank or registered securities broker or dealer. The requirement for such
witnessing may be waived in writing upon the form of endorsement by the
President of the Corporation. Within a reasonable time after the transfer of
shares without certificates, the Corporation shall send the Shareholder a
written statement of the information required by Section 2.01 of these By-Laws.
Section 2.03. Lost, Stolen or Destroyed Certificates. The Corporation
may issue a new certificate for shares in the place of any certificate
theretofore issued and alleged to have been lost, stolen or destroyed, but the
Board may require the owner of such lost, stolen or destroyed certificate, or
his legal representative, to furnish affidavit as to such loss, theft or
destruction and to give a bond in such form and substance, and with such surety
or sureties, with fixed or open penalty, as it may direct to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate. A new certificate may be issued
without
3
<PAGE> 4
requiring any bond when, in the judgment of the Board, it is not imprudent to do
so.
Section 2.04. Issue and Consideration for Shares. The Board may
authorize shares to be issued for consideration consisting of any tangible or
intangible property or benefit to the Corporation, including cash, promissory
notes, services performed, contracts for services to be performed, or other
securities of the Corporation. If shares are issued for promissory notes or for
promises to render services in the future, the Corporation shall report in
writing to the Shareholders the number of shares authorized to be so issued with
or before the notice of the next Shareholders' meeting. However, as long as the
Corporation is subject to the Securities Exchange Act of 1934, as amended
("Exchange Act"), these reporting requirements shall be satisfied by complying
with the proxy disclosure provisions of the Exchange Act. The adequacy of the
consideration is to be determined by the Board, and that determination is
conclusive insofar as the adequacy of the shares relates to whether the shares
are validly issued, fully paid, and nonassessable. Once the Corporation receives
the consideration for which the Board authorized the issuance of the shares, the
shares shall be fully paid and nonassessable.
Section 2.05. Transfer Agents and Registrars. Whenever the Board shall
so determine, the Corporation shall maintain one or more transfer offices or
agencies, each in charge of a transfer agent designated by the Board, where the
shares of the Corporation shall be directly transferable, and also one or more
registry offices, each in charge of a registrar designated by the Board where
such shares shall be registered, and no certificate for shares of the
Corporation in respect of which a transfer agent and registrar shall have been
designated shall be valid unless countersigned by such transfer agent and
registered
4
<PAGE> 5
by such registrar. One person, firm or corporation may be authorized by the
Board to be both the transfer agent and the registrar. The Board may also make
such additional rules and regulations as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation.
Section 2.06. Fixing of Record Date to Determine Shareholders Entitled
to Receive Corporate Benefits. The Board may fix a day and hour not exceeding
fifty (50) days preceding the date fixed for payment of any dividend, or for the
delivery of evidences of rights, or for the distribution of certificates for
shares of stock upon a change of outstanding shares into a greater or lesser
number of shares, as a record time for the determination of the shareholders
entitled to receive any such dividend, rights or distribution.
ARTICLE 3
Meetings of Shareholders
Section 3.01. Place of Meetings. All meetings of Shareholders shall be
held at the principal office of the Corporation or at such other place, within
or without the State of Indiana, as may be specified in the respective notices
or waivers of notice thereof.
Section 3.02. Annual Meeting. The annual meeting of the Shareholders
for the election of Directors, and for the transaction of such other business as
may properly come before the meeting, shall be held on the first Friday of
February of each year (if such day is a legal holiday, then on the first
following day that is not a legal holiday) or on such other date within six
months following the end of each of the Corporation's fiscal years as the Board
shall determine. Failure to hold the
5
<PAGE> 6
Annual Meeting at the designated time does not affect the validity of any
corporate action.
Section 3.03. Special Meetings. Special meetings, for any purpose or
purposes (unless otherwise prescribed by law), may be called by the Board, the
Chairman of the Board or the President, and shall be called by the Chairman of
the Board, the President or any Vice-President at the request in writing of a
majority of the Board. All requests for special meetings shall state the purpose
or purposes thereof, and the business transacted at such meeting shall be
confined to the purposes stated in the call and matters germane thereto.
Section 3.04. Record Date. The Board may fix a record date, not
exceeding seventy (70) days prior to the date of any meeting of the
Shareholders, for the purpose of determining the Shareholders entitled to notice
of and to vote at such meeting. In the absence of action by the Board fixing a
record date as herein provided, the record date shall be the fourteenth (14th)
day prior to the date of the meeting. A new record date must be fixed if a
meeting of Shareholders is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Section 3.05. Notice of Meetings. A written or printed notice, stating
the place, day and hour of the meeting, and, in the case of a special meeting or
when otherwise required by any provision of the Act, the Articles or these
By-Laws, the purpose or purposes for which the meeting is called, shall be
delivered or mailed by the Secretary or by the persons calling the meeting to
each Shareholder at the time entitled to vote, at such address as appears on the
records of the Corporation, at least ten (10) and not more than sixty (60) days
before the date of the meeting. Each Shareholder who has in the manner provided
in Section 3.06 of these By-Laws waived notice of a Shareholders'
6
<PAGE> 7
meeting, or who personally attends a Shareholders' meeting, or is represented
thereat by a proxy duly authorized to appear by an instrument of proxy complying
with the requirements hereinafter set forth, shall be conclusively presumed to
have been given due notice of such meeting unless such Shareholder or proxy at
the beginning of the meeting objects to the holding of, or the transaction of
business at, the meeting.
Section 3.06. Waiver of Notice. Notice of any annual or special meeting
may be waived in writing by any Shareholder, before or after the date and time
of the meeting specified in the notice thereof, by a written waiver delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records. A Shareholder's attendance at any meeting in person or by proxy shall
constitute a waiver of (a) notice of such meeting, unless the Shareholder at the
beginning of the meeting objects to the holding of or the transaction of
business at the meeting, and (b) consideration at such meeting of any business
that is not within the purpose or purposes described in the meeting notice,
unless the Shareholder objects to considering the matter when it is presented.
Section 3.07. Proxies. A Shareholder entitled to vote at any meeting
may vote either in person or by proxy executed in writing by the Shareholder or
a duly authorized attorney-in-fact of such Shareholder. For purposes of this
Section, a proxy granted by telegram, telex, telecopy of other document
transmitted electronically for or by a Shareholder shall be deemed "executed in
writing by the Shareholder." The general proxy of a fiduciary shall be given the
same effect as the general proxy of any other Shareholder. No proxy shall be
valid after eleven months from the date of its execution unless a longer or
shorter time is expressly provided therein. An appointment of a proxy is
revocable by a Shareholder unless the
7
<PAGE> 8
appointment form conspicuously states that it is irrevocable and the appointment
is coupled with an interest.
Section 3.08. Voting. No shares shall be voted at any meeting: (1) upon
which any installment is due and unpaid; (2) which, in the absence of
determination of a record date in accordance with the provisions of Section
3.04, have been transferred on the books of the Corporation within ten (10) days
preceding the date of such meeting; or (3) which belong to the Corporation.
Shares standing in the name of a corporation (other than in the name of this
Corporation) may be voted by such officer, agent, or proxy as the Board of
Directors of such corporation may appoint or as the by-laws of such corporation
may prescribe. Shares held by fiduciaries may be voted by the fiduciaries in
such manner as the instrument or order appointing such fiduciaries may direct.
In the absence of such direction or the inability of the fiduciaries to act in
accordance therewith, the following provisions shall apply: (1) where shares are
held jointly by three or more fiduciaries, such shares shall be voted in
accordance with the will of the majority; (2) where the fiduciaries or a
majority of them cannot agree, or where they are equally divided upon the
question of voting such shares, such shares shall be voted in accordance with
the direction made by any court of general equity jurisdiction upon petition for
such purpose filed by any of such fiduciaries or by any party in interest.
Shares that are pledged may, unless otherwise provided in the agreement of
pledge and notice to that effect served upon the Corporation, be voted by the
shareholder pledging the same until such shares shall have been transferred to
the pledgee on the books of the Corporation, and thereafter they may be voted by
the pledgee.
Section 3.09. Quorum. At any meeting of Shareholders, the holders of a
majority of the outstanding shares which may be
8
<PAGE> 9
voted on the business to be transacted at such meeting, represented thereat in
person or by proxy, shall constitute a quorum, and a majority vote of such
quorum shall be necessary for the transaction of any business by the meeting,
unless a greater number is required by law, the Articles or these By-Laws. In
case a quorum shall not be present at any meeting, the holders of record of a
majority of such shares so present in person or by proxy may adjourn the meeting
from time to time, without notice, other than announcement at the meeting,
unless the date of the adjourned meeting requires that the Board fix a new
record date therefore, in which case notice of the adjourned meeting shall be
given. At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally scheduled.
Section 3.10. Shareholder List. The Secretary shall prepare before each
meeting of Shareholders a complete list of the Shareholders entitled to notice
of such meeting, arranged in alphabetical order by class of shares (and each
series within a class), and showing the address of, and the number of shares
entitled to vote held by, each Shareholder ("Shareholder List"). Beginning five
business days before the meeting and continuing throughout the meeting, the
Shareholder List shall be on file at the principal office or at a place
identified in the meeting notice as the city where the meeting will be held, and
shall be available for inspection by any Shareholder entitled to vote at the
meeting. On written demand, made in good faith and for a proper purpose and
describing with reasonable particularity the Shareholder's purpose, and if the
Shareholder List is directly connected with the Shareholder's purpose, a
Shareholder (or such Shareholder's agent or attorney authorized in writing)
shall be entitled to inspect and to copy the Shareholder List, during regular
business hours and at the Shareholder's expense, during
9
<PAGE> 10
the period the Shareholder List is available for inspection. The original stock
register or transfer book, or a duplicate thereof kept at the principal office
of the Corporation, shall be the only evidence as to who are the Shareholders
entitled to examine the Shareholder List, or to notice of or to vote at any
meeting.
Section 3.11. Meeting by Telephone, etc. Any or all of the Shareholders
may participate in a meeting by or through the use of any means of communication
by which all Shareholders participating may simultaneously hear each other
during the meeting. A Shareholder participating in a meeting by this means is
deemed to be present in person at the meeting.
Section 3.12. Inspectors. The Board, the Chairman of the Board or the
President, in advance of any meeting of shareholders, may appoint one or more
inspectors to act at such meeting or any adjournment thereof. If one or more
inspectors of election are not so appointed, the officer or person acting as
chairman of any such meeting may, and on the request of any shareholder or his
proxy, shall make such appointment. In case any person appointed as inspector
shall fail to appear or to act, the vacancy may be filled by appointment made by
the Board, the Chairman of the Board or the President in advance of the meeting,
or at the meeting by the officer or person acting as chairman. The inspector or
inspectors of election shall determine the number of shares outstanding, the
voting power of each, the shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, receive votes,
ballots, assents, or consents, hear and determine all challenges and questions
in any way arising in connection with the vote, count and tabulate all votes,
assents and consents, determine and announce the result, and do such acts as may
be proper to conduct the election or vote with fairness to all shareholders. No
inspector however appointed need be a Shareholder. In the event
10
<PAGE> 11
one or more inspectors are not appointed in such manner as set forth above, the
Secretary of the Corporation shall perform the duties of the inspectors.
ARTICLE 4
Board of Directors
Section 4.01. Duties and Number. The property and business of the
Corporation shall be managed under the direction of its Board. The number of
Directors which shall constitute the whole Board of Directors of the Corporation
and shall be no less than four nor greater than ten. The number within that
range shall be fixed from time to time by the Board of Directors.
Section 4.02. Election, Term of Office and Qualification. Directors
shall be elected at each annual meeting by the Shareholders entitled by the
Articles to elect Directors. Directors shall be elected for a term of one year
and shall hold office until their respective successors are elected and
qualified. Directors need not be residents of the State of Indiana or
Shareholders of the Corporation. No decrease in the number of Directors at any
time provided by these By-Laws shall have the effect of shortening the term of
any incumbent Director.
Section 4.03. Powers of Directors. The Board shall exercise all of the
powers of the Corporation, subject to the restrictions imposed by law, the
Articles, or these By-Laws.
Section 4.04. Annual Meeting. Unless otherwise determined by the Board,
the Chairman of the Board or the President, the Board shall meet each year
immediately after the annual meeting of the Shareholders, at the place where
such meeting of the Shareholders has been held, for the purpose of organization,
election of Officers, and consideration of any
11
<PAGE> 12
other business that may properly be brought before the meeting. No notice shall
be necessary for the holding of this annual meeting. If such meeting is not held
as above provided, the election of Officers may be held at any subsequent duly
constituted meeting of the Board.
Section 4.05. Regular Board Meetings. Regular meetings of the Board may
be held at stated times or from time to time, and at such place, either within
or without the State of Indiana, as the Board may determine, without call and
without notice.
Section 4.06. Special Board Meetings. Special meetings of the Board may
be called at any time or from time to time, and shall be called on the written
request of at least two Directors, the Chairman of the Board, or the President,
by causing the Secretary or any Assistant Secretary to give to each Director,
either personally or by mail, telephone, telegraph, teletype or other form of
wire or wireless communication at least two days' notice of the date, time and
place of such meeting. Special meetings shall be held at the principal office of
the Corporation or at such other place, within or without the State of Indiana,
as shall be specified in the respective notices or waivers of notice thereof. A
Director may waive notice of any special meeting of the Board before or after
the date and time stated in the notice by a written waiver signed by the
Director and filed with the minutes or corporate records. A Director's
attendance at or participation in a special meeting waives any required notice
to the Director of the meeting unless the Director at the beginning of the
meeting (or promptly upon the Director's arrival) objects to holding the meeting
or transacting business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
12
<PAGE> 13
Section 4.07. Meeting by Telephone, etc. Any or all of the members of
the Board or of any committee designated by the Board may participate in a
meeting of the Board or the committee, or conduct a meeting through the use of,
any means of communication by which all persons participating may simultaneously
hear each other during the meeting, and participation in a meeting using these
means constitutes presence in person at the meeting.
Section 4.08. Quorum. At all meetings of the Board, the presence of a
majority of the number of Directors designated for the full Board shall be
necessary to constitute a quorum for the transaction of any business, except (a)
that for the purpose of filling of vacancies on the Board, a majority of
Directors then in office shall constitute a quorum, and (b) that a lesser number
may adjourn the meeting from time to time until a quorum is present. The
affirmative vote of a majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board, unless the act of a greater
number is required by law, the Articles or these By-Laws.
Section 4.09. Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if the action is taken by all members of the Board or of such
committee. The action must be evidenced by one (1) or more written consents
describing the action taken, signed by each member of the Board or of the
committee, and included in the minutes or filed with the corporate records
reflecting the action taken. Action taken under this Section is effective when
the last member of the Board or of the committee signs a written consent, unless
the consent specifies a different prior or subsequent effective date.
Section 4.10. Resignations. Any Director may resign
13
<PAGE> 14
at any time by delivering written notice to the Board, the Chairman of the
Board, the President, or the Secretary. Such resignation shall take effect when
the notice is delivered unless the notice specifies a later effective date. If
the resignation specifies a later effective date, the Board may fill the pending
vacancy before the effective date, but the new Director may not take office
until the vacancy occurs.
Section 4.11. Removal. Any Director may be removed, with or without
cause, at any meeting of the Shareholders by the affirmative vote of a majority
in number of shares of the Shareholders of record present in person or by proxy
and entitled to vote for the election of Directors, if notice of the intention
to act upon such matter shall have been given in the notice calling such
meeting. If the notice calling such meeting shall so provide, the vacancy caused
by such removal may be filled at such meeting by vote of the holders of a
majority of the outstanding shares present and entitled to vote for the election
of Directors.
Section 4.12. Vacancies. Any vacancy occurring in the Board, including
a vacancy resulting from an increase in the number of Directors, may be filled
by the Board or, if the Directors remaining in office constitute fewer than a
quorum of the Board, they may fill the vacancy by the affirmative vote of a
majority of all the Directors remaining in office. Each Director so chosen shall
hold office until the expiration of the term of the Director, if any, whom he
has been chosen to succeed, or, if none, until the expiration of the term
designated by the Board for the directorship to which he has been elected, or
until his earlier removal, resignation, death, or other incapacity.
Section 4.13. Compensation of Directors. The Board is empowered and
authorized to fix and determine the compensation of
14
<PAGE> 15
Directors for attendance at meetings of the Board and additional compensation
for such additional services any of such Directors may perform for the
Corporation.
Section 4.14. Interest of Directors in Contracts. Any contract or other
transaction between the Corporation and (a) any Director, or (b) any
corporation, unincorporated association, business trust, estate, partnership,
trust, joint venture, individual or other legal entity ("Legal Entity") (1) in
which any Director has a material financial interest or is a general partner, or
(2) of which any Director is a director, officer or trustee (collectively, a
"Conflict Transaction"), shall be valid for all purposes, if the material facts
of the Conflict Transaction and the Director's interest were disclosed or known
to the Board, a committee with authority to act thereon, or the Shareholders
entitled to vote thereon, and the Board, such committee, or such Shareholders
authorized, approved, or ratified the Conflict Transaction. A Conflict
Transaction is authorized, approved or ratified:
(a) By the Board or such committee, if it receives the affirmative vote
of a majority of the Directors who have no interest in the Conflict
Transaction, notwithstanding the fact that such majority may not constitute
a quorum or a majority of the Board or such committee or a majority of the
Directors present at the meeting, and notwithstanding the presence or vote
of any Director who does have such an interest; provided, however, that no
Conflict Transaction may be authorized, approved or ratified by a single
Director; or
(b) By such Shareholders, if it receives the vote of a majority of the
shares entitled to be counted, in which vote shares owned or voted under the
control of any Director who,
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<PAGE> 16
or of any Legal Entity that, has an interest in the Conflict Transaction may
be counted.
This Section shall not be construed to require authorization, ratification or
approval by the Shareholders of any Conflict Transaction, or to invalidate any
Conflict Transaction that would otherwise be valid under the common and
statutory law applicable thereto.
ARTICLE 5
Committees
of the Board of Directors
Section 5.01. Committees. The Board may create one or more committees
and appoint members of the Board to serve on them. Each committee may have one
or more members, who shall serve at the pleasure of the Board. The creation of a
committee and appointment of members to it must be approved by the greater of:
(a) a majority of all the Directors in office when the action is taken; or (b)
the number of Directors required by the Articles or these By-Laws to take action
under the Act.
Section 5.02. Powers of Committees. To the extent specified by the
Board, each committee may exercise the authority of the Board. No committee may,
however, (a) authorize distributions, except a committee (or an executive
officer of the Corporation designated by the Board) may authorize or approve a
reacquisition of shares or other distribution if done according to a formula or
method, or within a range, prescribed by the Board; (b) approve or propose to
Shareholders action that the Act requires to be approved by Shareholders; (c)
fill vacancies on the Board or on any of its committees; (d) except to the
extent permitted by Subsection (g) of this Section 5.02, amend the Articles; (e)
adopt, amend, or repeal these By-Laws; (f) approve
16
<PAGE> 17
a plan of merger not requiring Shareholder approval; or (g) authorize or approve
the issuance or sale or a contract for the sale of shares, or determine the
designation and relative rights, preferences, and limitations of a class or
series of shares, except the Board may authorize a committee (or an executive
officer designated by the Board) to take the action described in this Subsection
(g) within limits prescribed by the Board.
Section 5.03. Meetings; Procedure; Quorum. Sections 4.05 through 4.09
of these By-Laws dealing with meetings, action without a meeting, notice and
waiver of notice, and quorum and voting requirements of the Board shall apply to
the committees and their members as well.
ARTICLE 6
Officers
Section 6.01. Number. The Officers of the Corporation shall consist of
the Chairman of the Board, the President, one or more Vice-Presidents (if any),
the Secretary, the Treasurer, and such other officers as may be chosen by the
Board at such time and in such manner and for such terms as the Board may
prescribe. Any two or more offices may be held by the same person.
Section 6.02. Election and Term of Office. The Officers shall be chosen
by the Board. Each Officer shall hold office until his successor is chosen and
qualified, until his death, until he shall have resigned, or shall have been
removed pursuant to Section 6.04 of these By-Laws.
Section 6.03. Resignations. Any Officer may resign at any time by
delivering written notice to the Board, the Chairman of the Board, the
President, or the Secretary. Such resignation
17
<PAGE> 18
shall take effect when the notice is delivered unless the notice specifies a
later effective date. If a resignation is made effective at a later date and the
Corporation accepts the future effective date, the Board may fill the pending
vacancy before the effective date if the Board provides that the successor does
not take office until the effective date.
Section 6.04. Removal. Any Officer may be removed either with or
without cause, at any time, by the vote of a majority of the actual number of
Directors elected and qualified from time to time.
Section 6.05. Vacancies. Whenever any vacancy shall occur in any
office, the same shall be filled by the Board and the Officer so chosen shall
hold office during the remainder of the term for which his predecessor was
chosen or as otherwise provided herein.
Section 6.06. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of Shareholders and Directors, discharge all the duties
which devolve upon a presiding officer, and shall exercise and perform such
other powers and duties as these By-Laws or the Board may prescribe.
Section 6.07. President. The President shall be the Chief Executive
Officer of the Corporation and shall manage and supervise all the affairs and
personnel of the Corporation and shall discharge all the usual functions of the
chief executive officer of a corporation. The President shall have full
authority to execute proxies in behalf of the Corporation, to vote stock owned
by it in any other corporation, and to execute, with the Secretary, powers of
attorney appointing other corporations, partnerships, or individuals the agent
of the Corporation, all subject to the provisions of the Act, the
18
<PAGE> 19
Articles and these By-Laws.
Section 6.08. Vice-Presidents. The Vice-Presidents, in the order
designated by the President or the Board, shall exercise and perform all powers
of, and perform duties incumbent upon, the President during his absence or
disability and shall exercise and perform such other powers and duties as these
By-Laws, the Board or the President may prescribe.
Section 6.09. Secretary. The Secretary shall attend all meetings of the
Shareholders and of the Board, and shall keep or cause to be kept in a book
provided for the purpose a true and complete record of the proceedings of such
meetings, and shall perform a like duty, when required, for all committees
created by the Board. He shall authenticate the records of the Corporation when
necessary and shall exercise and perform such other powers and duties as these
By-laws, the Board, or the President may prescribe. He shall give all notices of
the Corporation and, in case of his absence, negligence, or refusal so to do,
any notice may be given by a person so directed by the President or by the
requisite number of Directors upon whose request the meeting is called as
provided by these By-Laws.
Section 6.10. Treasurer. The Treasurer shall keep correct and complete
records of account, showing at all times the financial condition of the
Corporation. He shall be the legal custodian of all moneys, notes, securities
and other valuables that may from time to time come into the possession of the
Corporation. He shall immediately deposit all funds of the Corporation coming
into his hands in some reliable bank or other depository to be designated by the
Board or one or more executive officers designated by the Board, and shall keep
such bank account in the name of the Corporation. He shall furnish at meetings
of the Board, or whenever requested thereby, a statement
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<PAGE> 20
of the financial condition of the Corporation, and shall exercise and perform
such other powers and duties as these By-laws, the Board, or the President may
prescribe. The Treasurer may be required to furnish bond in such amount as shall
be determined by the Board.
Section 6.11. Assistant Officers. The Board or the President may from
time to time appoint assistant Officers who shall serve at the pleasure of the
appointing authority and who shall exercise and perform such powers and duties
as the Officers whom they are elected to assist shall specify and delegate to
them, and such other powers and duties as these By-Laws, the Board, or the
President may prescribe. An Assistant Secretary may, in the absence or
disability of the Secretary, attest the execution of all documents by the
Corporation.
Section 6.12. Delegation of Authority. In case of the absence of any
Officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may delegate the powers or duties of such Officer to any
other Officer or to any Director, for the time being.
20
<PAGE> 21
ARTICLE 7
Negotiable Instruments, Deeds, Contracts,
Stock and Limitation of Liability
Section 7.01. Execution of Negotiable Instruments. All checks, drafts,
bills of exchange and orders for the payment of money by the Corporation shall,
unless otherwise directed by the Board, or unless otherwise required by law, be
signed by any two of the following Officers: the President, any Vice-President,
the Secretary or the Treasurer. The Board may, however, authorize any one or
more of such Officers to sign checks, drafts, bills of exchange and orders for
the payment of money by the Corporation singly and without necessity of
countersignature; and the Board may designate any other employee or employees of
the Corporation, who may, in the name of the Corporation, execute checks,
drafts, bills of exchange and orders for the payment of money by the Corporation
or in its behalf.
Section 7.02. Execution of Deeds, Contracts, Etc. All deeds, notes,
bonds and mortgages made by the Corporation and all other written contracts and
agreements, other than those executed in the ordinary course of corporate
business, to which the Corporation shall be a party shall be executed in its
name by the President, a Vice-President or by any other Officer so authorized by
the Board. When necessary or required, the Secretary shall attest the execution
thereof.
Section 7.03. Ordinary Contracts and Agreements. All written contracts
and agreements into which the Corporation enters in the ordinary course of
business operations shall be executed by any Officer or by any other employee of
the Corporation designated by the President to execute such contracts and
agreements.
21
<PAGE> 22
Section 7.04. Endorsement of Certificates for Shares. Unless otherwise
directed by the Board, any share or shares issued by any corporation and owned
by the Corporation (including reacquired shares of the Corporation) may, for
sale or transfer, be endorsed in the name of the Corporation by the President or
a Vice-President. When necessary or required, the Secretary shall attest such
endorsement.
Section 7.05. Voting of Shares Owned by Corporation. Unless otherwise
directed by the Board, any share or shares issued by any other corporation and
owned or controlled by the Corporation may be voted at any shareholders' meeting
of such other corporation by the President of the Corporation, or in his absence
by a Vice-President of the Corporation. Whenever, in the judgment of the
President, it is desirable for the Corporation to execute a proxy or give a
shareholder's consent in respect to any share or shares issued by any other
corporation and owned by the Corporation, such proxy or consent shall be
executed in the name of the Corporation by the President or a Vice-President of
the Corporation. Any person or persons designated in the manner above stated as
the proxy or proxies of the Corporation shall have full right, power and
authority to vote the share or shares issued by such other corporation and owned
by the Corporation in the same manner as such share or shares might be voted by
the Corporation.
Section 7.06. Limitation of Liability. The following provisions apply
with respect to liability on the part of a Director, a member of any committee
or of another committee appointed by the Board (an "Appointed Committee"),
Officer, employee or agent of the Corporation (collectively, "Corporate
Persons," and individually, a "Corporate Person") for any loss or damage
suffered on account of any action taken or omitted to be taken by a Corporate
Person:
22
<PAGE> 23
(a) General Limitation. No Corporate Person shall be liable for any
loss or damage if, in taking or omitting to take any action causing such
loss or damage, either (1) such Corporate Person acted (A) in good faith,
(B) with the care an ordinarily prudent person in a like position would have
exercised under similar circumstances, and (C) in a manner such Corporate
Person reasonably believed was in the best interests of the Corporation, or
(2) such Corporate Person's breach of or failure to act in accordance with
the standards of conduct set forth in Clause (a)(1) above ("Standards of
Conduct") did not constitute willful misconduct or recklessness.
(b) Reliance on Corporate Records and Other Information. Any Corporate
Person shall be fully protected, and shall be deemed to have complied with
the Standards of Conduct, in relying in good faith, with respect to any
information contained therein, upon (1) the Corporation's records, or (2)
information, opinions, reports or statements (including financial statements
and other financial data) prepared or presented by (A) one or more other
Corporate Persons whom such Corporate Person reasonably believes to be
competent in the matters presented, (B) legal counsel, public accountants or
other persons as to matters that such Corporate Person reasonably believes
are within such person's professional or expert competence, (C) a committee
or an Appointed Committee, of which such Corporate Person is not a member,
if such Corporate Person reasonably believes such committee or Appointed
Committee merits confidence, or (D) the Board, if such Corporate Person is
not a Director and reasonably believes that the Board merits confidence.
23
<PAGE> 24
ARTICLE 8
Amendments
Section 8.01. Amendment of By-Laws. The power to make, alter, amend or
repeal these By-Laws is vested in the Board, but the affirmative vote of a
number of Directors equal to a majority of the number who would constitute a
full Board of Directors at the time of such action shall be necessary to take
any action for the making, alteration, amendment or repeal of these By-Laws.
24
<PAGE> 1
EXHIBIT 10.5
INDUSTRIAL REAL ESTATE LEASE
(MULTI-TENANT FACILITY)
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
[CB COMMERCIAL LOGO] LICENSED REAL ESTATE BROKER
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and
are to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: February 4, 1997
Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): Allred Phoenix Properties,
LLC, a Delaware limited
liability company
Address of Landlord: 1660 Hotel Circle North, #200
San Diego, California 92108
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Bowmar Instrument Corp., an
Indiana corporation
Address of Tenant: 4246 East Wood
Phoenix, Arizona 85040
Section 1.04. PROPERTY: The Property is part of Landlord's multi-tenant
real property development known as Allred Center Southbank
and described or depicted in Exhibit "A" (the "Project"). The Project includes
the land, the buildings and all other improvements located on the land, and the
common areas described in Paragraph 4.05(a). The Property is (include street
address, approximate square footage and description) 3601 East University
Drive, Phoenix, Arizona
Approximately 43,129
square feet
Section 1.05. LEASE TERM: Ten (10) years zero (0) months BEGINNING ON
August 1, 1997 or such other date as is specified in this Lease, and ENDING ON
July 31, 2007
Section 1.06. PERMITTED USES: (See Article Five) Administrative office,
design, development, manufacturing and sales and related uses, provided such
uses comply with all applicable zoning restrictions and the existing
restrictions of record against the Property.
Section 1.07. TENANT'S GUARANTOR: (If none, so state) None
Section 1.08. BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: CB Commercial
Tenant's Broker: CB Commercial
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ By separate agreement
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ 32,778
Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See Section
4.05) See Addendum
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:
(a) BASE RENT: Thirty-two Thousand Seven Hundred Seventy-eight --- Dollars
($32,778*) per month for the first 24 months, as provided in Section 3.01, and
shall be increased on the first day of the 25th month(s) after the Commencement
Date, at 5% increase every 24 months over the preceding Base Rent amount. (If
(ii) is completed, then (i) and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Tenant's Initial Pro Rata Share of Common Area Expenses 34.3% (See Section
4.05); (v) Impounds for Insurance Premiums and Property Taxes (See Section
4.08); (vi) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13 LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) percent (50%) of the Profit (the "Landlord Share").
Section 1.14. RIDERS: The following Riders are attached to and made a part
of this Lease: (If none, so state) Exhibits A, B and C and Addendum
*Plus applicable transaction privilege taxes.
(C) 1988 Southern California Chapter 1 Initials /s/ JGW
of the Society of Industrial [SIOR LOGO]
and Office Realtors(R), Inc.
(Multi-Tenant Net Form)
<PAGE> 2
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and
shall begin and end on the dates specified in Section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under any
provision of this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60)-day period ends. If Tenant gives such notice, the Lease shall be cancelled
and neither Landlord nor Tenant shall have any further obligations to the
other. If Tenant does not give such notice, Tenant's right to cancel the Lease
shall expire and the Lease Term shall commence upon the delivery of possession
of the Property to Tenant. If delivery of possession of the Property to Tenant
is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment
to this Lease setting forth the actual Commencement Date and expiration date of
the Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all of the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in this Lease for the early occupancy period.
Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.03. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord a
cash Security Deposit in the amount set forth in Section 1.10 above. Landlord
may apply all or part of the Security Deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If Landlord
uses any part of the Security Deposit, Tenant shall restore the Security
Deposit to its full amount within ten (10) days after Landlord's written
request. Tenant's failure to do so shall be a material default under this
Lease. No interest shall be paid on the Security Deposit. Landlord shall not be
required to keep the Security Deposit separate from its other accounts and no
trust relationship is created with respect to the Security Deposit.
(b) Each Time the Base Rent is increased, Tenant shall deposit additional
funds with Landlord sufficient to increase the Security Deposit to an amount
which bears the same relationship to the adjusted Base Rent as the initial
Security Deposit bore to the initial Base Rent.
(C) 1988 Southern California Chapter 2 Initials /s/ JGW
of the Society of Industrial [SIOR LOGO]
and Office Realtors(R), Inc.
(Multi-Tenant Net Form)
<PAGE> 3
Section 3.04. TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on the
Property (including any fees, taxes or assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.08
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10)-day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined
by applicable law, or other transfer of all or part of Landlord's interest in
the Property; and (v) any charge or fee replacing any tax previously included
within the definition of real property tax. "Real property tax" does not,
however, include Landlord's federal or state income, franchise, inheritance or
estate taxes.
(c) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the
Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord
for such personal property taxes.
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. INSURANCE POLICIES.
(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of
property) and personal injury arising out of the operation, use or occupancy of
the Property. Tenant shall name Landlord as an additional insured under such
policy. The initial amount of such insurance shall be One Million Dollars
($1,000,000) per occurrence and shall be subject to periodic increase based
upon inflation, increased liability awards, recommendation of Landlord's
professional insurance advisers and other relevant factors. The liability
insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary
and non-contributing; (ii) contain cross-liability endorsements; and (iii)
insure Landlord against Tenant's performance under Section 5.05, if the matters
giving rise to the indemnity under Section 5.05 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit Tenant's
liability nor relieve Tenant of any other obligation under this Lease. Landlord
may also obtain comprehensive public liability insurance in an amount and with
coverage determined by Landlord insuring Landlord against liability arising out
of ownership, operation, use or occupancy of the Property. The policy obtained
by Landlord shall not be contributory and shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord
shall maintain policies of insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain
insurance for Tenant's fixtures or equipment or building improvements installed
by Tenant on the Property. During the Lease Term, Landlord shall also maintain
a rental income insurance policy, with loss payable to Landlord, in an amount
equal to one year's Base Rent, plus estimated real property taxes and insurance
premiums. Tenant shall be liable for the payment of any deductible amount under
Landlord's or Tenant's insurance policies maintained pursuant to this Section
4.04, in an amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall
not do or permit anything to be done which invalidates any such insurance
policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.08, Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after
Tenant's receipt of a copy of the premium statement or other evidence of the
amount due, except Landlord shall pay all premiums for non-primary
comprehensive public liability insurance which Landlord elects to obtain as
provided in Paragraph 4.04(a). For insurance policies
(c)1988 Southern California Chapter 3 Initials JGW
of the Society of Industrial _____
and Office Realtors, Inc. [SIOR LOGO]
(Multi-Tenant Net Form)
<PAGE> 4
maintained by Landlord which cover improvements on the entire Project, Tenant
shall pay Tenant's prorated share of the premiums, in accordance with the
formula in Paragraph 4.05(e) for determining Tenant's share of Common Area
costs. If insurance policies maintained by Landlord cover improvements on real
property other than the Project, Landlord shall deliver to Tenant a statement of
the premium applicable to the Property showing in reasonable detail how Tenant's
share of the premium was computed. If the Lease Term expires before the
expiration of an insurance policy maintained by Landlord, Tenant shall be liable
for Tenant's prorated share of the insurance premiums. Before the Commencement
Date, Tenant shall delivery to Landlord a copy of any policy of insurance which
Tenant is required to maintain under this Section 4.04. At least thirty (30)
days prior to the expiration of any such policy, Tenant shall deliver to
Landlord a renewal of such Policy. As an alternative to providing a policy of
insurance, Tenant shall have the right to provide Landlord a certificate of
insurance, executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this Section 4.04
is in full force and effect and containing such other information which Landlord
reasonably requires.
(d) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under this Lease
shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described
in this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage
which is customary and commercially reasonable in the insurance industry
for Tenant's type of business, as that coverage may change from time to
time. Landlord makes no representation as to the adequacy of such insurance
to protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain
any such additional property or liability insurance which Tenant deems
necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual waiver of subrogation.
Section 4.05. COMMON AREAS; USE, MAINTENANCE AND COSTS.
(a) COMMON AREAS. As used in this Lease, "Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the Project and which are not leased or held for the exclusive use of Tenant or
other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time, may change the size, location, nature and
use of any of the Common Areas, convert Common Areas into leaseable areas,
construct additional parking facilities (including parking structures) in the
Common Areas, and increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activities may result in inconvenience to Tenant.
Such activities and changes are permitted if they do not materially affect
Tenant's use of the Property.
(b) USE OF COMMON AREAS. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time. Tenant shall abide by such rules and regulations and shall use its best
effort to cause others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rules and regulations. At any time, Landlord
may close any Common Areas to perform any acts in the Common Areas as, in
Landlord's judgment, are desirable to improve the Project. Tenant shall not
interfere with the rights of Landlord, other tenants or any other person
entitled to use the Common Areas.
(c) SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be entitled to
use the number of vehicle parking spaces in the Project allocated to Tenant in
Section 1.11 of the Lease without paying any additional rent. Tenant's parking
shall not be reserved and shall be limited to vehicles no larger than standard
size automobiles or pickup utility vehicles. Tenant shall not cause large trucks
or other large vehicles to be parked within the Project or on the adjacent
public streets. Temporary parking of large delivery vehicles in the Project may
be permitted by the rules and regulations established by Landlord. Vehicles
shall be parked only in striped parking spaces and not in driveways, loading
areas or other locations not specifically designated for parking. Handicapped
spaces shall only be used by those legally permitted to use them. If Tenant
parks more vehicles in the parking area than the number set forth in Section
1.11 of this Lease, such conduct shall be a material breach of this Lease. In
addition to Landlord's other remedies under the Lease, Tenant shall pay a daily
charge determined by Landlord for each such additional vehicle.
(d) MAINTENANCE OF COMMON AREAS. Landlord shall maintain the Common
Areas in good order, condition and repair and shall operate the Project, in
Landlord's sole discretion, as a first-class industrial/commercial real property
development. Tenant shall pay Tenant's pro rata share (as determined below) of
all costs incurred by Landlord for the operation and maintenance of the Common
Areas. Common Area costs include, but are not limited to, costs and expenses for
the following: gardening and landscaping; utilities, water and sewage charges;
maintenance of signs (other than tenant's signs); premiums for liability,
property damage, fire and other types of casualty insurance on the Common Areas
and worker's compensation insurance; all property taxes and assessments levied
on or attributable to the Common Areas and all Common Area improvements; all
personal property taxes levied on or attributable to personal property used in
connection with the Common Areas; straight-line depreciation on personal
property owned by Landlord which is consumed in the operation or maintenance of
the Common Areas; rental or lease payments paid by Landlord for rented or leased
personal property used in the operation or maintenance
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of the Common Areas; fees for required licenses and permits; repairing,
resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse
removal, security and similar items; reserves for roof replacement and exterior
painting and other appropriate reserves; and a reasonable allowance to Landlord
for Landlord's supervision of the Common Areas (not to exceed five percent (5%)
of the gross rents of the Project for the calendar year). Landlord may cause
any or all of such services to be provided by third parties and the cost of
such services shall be included in Common Area costs. Common Area costs shall
not include depreciation of real property which forms part of the Common Areas.
(e) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's annual pro rata
share of all Common Area costs (prorated for any fractional month) upon written
notice from Landlord that such costs are due and payable, and in any event
prior to delinquency. Tenant's pro rata share shall be calculated by dividing
the square foot area of the Property, as set forth in Section 1.04 of the Lease,
by the aggregate square foot area of the Project which is leased or held for
lease by tenants, as of the date on which the computation is made. Tenant's
initial pro rata share is set out in Paragraph 1.12(b). Any changes in the
Common Area costs and/or the aggregate area of the Project leased or held for
lease during the Lease Term shall be effective on the first day of the month
after such change occurs. Landlord may, at Landlord's election, estimate in
advance and charge to Tenant as Common Area costs, all real property taxes for
which Tenant is liable under Section 4.02 of the Lease, all insurance premiums
for which Tenant is liable under Section 4.04 of the Lease, all maintenance and
repair costs for which Tenant is liable under Section 6.04 of the Lease, and all
other Common Area costs payable by Tenant hereunder. At Landlord's election,
such statements of estimated Common Area costs shall be delivered monthly,
quarterly or at any other periodic intervals to be designated by Landlord.
Landlord may adjust such estimates at any time based upon Landlord's experience
and reasonable anticipation of costs. Such adjustments shall be effective as of
the next rent payment date after notice to Tenant. Within sixty (60) days after
the end of each calendar year of the Lease Term, Landlord shall deliver to
Tenant a statement prepared in accordance with generally accepted accounting
principles setting forth, in reasonable detail, the Common Area costs paid or
incurred by Landlord during the preceding calendar year and Tenant's pro rata
share. Upon receipt of such statement, there shall be an adjustment between
Landlord and Tenant, with payment to or credit given by Landlord (as the case
may be) so that Landlord shall receive the entire amount of Tenant's share of
such costs and expenses for such period.
Section 4.06. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting charges and late charges which
may be imposed on Landlord by any ground lease, mortgage or trust deed
encumbering the Property. Therefore, if Landlord does not receive any rent
payment within ten (10) days after it becomes due, Tenant shall pay Landlord a
late charge equal to ten percent (10%) of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment.
Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES. If
requested by any ground lessor or lender to whom Landlord has granted a
security interest in the Property, or if Tenant is more than ten (10) days late
in the payment of rent more than once in any consecutive twelve (12)-month
period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the
annual real property taxes and insurance premiums payable by Tenant under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-interest bearing impound account. If unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord
may apply any funds in the impound account to any obligation then due under
this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the Project, or which constitutes a nuisance or waste. Tenant shall
obtain and pay for all permits, including a Certificate of Occupancy, required
for Tenant's occupancy of the Property and shall promptly take all actions
necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state
or local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in
or about the Property by Tenant, its agents, employees, contractors, sublessees
or invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Material. In no
event, however, shall Landlord be required to consent to the installation or
use of any storage tanks on the Property.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liability arising from: (a)
Tenant's use of the Property; (b) the conduct of Tenant's business or anything
else done or
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permitted by Tenant to be done in or about the Property, including any
contamination of the Property or any other property resulting from the presence
or use of Hazardous Material caused or permitted by Tenant; (c) any breach or
default in the performance of Tenant's obligations under this Lease; (d) any
misrepresentation or breach of warranty by Tenant under this Lease; or (e)
other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with
any such claim. As a material part of the consideration to Landlord, Tenant
assumes all risk of damage to property or injury to persons in or about the
Property arising from any cause, and Tenant hereby waives all claims in respect
thereof against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of
the Property and is not relying on any representations of Landlord or any
Broker with respect thereto. If Landlord or Landlord's Broker has provided a
Property Information Sheet or other Disclosure Statement regarding the
Property, a copy is attached as an exhibit to the Lease.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from; (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Property or upon other portions of the Project, or from other
sources or places; or (d) any act or omission of any other tenant of the
Project Landlord shall not be liable for any such damage or injury even though
the cause of or the means of repairing such damage or injury are not accessible
to Tenant. The provisions of this Section 6.02 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Landlord shall keep the following in good order,
condition and repair; the foundations, exterior walls and roof of the Property
(including painting the exterior surface of the exterior walls of the Property
not more often than once every five (5) years, if necessary) and all components
of electrical, mechanical, plumbing, heating and air conditioning systems and
facilities located in the Property which are concealed or used in common by
tenants of the Project. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the interior surfaces of exterior walls.
Landlord shall make repairs under this Section 6.03 within a reasonable time
after receipt of written notice from Tenant of the need for such repairs.
(b) Tenant shall pay or reimburse Landlord for all costs Landlord incurs
under Paragraph 6.03(a) above as Common Area costs as provided for in Section
4.05 of the Lease. Tenant waives the benefit of any statute in effect now or in
the future which might give Tenant the right to make repairs at Landlord's
expense or to terminate this Lease due to Landlord's failure to keep the
Property in good order, condition and repair.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation). Tenant shall keep all portions
of the Property (including structural, nonstructural, interior, systems and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed). If any portion of the Property or any system or
equipment in the Property which Tenant is obligated to repair cannot be fully
repaired or restored, Tenant shall promptly replace such portion of the
Property or system or equipment in the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit
or useful life of such replacement extends beyond the Lease Term (as such term
may be extended by exercise of any options), the useful life of such
replacement shall be prorated over the remaining portion of the Lease Term (as
extended), and Tenant shall be liable only for that portion of the cost which
is applicable to the Lease Term (as extended). Tenant shall maintain a
preventive maintenance contract providing for the regular inspection and
maintenance of the heating and air conditioning system by a licensed heating
and air conditioning contractor, unless Landlord maintains such equipment under
Section 6.03 above. If any part of the Property or the Project is damaged by
any act or omission of Tenant, Tenant shall pay Landlord the cost of repairing
or replacing such damaged property, whether or not Landlord would otherwise be
obligated to pay the cost of maintaining or repairing such property. It is the
intention of Landlord and Tenant that at all times Tenant shall maintain the
portions of the Property which Tenant is obligated to maintain in an
attractive, first-class and fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10)
days' prior notice to Tenant (except that no notice shall be required in the
case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
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Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for
non-structural alterations which do not exceed Ten Thousand Dollars ($10,000)
in cost cumulatively over the Lease Term and which are not visible from the
outside of any building of which the Property is part. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and
amount satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements constructed in violation of this Paragraph 6.05(a)
upon Landlord's written request. All alterations, additions, and improvements
shall be done in a good and workmanlike manner, in conformity with all
applicable laws and regulations, and by a contractor approved by Landlord. Upon
completion of any such work, Tenant shall provide Landlord with "as built"
plans, copies of all construction contracts, and proof of payment for all labor
and materials.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear which Tenant was
not otherwise obligated to remedy under any provision of this Lease. However,
Tenant shall not be obligated to repair any damage which Landlord is required
to repair under Article Seven (Damage or Destruction). In addition, Landlord
may require Tenant to remove any alterations, additions or improvements
(whether or not made with Landlord's consent) prior to the expiration of the
Lease and to restore the Property to its prior condition, all at Tenant's
expense. All alterations, additions and improvements which Landlord has not
required Tenant to remove shall become Landlord's property and shall be
surrendered to Landlord upon the expiration or earlier termination of the
Lease, except that Tenant may remove any of Tenant's machinery or equipment
which can be removed without material damage to the Property. Tenant shall
repair, at Tenant's expense, any damage to the Property caused by the removal
of any such machinery or equipment. In no event, however, shall Tenant remove
any of the following materials or equipment (which shall be deemed Landlord's
property) without Landlord's prior written consent: any power wiring or power
panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters, air conditioners
or any other heating or air conditioning equipment; fencing or security gates;
or other similar building operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord or not sufficient to
pay the entire cost of repair, or if the cause of the damage is not covered by
the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate
the Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any building in
which the Property is located. Tenant shall pay the cost of such repairs,
except that upon satisfactory completion of such repairs, Landlord shall
deliver to Tenant any insurance proceeds received by Landlord for the damage
repaired by Tenant. Tenant shall give Landlord written notice of such election
within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease
shall terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance
premiums and real property taxes. Except for such possible reduction in Base
Rent, insurance premiums and real property taxes, Tenant shall not be entitled
to any compensation, reduction, or reimbursement from Landlord as a result of
any damage, destruction, repair, or restoration of or to the Property.
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Section 7.04. WAIVER. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in
the event of the substantial or total destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the rights
and obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs
first. If more than twenty percent (20%) of the floor area of the building in
which the Property is located, or which is located on the Property, is taken,
either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant terminates
this Lease, this Lease shall remain in effect as to the portion of the Property
not taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If
the severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interests shall require Landlord's consent. If Tenant
is a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all
of Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or
change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent
to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action
shall not relieve Tenant's liability under this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice
of the offer, the Lease shall terminate as of the date specified and all the
terms and provisions of the Lease governing termination shall apply. If
Landlord does not so elect, the Lease shall continue in effect until otherwise
terminated and the provisions of Section 9.05 with respect to any proposed
transfer shall continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed use of the
Property, (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth
and/or financial reputation of the proposed assignee, Tenant may nonetheless
sublease (but not assign), all or a portion of the Property to the proposed
transferee, but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.13) of the Profit (defined below) on
such transaction as and when received by Tenant, unless Landlord gives written
notice to Tenant and the assignee or subtenant that Landlord's Share shall be
paid by the assignee or subtenant to Landlord directly. The "Profit" means (A)
all amounts paid to Tenant for such assignment or sublease, including "key"
money, monthly rent in excess of the monthly rent payable under the Lease, and
all fees and other consideration paid for the assignment or sublease, including
fees under any collateral agreements, less (B) costs and expenses directly
incurred by Tenant in connection with the execution and performance of such
assignment or sublease for real estate broker's commissions and costs of
renovation or construction of tenant improvements required under such
assignment or sublease. Tenant is entitled to recover such costs and expenses
before Tenant is obligated to pay the Landlord's Share to Landlord. The Profit
in the
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case of a sublease of less than all the Property is the rent allocable to
the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's books and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) -day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d)(i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03 REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including (i) the worth at the time of the award of the unpaid
Base Rent, Additional Rent and other charges which Landlord had earned at the
time of the termination; (ii) the worth at the time of the award of the amount
by which the unpaid Base Rent, Additional Rent and other charges which Landlord
would have earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves Landlord could have reasonably
avoided, (iii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Tenant would have paid
for the balance of the Lease Term after the time of award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably avoided; and
(iv) any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under the
Lease or which in the ordinary course of things would be likely to result
therefrom, including, but not limited to, any costs or expenses Landlord incurs
in maintaining or preserving the Property after such default, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation or alteration of the Property, Landlord's reasonable
attorneys' fees incurred in connection therewith, and any real estate commission
paid or payable. As used in subparts (i) and (ii) above, the "worth at the time
of the award" is computed by allowing interest on unpaid amounts at the rate of
fifteen percent (15%) per annum, or such lesser amount as may then be the
maximum lawful rate. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one percent
(1%). If Tenant has abandoned the Property, Landlord shall have the option of
(i) retaking possession of the Property and recovering from Tenant the amount
specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b);
(b) Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent".
Tenant shall
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be credited with having paid all of the Abated Rent on the expiration of the
Lease Term only if Tenant has fully, faithfully, and punctually performed all
of Tenant's obligations hereunder, including the payment of all rent (other
than the Abated Rent) and all other monetary obligations and the surrender of
the Property in the physical condition required by this Lease. Tenant
acknowledges that its right to receive credit for the Abated Rent is absolutely
conditioned upon Tenant's full, faithful and punctual performance of its
obligations under this Lease. If Tenant defaults and does not cure within any
applicable grace period, the Abated Rent shall immediately become due and
payable in full and this Lease shall be enforced as if there were no such rent
abatement or other rent concession. In such case Abated Rent shall be
calculated based on the full initial rent payable under this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been cancelled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why); and (v) such other representations or information with respect to Tenant
or the Lease as Landlord may reasonably request or which any prospective
purchaser or encumbrancer of the Property may require. Tenant shall deliver such
statement to Landlord within ten (10) days after Landlord's request. Landlord
may give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) -day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement
is a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgement entered. Such costs shall include legal fees and costs
incurred for the negotiation of a
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settlement, enforcement of rights or otherwise. Furthermore, if any action for
breach of or to enforce the provisions of this Lease is commenced, the court in
such action shall award to the party in whose favor a judgment is entered, a
reasonable sum as attorneys' fees and costs. The losing party in such action
shall pay such attorneys' fees and costs. Tenant shall also indemnify Landlord
against and hold Landlord harmless from all costs, expenses, demands and
liability Landlord may incur if Landlord becomes or is made a party to any claim
or action (a) instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any interest under or
using the Property by license of or agreement with Tenant; (b) for foreclosure
of any lien for labor or material furnished to or for Tenant or such other
person; (c) otherwise arising out of or resulting from any act or transaction of
Tenant or such other person; or (d) necessary to protect Landlord's interest
under this Lease in a bankruptcy proceeding, or other proceeding under Title 11
of the United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02 LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or Project or the leasehold estate
under a ground lease of the Property or Project at the time in question. Each
Landlord is obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title. Any Landlord who
transfers its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligations under this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance reasonably requires
more than thirty (30) days to cure, Landlord shall not be in default if such
cure is commenced within such thirty (30)-day period and thereafter diligently
pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision or
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
13.08. NO RECORDATION. Tenant shall not record this Lease without prior
written consent from Landlord. However, either Landlord or Tenant may require
that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party who
legally acquires any rights or interest in this Lease from Landlord or Tenant.
However, Landlord shall have no obligation to Tenant's successor unless the
rights or interests of Tenant's successor are acquired in accordance with the
terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general
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partner of the partnership, that he or it has full authority to sign for the
partnership and that this Lease binds the partnership and all general partners
of the partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement
of partnership or certificate of limited partnership.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. SURVIVAL. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. BROKER'S FEE. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker, or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Landlord shall pay Landlord's Broker a commission if Tenant
exercises any option to extend the Lease Term or to buy the Property, or any
similar option or right which Landlord may grant to Tenant, or if Landlord's
Broker is the procuring cause of any other lease or sale entered into between
Landlord and Tenant covering the Property. Such commission shall be the amount
set forth in Landlord's Broker's commission schedule in effect as of the
execution of this Lease. If a Tenant's Broker is named in Section 1.08 above,
Landlord's Broker shall pay an appropriate portion of its commission to Tenant's
Broker if so provided in any agreement between Landlord's Broker and Tenant's
Broker. Nothing contained in this Lease shall impose any obligation on Landlord
to pay a commission or fee to any party other than Landlord's Broker.
Section 14.02. PROTECTION OF BROKERS. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
Section 14.03. AGENCY DISCLOSURE; NO OTHER BROKERS. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except: CB COMMERCIAL REAL ESTATE GROUP, INC.,
who represents Landlord
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and CB Commercial , who
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represents Tenant
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In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment In Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
ARTICLE SIXTEEN: OPTIONS TO RENEW
Provided Tenant is not in default of the Lease, Tenant will have the option
of renewing the Lease, for all space then under lease by Tenant in the building,
for two (2) additional terms of five (5) years each, upon first giving Landlord
at least twelve (12) months' prior written notice of its exercise of such
options.
ARTICLE SEVENTEEN: LEASE RENEWAL TENANT IMPROVEMENT ALLOWANCE
Tenant shall receive a lease renewal tenant improvement allowance in the
amount of $2.00 per square foot.
1988 Southern California Chapter
of the Society of Industrial 12
and Office Realtors, Inc. [SIOR LOGO] Initials JGW
(Multi-Tenant Net Form)
<PAGE> 13
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on , 19 Allred Phoenix Properties, LLC,
--------------- -- ----------------------------------------
at a Delaware limited liability company
----------------------------. ----------------------------------------
By: Douglas Allred Investment Company,
a California corporation
------------------------------------
Its: Managing Member
------------------------------------
By: David F. Allred
------------------------------------
Its: Vice President
------------------------------------
"TENANT"
Signed on February 6, 1997 Bowmar Instrument Corporation,
----------- -- ----------------------------------------
at Phoenix, Arizona an Arizona corporation
------------------------. ----------------------------------------
By: /s/ Joseph G. Wanew Jr.
-------------------------------------
Its: Vice President
------------------------------------
By:
-------------------------------------
Its:
------------------------------------
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH
A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS(R), INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS(R), INC.,
ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL
TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
13
(c) 1988 Southern California Chapter Initials /s/ JGW
of the Society of Industrial [SIOR LOGO] ----------------
and Office Realtors(R), Inc. -----------------
(Multi-Tenant Net Form)
<PAGE> 14
ALLRED CENTER SOUTHBANK I A NEW INDUSTRIAL BACK OFFICE DEVELOPMENT
3601 EAST UNIVERSITY DRIVE
[MAP OF BUILDING "A" LOCATION]
[MAP OF SITE LOCATION]
Site plan not drawn to scale
Site Features:
- - Situated in Southbank Business Park
- - Minutes to Sky Harbor International Airport
- - Direct access to Interstate 10
- - Hotel and restaurants nearby
- - Excellent quality labor base
- - Fiber optics available to site
- - Three freeway interchanges within a one mile radius
- - Liquid nitrogen available
[CB COMMERCIAL LOGO]
2346 North Central Avenue
Phoenix, Arizona 85004
(602) 262-5555 FAX (602) 262-5655
http:www.cbcommercial.com
EXHIBIT A
<PAGE> 15
ADDENDUM TO
INDUSTRIAL REAL ESTATE LEASE
This Addendum To Industrial Real Estate Lease ("Addendum") shall be deemed
a part of that certain Industrial Real Estate Lease with Exhibits "A" and "B"
dated of even date hereof ("Lease"), by and between ALLRED PHOENIX PROPERTIES,
L.L.C., a Delaware limited liability company, as "Landlord" and BOWMAR
INSTRUMENT CORP., an Indiana corporation, as "Tenant". To the extent there is
any inconsistency between the terms and provisions hereof and the Lease, the
terms and provisions hereof shall control. The references to numbered Sections
herein refer to the Sections as numbered in the Lease.
AGREEMENT
NOW, THEREFORE, for valuable considerations, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant agree as follows:
1. SECTION 1.11 PARKING. Section 1.11 relative to parking shall be 169
total spaces, which includes one hundred thirty-five (135) designated parking
spaces, said designated parking spaces to be located in the areas highlighted
and depicted on Exhibit "C" attached to the Lease. The designated parking
spaces shall be marked "Reserved -- Bowmar". The remaining thirty-four (34)
spaces to be available for Tenant's use shall be non-reserved and
non-designated. In addition, Landlord shall mark ten (10) parking spaces as
"Visitor", said spaces to be located where indicated on attached Exhibit "C".
The ten (10) Visitor spaces shall be for the general use of all tenants at the
Project.
2. SECTION 1.12 RENT AND OTHER CHARGES PAYABLE BY TENANT: This Section
is amended to provide that the Base Rent shall increase five percent (5%) above
the prior Base Rent amount every twenty-four (24) months with the first
increase effective on the twenty-fifth (25th) month after the Commencement Date;
the increase shall not be based upon the Index as provided in Section 3.02.
3. SECTION 2.02 DELAY IN COMMENCEMENT. This Section is amended to
provide that Landlord shall be liable to Tenant to the extent Landlord fails to
substantially complete the work to be performed by Landlord under the Work
Letter Agreement attached as Exhibit "B" to the Lease, on or before the
Commencement Date (as extended by the number of Tenant delay days as provided
in the Work Letter Agreement). Landlord's liability in addition to delay in the
Commencement Date, shall be a credit equal one-thirtieth (1/30th) of the Base
Monthly Rent for each day of Landlord's delay beyond the Commencement Date (as
extended by the number of Tenant delay days), said amount to be applied against
the next monthly rental payment under the Lease after the Commencement Date.
The foregoing amount shall be deemed a liquidated damage amount, which Tenant
hereby agrees is a fair and reasonable estimate of the damages Tenant may
suffer from said delay.
4. SECTION 3.03 SECURITY DEPOSIT; INCREASES. Section 3.03 is amended to
require Landlord to hold the Security Deposit in one separate account at a
financial institution wherein the account shall be insured by the Federal
Deposit Insurance Corporation, with all interest that accrues to be held as
additional Security Deposit in accordance with the Lease. Tenant shall provide
Landlord with Tenant's Federal Tax Identification Number and shall sign such
documents as reasonably requested by Landlord and the financial institution
holding the Security Deposit, to cause all interest accrual to be reported as
earned by Tenant. No additional Security Deposit shall be required as the Base
Rent increases.
5. SECTION 4.02 REAL PROPERTY TAXES. Section 4.02 shall be amended to
provide that Tenant shall pay only its pro rata share of the Real Property
Taxes on the Property. "Pro rata share" (or "pro rata share") as used in the
Lease and this
<PAGE> 16
Addendum currently means thirty-four and 30/100 percent (34.30%), calculated by
dividing the 127,757 rentable square footage of the two (2) Buildings in the
Project (denominator) into the 43,129 rentable square footage of the Property
being leased by Tenant. Notwithstanding the foregoing, Tenant shall be
obligated to pay all Real Property Taxes on the Property attributable to any
and all Tenant improvements of any kind or nature placed in or on the Property
by Tenant. If the Property is not separately assessed, Landlord shall
reasonably determine Tenant's share of the Real Property Tax payable by Tenant,
including the Real Property Tax for said Tenant improvements, based upon the
Assessor's work sheets or other reasonable available information. Landlord's
written statement of Tenant's share of said taxes shall be accompanied by
reasonable evidence of the manner in which Landlord calculated Tenant's share,
including copies of all tax bills affecting the Property (to be provided
promptly following Landlord's receipt of said tax billings). Section 4.02(c)
pertaining to joint assessment for real property taxes, shall be deleted.
Landlord shall file protests or otherwise object to real property tax
assessments, from time to time when requested by Tenant, provided Tenant places
such request in writing to Landlord a minimum of thirty (30) days prior to the
date the filing of a non-judicial protest is due at the Maricopa County
Assessor's office. All reasonable fees associated with such protest shall be
paid by Tenant, in advance, to the extent Landlord believes such request is
unreasonable. The reasonable costs and expenses of the protest shall be deemed
a part of the Common Area costs under the Lease to the extent a net savings
results from the protest. If Tenant is required to pay any costs in advance to
the Landlord for a protest, to the extent the protest is successful and results
in a net savings (net of the cost of the protest) the Tenant shall be
reimbursed for all but its Pro Rata Share of such costs.
6. SECTION 4.04 LIABILITY INSURANCE. Section 4.04 shall be deleted and
the following is inserted:
a. During the Lease Term, Tenant will maintain Comprehensive General
Liability Insurance coverage including premises, operations,
products, completed operations, and contractual liability
coverages in an initial amount no less than $1,000,000 per
occurrence, $1,000,000 personal injury and advertising injury,
$1,000,000 Products and Completed Operations Aggregate and
$1,000,000 General Aggregate. The initial amount of such
insurance shall be subject to reasonable periodic increases based
upon inflation, increased liability awards, recommendation of
Landlord's professional insurance advisors and other relevant
factors. Coverage shall:
(i) Include a provision that the policy is primary and
non-contributory;
(ii) Name Landlord as an "additional insured".
The amount and coverage of such insurance shall not limit
Tenant's liability nor relieve Tenant of any other obligation
under this lease. Landlord may also obtain Comprehensive General
Liability insurance in an amount and coverage determined by
Landlord. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
7. SECTION 4.05(d) MAINTENANCE OF COMMON AREAS. This Section is amended
to provide that Common Area costs shall exclude the following:
a. All reserves for roof replacement;
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<PAGE> 17
b. Capital expenditures required to be capitalized for federal
income tax purposes shall be amortized over the reasonable life
of the improvements, with only the amortized portion to be
allocated annually to Common Area costs.
8. SECTION 4.05(e) TENANT'S SHARE AND PAYMENT. Tenant's pro rata share
of 34.30% is calculated by dividing the 125,757 rentable square footage of the
two (2) Buildings in the Project (denominator) into the 43,129 rentable square
footage being leased by Tenant. The pro rata share shall remain fixed for the
Lease Term, as may be extended under Tenant's option to extend the Term of the
Lease, but subject to re-calculation in accordance with Paragraph 24 below.
9. SECTION 4.06 LATE CHARGES. This Section shall be amended to provide
that the ten percent (10%) late charge amount shall be decreased to five
percent (5%).
10. SECTION 4.08 IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
Section 4.08 is amended to provide that no impound for insurance premiums and
real property taxes shall occur unless required or requested by a lender to
whom Landlord has granted a security interest in the Property. Landlord may, at
Landlord's election, estimate in advance and charge Tenant all real property
taxes and insurance premiums payable by Tenant under this Lease with adjustment
following year end, in accordance with the provisions of Section 4.05(e).
11. SECTION 5.03 HAZARDOUS MATERIALS. Landlord hereby acknowledges that
Tenant may use certain Hazardous Substances and Hazardous Materials, provided
that Tenant i) shall use such substances and materials only in full compliance
with all requirements of all applicable laws, regulations, statutes,
ordinances, rules and other requirements of all applicable government
authorities; ii) pays all increases in insurance premiums, if any, resulting
from Tenant's use of such substances; iii) immediately provides copies of all
reports which it provides to government entities regulating Hazardous
Substances, all permits, variances and consents received from any government
entities, and all notices, communications, reports, disclosures and other
written communications relating in any manner to any actual, alleged or
probable violation of Hazardous Materials laws.
12. SECTION 5.04 SIGNS AND AUCTIONS. Tenant shall have the right to have
a sign on the Building provided it obtains appropriate permits, fully complies
with the rules and regulations of the City of Phoenix, and fully complies with
the Southbank sign guidelines. Tenant shall install and maintain such sign at
Tenant's sole cost and expense. The design and location of the sign shall be
subject to prior written approval by Landlord, not to be reasonably withheld.
13. SECTION 5.05 INDEMNITY. This Section shall be amended by adding the
following:
Landlord shall indemnify Tenant against and hold Tenant harmless from:
(a) Landlord's use of the Project; (b) any and all costs, claims or
liability arising from Landlord's failure to perform maintenance and
repair of the Building and Common Area as required under this Lease,
including any contamination of the Property from the presence or use of
Hazardous Material caused or knowingly permitted by Landlord; (c) any
breach or default in the performance of Landlord's obligations under this
Lease; (d) any material misrepresentation or material breach of warranty
by Landlord under this Lease; or (e) other acts or omissions by Landlord
under this Lease. Landlord shall defend Tenant against any such cost,
claim or liability at Landlord's expense with counsel reasonably
acceptable to Tenant. The foregoing provisions of this entire paragraph
shall relate solely to claims arising out of Landlord's negligence or
willful misconduct. As used in this Section, "Landlord" shall include
Landlord's
3
<PAGE> 18
employees, agents, invitees and contractors, if applicable, while acting
within the scope of their respective agency. In addition, Landlord shall
indemnify Tenant against and hold Tenant harmless from any and all
reasonable costs of Tenant relating to claims wrongfully made against
Tenant that result from the action or inaction of other tenants at the
Project and not from events caused or allowed to happen by Tenant.
Landlord shall defend Tenant against such matters at Landlord's expense
with counsel reasonably acceptable by Tenant.
14. SECTION 6.04 TENANT'S OBLIGATIONS. This Section is amended in
subsection (a) to delete the reference to "structural" as it pertains to
Tenant's improvements to be kept in good repair by Tenant. Further, Tenant's
obligation to maintain the Property in a "first class" condition is deleted.
Tenant shall be obligated to maintain the Property in the same condition that
exists upon the Commencement Date, normal wear and tear excepted. Further,
Landlord shall have no obligation to maintain any improvement or alteration
about this Property constructed by or under the direction of Tenant, including,
but not limited to the improvements being constructed pursuant to the Work
Letter. Upon completion of the improvements under the Work Letter, Landlord
shall assign to Tenant all warranties, guarantees and contractual rights
Landlord may have in connection with said improvements, without warranty from
Landlord.
15. SECTION 6.05 ALTERATIONS. This Section is amended to provide that the
$10,000 amount specified in the second line of subpart (a) shall be deleted
with the sum of $50,000 per occurrence inserted therein. Tenant shall have no
right to make any exterior changes to the Building (except for signage as
provided under Section 5.04 of the Lease) without Landlord's prior written
consent. Further, Tenant shall have no authority to make any interior
structural changes to load-bearing walls, to ceiling and roof joists, supports
and related structural components, or to the foundation and concrete flooring
(except for attaching equipment with bolts and similar fasteners), in any
dollar amount without Landlord's prior written consent. Tenant shall be
entitled to make other interior, non-load bearing structural changes to the
interior up to $50,000 per occurrence. Tenant shall supply Landlord with all
plans and specifications for the improvements where Landlord's prior approval
is not required following completion of said improvements. Notwithstanding the
foregoing, upon any assignment or sublease of all or any part of the Property,
said assignee or subtenant shall obtain the prior written consent of Landlord
for all changes to the Property that aggregate more than $10,000 for any
calendar year. The prior notice required pursuant to Section 6.05(b) of the
Lease is hereby deleted.
16. SECTION 7.01 PARTIAL DAMAGE. This Section is amended under subpart
(a) to require Landlord to repair the damage as soon as reasonably possible but
no later than 120 days after receiving written demand for such repairs from
Tenant.
Subpart (b) pertaining to Tenant's obligation to pay the deductible amount
(if any) under the Landlord's insurance is limited to repairs caused by the
gross negligence or willful misconduct of Tenant. If Landlord elects to repair
the damage, such repair shall occur as soon as reasonably possible but not
later than 120 days after receiving written demand for such repairs from
Tenant. Tenant shall be entitled to undertake the repairs in accordance with
the Lease, provided Tenant supplies Landlord with a figure representing the
total expected cost to undertake such repairs and Landlord approves such cost
figure, such approval not to be unreasonably withheld. Tenant shall be entitled
to a credit against accruing rent for the reasonable costs and expenses of the
repairs not covered by insurance, but shall not be entitled to an
administrative or oversee charge for undertaking such repairs. All repairs
undertaken by Tenant shall be completed as soon as reasonably possible but no
later than 120 days after Landlord notifies Tenant that Landlord has elected to
not undertake such repairs.
4
<PAGE> 19
Subpart (c) is amended to provide that if Landlord elects to terminate the
Lease, Tenant shall have ten (10) days thereafter within which to exercise any
options to extend the Lease Term, and Landlord's election to terminate shall
thereupon become null and void as to said partial destruction and resulting
election to terminate.
17. SECTION 7.02 SUBSTANTIAL OR TOTAL DESTRUCTION. Section 7.02 is amended
to provide that upon substantial or total destruction of the Property, Landlord
shall have the obligation to rebuild the Property if (a) such rebuilding can be
reasonably completed within a six month period, and (b) the insurance proceeds
made available are sufficient to pay for the rebuilding. In the event the
Property cannot be reasonably rebuilt within six months, Tenant shall have the
right to terminate the Lease. Tenant shall be responsible for the difference
between the actual cost of rebuilding and the insurance proceeds received by
Landlord only if the destruction was caused by the gross negligence or willful
misconduct of Tenant.
18. SECTION 9.06 NO MERGER. Section 9.06 is amended to provide that
Landlord shall not terminate any subtenancies for subtenants that received
written approval and provided said subtenants fully and timely perform their
obligations under their respective subleases.
19. ARTICLE TEN DEFAULTS; REMEDIES. Article Ten is amended to provide
that upon Landlord's default of a material item under the Lease, following such
notice(s), if any, required under the Lease, Tenant shall be entitled to all
rights and remedies available at law and at equity, including the right to
specific performance. Notwithstanding, the foregoing rights specifically
exclude the right to collect any special or consequential damages of any
nature, relating to Landlord's default, unless such damage is specifically
provided for in the Lease or this Addendum. Further, to the extent a material,
non-monetary, uncured breach by Landlord causes a condition that substantially
prevents Tenant from operating its business and using the Property for its
permitted ongoing uses, Tenant, in addition to all other rights and remedies
available to Tenant under this Lease, shall be entitled to terminate the Lease
following sixty (60) days advance written notice of Tenant's election to so
terminate wherein Tenant states in detail the breach or alleged breach by
Landlord. During said notice period, Landlord shall be entitled to cure said
default, and Tenant's right to terminate the Lease based upon said default(s)
shall be held in abeyance and extended provided Landlord reasonably and
diligently proceeds to cure the default.
If the Property is at any time subject to a first mortgage or a first deed
of trust and this Lease or the rentals due hereunder are assigned in connection
with such mortgage or deed of trust and Tenant is given written notice thereof,
including the mailing address of Landlord's mortgagee, Tenant agrees that it
will, concurrently with the giving of any notice of default to Landlord, mail a
duplicate of such notice to Landlord's mortgagee. Tenant further agrees that it
will not exercise its right to terminate this Lease because of Landlord's
default without first giving Landlord's mortgagee additional written notice of
Tenant's intention to so terminate and affording Landlord's mortgagee a
reasonable period after the mailing of such notice to cure said default on
behalf of the Landlord.
20. SECTION 10.03 REMEDIES. Section 10.03 is amended to provide that
Landlord shall not be entitled to collect any special or consequential damages
from Tenant relating to Tenant's default, except as may reasonably be
foreseeable as a result of a breach by Tenant of the terms, provisions and
requirements under the Lease related to Tenant's obligation to not make
structural changes without Landlord's consent, or as may be related to Tenant's
obligation to fully comply with all environmental laws, rules and regulations.
21. SECTION 11.01 CONSENT TO LEASEHOLD MORTGAGE. Tenant, or its
successors or assigns shall have the right, without Landlord's further consent,
to hypothecate its leasehold estate in the Property, from time to time, as
security for any
5
<PAGE> 20
loan made by any "Leasehold Mortgagee" to Tenant, upon such terms and
conditions as are acceptable to Tenant. For purposes of this Lease, the term
"Leasehold Mortgagee" shall refer to any institution which is (a) not
affiliated with Tenant; and (b) makes commercial or real estate loans in the
ordinary course of its business (including any assignee or transferee of said
loan that meets the forgoing qualifications), which makes a loan to Tenant
secured by a first lien on Tenant's leasehold estate in the Property.
Landlord shall send copies of all notices from Landlord to Tenant (or its
successors in interest under the Lease) to any pertinent approved Leasehold
Mortgagee. Landlord shall have no obligation to provide to a Leasehold
Mortgagee a copy of any notices from Landlord to Tenant unless, prior to
Landlord giving such notice, Landlord has received written notice of the name
and address of the approved Leasehold Mortgagee.
22. LEASEHOLD MORTGAGEE'S RIGHTS.
a. The Lease shall not terminate or be terminated by Landlord if,
within thirty (30) days after the later of service of notice of
default on Leasehold Mortgagee or the end of such time period as
Tenant may have under the Lease to cure such default, Leasehold
Mortgagee shall, at Leasehold Mortgagee's option, either:
(i) Cure such default if such default can be cured by the
payment or expenditure of money or by performance by
Leasehold Mortgagee, which performance Landlord will accept
as though performed by Tenant and thereafter maintain all
obligations of Tenant, including but not limited to timely
payment of all amounts as they become due. Landlord will
allow Leasehold Mortgagee to enter the Property and to take
all such actions as may be necessary to cure such default;
or
(ii) If such default cannot be cured within such thirty (30) day
period, either (A) immediately assume the Lease in full and
commence all actions necessary to cure such default, and
prosecute same to completion within sixty (60) days
thereafter, or (B) assume the Lease in full and cause the
prompt initiation of foreclosure or other appropriate
proceedings, whether by power of sale or otherwise, so long
as Leasehold Mortgagee shall thereafter prosecute such
proceedings diligently to conclusion and perform and comply
with all other covenants and conditions of the Lease
requiring the payment or expenditure of money by Tenant
until the leasehold estate shall be released or reconveyed
from the effect of the Leasehold Mortgage or until it shall
be transferred or assigned pursuant to or in lieu of
foreclosure by power of sale or otherwise; provided,
however that if Leasehold Mortgagee is prohibited by any
process or injunction issued by any court or by reason of
any action by any court having jurisdiction of any
bankruptcy or insolvency proceeding involving Tenant from
commencing or prosecuting foreclosure or other appropriate
proceedings in the nature thereof the time periods
specified in this subparagraph (ii) above for commencing or
prosecuting and completing such foreclosure or other
proceedings shall be extended for the period of such
prohibition.
6
<PAGE> 21
b. If Leasehold Mortgage elects either of the above-mentioned
options, upon Leasehold Mortgagee's acquisition of the leasehold
estate by foreclosure, whether by power of sale or otherwise or
by deed in lieu of foreclosure, the Lease shall continue in full
force and effect provided that, if Leasehold Mortgagee elects
option (B) in the paragraph immediately above, upon Leasehold
Mortgagee's acquisition of the leasehold by foreclosure, whether
by power or sale or otherwise or by deed in lieu of foreclosure,
Leasehold Mortgagee shall cure all prior non-monetary defaults of
Tenant under the Lease that are capable of being cured by
Leasehold Mortgagee.
c. Notwithstanding any restrictions on Tenant's right to assign the
Lease or its leasehold estate, and provided that any foreclosure
sale purchaser shall assume all obligations of Tenant under the
Lease, and provided further that all prior defaults of Tenant
under the Lease that are capable of being cured shall be cured,
the foreclosure of the Leasehold Mortgage or any sale thereunder,
whether by power of sale or otherwise, shall not require any
consent or approval of Landlord and shall not constitute a breach
of any provision of the Lese or an event of default thereunder,
and upon such foreclosure or sale, Landlord shall recognize such
foreclosure sale purchaser as Tenant under the Lease.
Notwithstanding, Leasehold Mortgagee shall not be deemed released
from its assumption of the Lease unless such release is obtained
in writing from Landlord, such consent to be based upon the
financial condition, intended operations and other information
deemed relevant by Landlord, with said consent to not be
unreasonable withheld.
d. In the event that the Lease is terminated for any reason prior to
the end of the term (the "Lease Term") of the Lese, including
without limitation, terminated by a trustee in bankruptcy acting
on behalf of Tenant, Landlord shall enter into a new lease with
Leasehold Mortgagee covering the Property, provided that
Leasehold Mortgagee (i) requests such new lease by written notice
to Landlord within sixty (60) days after termination, and (ii)
cures all prior defaults of Tenant that are capable of being
cured by Leasehold Mortgagee. The new lese shall be for the
remainder of the Lease Term, effective at the date of such
termination, at the rent and on the covenants, agreements,
conditions, provisions, restrictions and limitations contained in
the Lease.
23. MERGER OF LEASE. There shall be no merger of the Lease or any
interest in the Lease nor of the leasehold estate created thereby, with the fee
estate in the Property, by reason of the fact that the Lease or such interest
therein, or such leasehold estate may be directly or indirectly held by or for
the account of any person who shall hold the fee estate in the Property, or any
interest in such fee estate, nor shall there be such a merger by reason of the
fact that all or any part of the leasehold estate created thereby may be
conveyed or mortgaged in a leasehold mortgage to a mortgagee who shall hold the
fee estate in the Property or any interest of the Landlord under the Lease.
24. SECTION 11.02 ATTORNMENT. Section 11.02 is amended by deleting the
last sentence relating to Tenant's waiver of any right to terminate the Lease;
Tenant shall be entitled to terminate the Lease in accordance with the
provisions of Paragraph 18 of this Addendum.
7
<PAGE> 22
25. SECTION 11.04 ESTOPPEL CERTIFICATES. This Section is amended to
delete in subsection (a), item (v) the words "Tenant or" and add the word
"reasonably" prior to the last word "require", in that sentence.
26. SECTION 11.05 TENANT'S FINANCIAL CONDITION. This Section is amended
to provide that Tenant's obligation to deliver financial statements to any
lender designated by Landlord shall be performed by Tenant within ten (10) days
following request by Landlord. The financial information to be provided shall be
limited to public information only.
27. SECTION 13.02 LANDLORD'S LIABILITY: CERTAIN DUTIES. Section 13.02(a)
is amended to provide that upon a transfer of title to the Property by the
Landlord, or its successors or assigns, notwithstanding the limitation on
liability to the transferee, to the extent said transferee fails to cure any
material defaults by Landlord, Tenant shall continue to have its termination
rights as set forth in Paragraph 15 of this Addendum.
Section 13.02(c) is amended to provide that the liability of Landlord for
performance of its duties and obligations under the Lease is limited to the
assets of Landlord, not just Landlord's interest in the Property and the
Project. Notwithstanding the foregoing, the liability for performance of
Landlord's duties and obligations under the Lease shall again be limited to
Landlord's interest in the Property and any insurance proceeds available to the
Landlord relating to said liability, upon a sale or transfer of the Property to
an unrelated third party.
28. SECTION 13.06 NOTICES. This Section is hereby amended in its entirety
to read as follows: All notices and communications ("Notices") required or
permitted under this Lease shall be made in writing, signed by the party making
the same, shall specify the Section hereunder pursuant to which it is given or
being made, and shall be deemed given or made (i) on the date delivered if
delivered in person, (ii) on the date of the day after delivery to a reputable
overnight courier for delivery to the party to receive such Notice, fees
prepaid, (iii) upon transmission by facsimile if receipt is confirmed by
telephone or (iv) forty-eight (48) hours after it is deposited for registered or
certified mailing, return receipt requested and marked for delivery to addressee
only, if mailed with postage and other fees prepaid, addressed to the party to
whom such Notice is directed at the address specified in Section 1.02 as to
Landlord or in Section 1.03 as to Tenant, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for Notice
purposes. Either party may change its Notice address upon written Notice to the
other party.
Notices shall be forwarded to the following addresses:
If to Landlord: ALLRED PHOENIX PROPERTIES, L.L.C.
Attn: David F. Allred
1660 Hotel Circle North, Suite 200
San Diego, CA 92108
Telephone: (619) 299-6760
Fax: (619) 299-4928
With a copy to: WARNER ANGLE ROPER & HALLAM P.C.
Attn: Dean J. Formanek
3550 N. Central Ave., Suite 1500
Phoenix, AZ 85012
Telephone: (602) 264-7101
Fax: (602) 234-0419
If to Tenant: BOWMAR INSTRUMENT CORP.
5080 N. 40th St., Suite 475
Phoenix, AZ 85018
Telephone: (602) 957-0271
8
<PAGE> 23
Fax: (602) 381-1314
With a copy to: Derek Sorenson
Bryan Cave LLP
2800 N. Central Ave., Suite 2100
Phoenix, AZ 85004-1098
Telephone: (602) 230-7000
Fax: (602) 266-5938
29. SECTION 13.12 FORCE MAJEURE. This Section is hereby amended to read as
follows: If Landlord cannot perform any of its obligations due to events beyond
Landlord's reasonable control, the time provided for performing such obligations
shall be extended by a period of time equal to the duration of such events.
Events beyond Landlord's reasonable control include, but are not limited to,
acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other
casualty, shortages of labor or material, government regulation or restriction
and weather conditions. No penalty, charge or damage shall be assessed against
Landlord for delays caused by force majeure, notwithstanding any of the other
provisions in the Lease and this Addendum.
Landlord's ability to extend the time for performing its obligations due to
force majeure events is contingent upon Landlord providing Tenant written notice
of the occurrence of any such force majeure event within twenty (20) days after
Landlord becomes aware of the occurrence of such event, such notice to contain
an estimate of the duration of such event; in no event shall Landlord be
entitled to extend its time for performance longer than six (6) months, without
Tenant's consent. Landlord and Tenant agree to meet to attempt to minimize the
impact and delay caused by force majeure events, by modifying the plans and
specifications to allow for substitute equipment, machinery and other materials
that may be more readily available, if the force majeure event relates to those
areas of the Lease. Landlord shall not be required to incur additional costs and
expenses based upon any such reasonable substitution unless Tenant advances the
monies necessary to cover such increased costs and expenses.
30. ARTICLE SIXTEEN: OPTIONS TO RENEW. Article Sixteen is amended to
provide that the Base Rent initially payable during any extension of the Lease
Term shall be an amount equal to 105% of the Base Rent in effect under the Lease
immediately prior to the commencement of the extended Lease Term, effective as
of the first month of the extended Lease Term. Such Base Rent shall subsequently
continue to be increased every twenty-four (24) months thereafter by an amount
equal to five percent (5%) of the immediately prior Base Rent amount.
31. DIVISION OF PROJECT INTO SEPARATE PARCELS. Tenant acknowledges that
Landlord has informed Tenant of Landlord's intent to replat the Project and
divide the Project into two (2) separate properties, with one property comprised
of Building A and the other property comprised of Building B, along with their
respective common areas and parking areas. Tenant hereby agrees to reasonably
cooperate with Landlord and sign such documents as reasonably requested to
accomplish said split of the Project, at no costs or expense to Tenant, provided
there is no adverse effect on Tenant's parking, access to the Property and the
amount of Tenant's aggregate Property and operating expenses. Following such
division of the Project, the pro rata share of Tenant shall be recalculated and
adjusted based upon the total rentable square footage of Building A (consisting
of 73,729 square feet). For example, in the event such split occurs, the pro
rata share of Building A shall be calculated by dividing the rentable square
footage of Building A (denominator) into the rentable square footage of Building
A being leased by Tenant. Notwithstanding the foregoing, the division of the
Project into two separate properties shall not decrease the number of parking
spaces made available or to be provided to Tenant as required under this Lease
and shall not materially or adversely interfere with Tenant's access as
heretofore contemplated or allowed onto the Project by Tenant, its employees,
9
<PAGE> 24
suppliers, and invitees. Tenant acknowledges that the access and parking for the
Project when so divided will be provided for pursuant to a recorded agreement
for reciprocal and cross easements for access and parking. Upon such division
and recalculation of pro rata share, the Common Area costs payable by Tenant
under the Lease, such as property taxes and Common Area costs, shall
subsequently be based on such costs relating to the building in which Tenant's
Property is located and the common area within the split parcel surrounding said
Building. Following the division of the Project, the term "Project" as used in
the Lease shall be deemed to include the separate Building in which the Property
is located and the surrounding area as divided by the replatting of the Project,
and shall no longer include the other Building and surrounding area.
32. MEZZANINE. To the extent Tenant constructs a mezzanine in the interior
of the building in accordance with plans and specifications pre-approved by
Landlord, the additional interior floor space added by said mezzanine shall not
be deemed additional square footage that results in an increase in the Base Rent
during the Lease Term or any extensions thereof. The mezzanine shall remain with
the Property upon Lease termination.
33. LANDLORD'S LIEN. Landlord agrees to waive all claims and right to any
Landlord's lien available to it with respect to any personal property of Tenant
now or hereafter located at the Property by statute or common law, as the case
may be, for any and all non-payment(s) of rent now due or which may hereafter
become due from Tenant under the Lease, including any right to levy and sale on
distress of said personal property relative to any first lien loan on said
personal property ("Loan"); the foregoing waiver shall continue so long as any
of the Loan remains unpaid. Landlord and Tenant agree that the lender, upon the
default of Tenant in payment or performance of the Loan, may, after actual
notice to Landlord, enter any portion of the Property where the personal
property may be found, and may remove the personal property for the purpose of
enforcing its rights as a secured party therein; provided, however, that the
lender must indemnify Landlord and hold Landlord harmless from any and all
liability and damage that may result from such entry and/or removal.
Notwithstanding the forgoing, such entry and/or removal will be permitted only
prior to the earlier of the following: (a) the expiration of the Lease, or (b)
thirty (30) business days following lender's receipt of written notice from
Landlord that the Lease has been terminated.
The following shall apply with respect to the foregoing waiver of
Landlord's lien: (A) such waiver shall apply only to the Loan and the subject
personal property and shall automatically terminate upon repayment of the Loan
or termination or expiration of the Lease (subject to lender's right of entry as
set forth above); (B) lender, its successors and assigns shall be a third party
beneficiary of the provisions of this Section (but not of any other provisions
of this Lease) and the provisions of this Section may not be amended or modified
without the prior written consent of lender; (C) nothing herein shall obligate
Lessor to execute any additional waivers of Landlord's lien except as expressly
provided in items (C) and (D) below; (C) in the event the Lease is extended or
renewed, the provisions of this Section shall apply to such extension or renewal
for so long as the Loan is outstanding; (D) in the event Landlord and Tenant
enter into a new lease pertaining to the Property or any portion thereof at a
time when the Loan is outstanding, Lessor and Lessee shall include in such new
Lease provisions substantially the same as the provisions of this Section; and
(E) prior to Landlord's subordination becoming effective, the lender shall agree
and confirm as follows:
(i) that, by virtue of the provisions of this Section, the lender
does not obtain and hereby disclaims any and all right, title,
interest, lien, claim or encumbrance in, to or on the Property,
or any portion thereof, and in and to the Landlord's and
Tenant's interests under the Lease and that the waiver of
Landlord's lien set forth above pertains only
10
<PAGE> 25
to personal property of Tenant located at the Property and to
Tenant's right, title and interest, if any, in fixtures located
at the Property;
(ii) upon payment of the Loan, lender shall, at the request of
Landlord, execute and deliver to Landlord an acknowledgment that
lender has no further rights under this Section; and
(iii) from time to time upon request by Landlord, lender shall execute
and deliver to Landlord a written statement (which may be relied
upon by any proposed or actual lender of Landlord or proposed or
actual purchaser of Landlord's interest under the Lease)
confirming that: (a) the subordination relates solely to personal
property and Tenant's right, title and interest, if any, in
fixtures located at the Property; and (b) by virtue of the
provisions of this Section, the lender does not obtain and
disclaims any and all right, title, interest, lien, claim or
encumbrance in, to or on the Property, or any portion thereof,
and in and to the Landlord's and Tenant's interests under the
Lease.
(iv) within thirty (30) days following the expiration of the Lease or
following lender's receipt of written notice from Landlord that
the Lease has been terminated, the lender shall remove all
personal property and fixtures to which this subordination
relates, and repair all damage, if any, caused by said removal;
this subordination shall automatically terminate as to all
personal property and fixtures after said thirty (30) business
days to the extent not removed, and thereafter, shall sign such
releases and waivers of its lien rights as may be requested by
Landlord pertaining to the personal property and fixtures not
timely removed by lender.
LANDLORD: TENANT:
ALLRED PHOENIX PROPERTIES, BOWMAR INSTRUMENT CORP., an
L.L.C., a Delaware limited Indiana corporation
liability company
BY: Douglas Allred Company, a BY: /s/ Joseph G. Warner Jr.
California corporation ----------------------------
ITS: Managing Member ITS: Vice President
----------------------------
Date: February 6, 1997
----------------------------
BY:
------------------------
David Allred
ITS: Vice-President
Date:
------------------------
11
<PAGE> 26
EXHIBIT "B"
WORK LETTER AGREEMENT
The undersigned Landlord and Tenant are executing concurrently with this Work
Letter Agreement, a written Industrial Real Estate Lease (the "Lease") covering
those certain premises more particularly described in Exhibit "A" to the Lease,
(hereinafter referred to as "Premises"), the address of which is 3601 East
University Drive, Phoenix, Arizona 85034.
1. REPRESENTATIVES
Landlord appoints Landlord's Representative to act for Landlord in all
matters covered by this Work Letter. Tenant appoints Tenant's Representative to
act for Tenant in all matters covered by this Work Letter. All inquiries,
requests, instructions, authorizations and other communications with respect to
the matters covered by this Work Letter will be made to Landlord's
Representative or Tenant's Representative, as the case may be. Tenant will not
make any inquiries of or requests to, and will not give any instructions or
authorizations to, any other employee or agent of Landlord, including Landlord's
architect, engineers and contractors or any of their agents or employees, with
regard to matters covered by this Work Letter. Notwithstanding the foregoing,
with respect to Work Letter Agreement matters, only Roger Derse shall have the
authority to execute documents and grant approvals on behalf of Tenant and only
David Allred shall have the authority to execute documents and grant approvals
on behalf of Landlord. Either party may change its Representative under this
Work Letter at anytime with three (3) days prior written notice to the other
party.
Tenant's Representative: ______________________________________________________
Mr. Roger Derse/Mr. Michael Bozarth
(Engineering Design Concepts)
Landlord's Representative:______________________________________________________
Mr. David Allred/Mr. Scott Price
(Triton Builders Company)
All notices, statements, demands or demands approvals or other
communications (herein referred to as "Notices") to be given under or pursuant
to this Work Letter Agreement, shall be in writing, addressed to the Landlord
representatives and Tenant representatives as provided below, and shall be
delivered in person, by courier, by certified mail, postage prepaid, or by
facsimile transmission. If delivered in person or by courier, said notice shall
be deemed received upon delivery. If mailed as aforesaid, such notice shall be
deemed to have been received 48 hours after the date of mailing. If delivered by
facsimile transmission, such notice shall be deemed to have been received upon
receipt. The addresses of the parties to which notices are to be sent are as
follows:
To Landlord: Douglas Allred Company
1660 Hotel Circle North
Suite 200
San Diego, CA 92108
Fax No.: 619-299-4928
Attn: David Allred
with a copy to: Triton Builders Company
7345 East Acoma Drive
Suite 200
Scottsdale, AZ 85260
Fax No.: 602-998-2382
Attn: Scott Price
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<PAGE> 27
To Tenant: Bowmar Instrument Corp.
4246 East Wood Street
Phoenix, AZ 85040
Fax No.: 602-437-9120
Attn: Roger A. Derse
with a copy to: Engineering Design Concepts
3040 North 44th Street
Phoenix, AZ 85018
Fax No.: 954-2676
Attn: Michael Bozarth
2. TENANT'S PLANS AND SPECIFICATIONS
a. Tenant acknowledges and agrees that it has furnished to Landlord,
through Landlord's space planner ("Space Planner"), a space plan and
specifications required for the performance of the work (hereinafter referred to
as the "Tenant Improvements"). Such plans include but are not limited to
partition layout, reflected ceiling plans and electrical outlets, switches and
telephone outlets and locations. Landlord shall have the mechanical, electrical,
sprinkler and plumbing subcontractors provide to the Space Planner the working
drawings and calculations required to secure a permit.
b. The Space Planner shall be responsible for providing to Landlord a
complete set of documents, which are permit ready and have completed plan check
by the government agency having jurisdiction for construction in the quantity
required for bidding by Triton Builders Company ("Contractor"). The Space
Planner shall be responsible for coordination of the architectural, mechanical,
electrical and plumbing drawings. Landlord and Contractor shall cooperate to the
best of their ability to provide all information required for such coordination.
c. Landlord will pay the Space Planner's fees in accordance with
Section 8 hereof, but only work performed after December 15, 1996 shall be
charged against the Tenant allowance; however, all interior decorating services,
such as selection of wall paint colors and/or wall coverings, fixtures,
carpeting, and any or all other decorator services and extraordinary work
required by Tenant of the Space Planner shall be paid by the Tenant.
3. LANDLORD'S APPROVAL (APPLIES TO CHANGES ONLY)
Landlord may withhold its approval of any Change Orders which require
work which:
a. adversely affects the structural integrity of the Building, or any
part of the heating, ventilating, air conditioning, plumbing, mechanical,
electrical, communication or other systems of the Building;
b. is not approved by the holder of any mortgage or deed of trust
encumbering the Building at the time the work is proposed;
c. would not be approved by a prudent owner of property similar to the
Building;
d. violates any agreement which affects the Building or binds Landlord;
e. Landlord reasonably believes will increase the projected cost of
operation or maintenance of any of the systems of the Building;
f. Landlord reasonably believes will reduce the rental value of the
Premises or the sale value of the Building at the end of the Term;
g. does not conform to applicable building codes or is not approved by
any governmental authority with jurisdiction over the Premises; or
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<PAGE> 28
h. is not consistent with or is inferior to the Building Standard
Tenant Improvements.
4. SCHEDULE OF TENANT IMPROVEMENT ACTIVITIES
a. Tenant has furnished to Landlord and Landlord has approved Tenant's
space plan dated January 29, 1997 and identified as Architect Job No. 96066 Plan
#4 prepared by Dickenson Architectural the "Tenant Space Plan"). Tenant
acknowledges that the parking spaces impacted because of Tenant's exterior
construction as depicted on Tenant Space Plan shall reduce the reserved parking
spaces allocated to Tenant under the Lease. Any changes proposed by Tenant to
the Tenant Space Plan shall be subject to approval by Landlord in accordance
with Paragraph 3 of this Work Letter Agreement.
b. After approval of the Tenant Space Plan, Landlord will promptly
prepare a preliminary estimate of the cost of Tenant's Improvements (the
"Tenant's Estimated Construction Cost") as set forth in the Tenant Space Plan.
Such estimate shall be provided in detail consistent with AIA approved unit
pricing. Tenant shall have five (5) business days after receipt of the Tenant's
Estimated Construction Cost either to:
(i) agree in writing to pay the amount by which the Tenant's
Estimated Construction Cost exceeds the Tenant Allowance as though that amount
were Tenant Extra Work, subject to Paragraph 5, or
(ii) propose a revision to the Tenant Space Plan in order to
assure that the Tenant's Estimated Construction Cost is either (A) no more than
the Tenant Allowance or (B) in excess of the Tenant Allowance by an amount which
Tenant agrees to pay pursuant to clause (i) immediately above. Each day in
excess of five (5) business days following Tenant's receipt of the Tenant's
Estimated Construction Cost until the fulfillment of Tenant's obligations in
either clause (i) or clause (ii) immediately above will be a day of Tenant's
delay. Upon Tenant's fulfillment of its obligation in either clause (i) or
clause (ii) immediately above, the Tenant's Estimated Construction Cost, as same
may have been modified, will be deemed approved.
c. After approval of the Tenant's Estimated Construction Cost, Space
Planner will prepare and deliver to Tenant and Contractor working drawings for
the Premises ("Tenant Working Drawings"). Landlord's Contractor shall prepare
from the documents a scope of work and a cost proposal (collectively, the
"Tenant Cost Proposal") for construction of Tenant's Improvements in accordance
with the Tenant Working Drawings, and a Construction Schedule which will be
consistent with the time frames delineated in Schedule 1 attached hereto. Upon
receipt of the Tenant Cost Proposal, Tenant shall respond to Landlord within
five (5) business days with respect to the scope of work and the cost of
construction setting forth in written detail any requested changes. If Tenant
timely disapproves the amount of the cost of construction in excess of the
Tenant Allowance or if Tenant disapproves the scope of work, Tenant shall be
entitled to modify the Tenant Working Drawings and the Tenant Cost Proposal
accordingly; provided that any delay in completion of construction caused by
Tenant changes implemented by Contractor shall be deemed Tenant's delay. Each
day in excess of five (5) business days following Tenant's receipt of the
Tenant's Cost Proposal until the fulfillment of Tenant's obligations as
described in this subparagraph c. will be a day of Tenant's delay.
d. All work will be performed by one or more contractors selected and
engaged by Landlord. Following approval of the Tenant Working Drawings and the
Tenant Cost Proposal, Landlord's Contractor will cause application to be made to
the appropriate governmental authorities for necessary approvals and building
permits. Upon receipt of the necessary approvals and permits and subject to
performance of Tenant's obligations under Paragraph 5, the Contractor will begin
construction. The Contractor may substitute materials of comparable or better
quality if the materials specified in Tenant's Working Drawings are unavailable
or not available within the time required for timely completion.
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<PAGE> 29
5. PAYMENT FOR TENANT EXTRA WORK
In order to assure payment of the Tenant's share of the Tenant's Cost
Proposal, Tenant shall obtain an irrevocable stand-by letter of credit,, with
Bank One Arizona, NA or another financial institution, in form and substance
reasonably acceptable to Landlord for the full amount of the approved Tenant
Cost Proposal over the amount of the Tenant Allowance. Tenant shall obtain the
Letter of Credit prior to execution by Landlord and Contractor of the
construction contract.
Once construction has commenced under the construction contract,
payment shall be made to the Contractor in accordance with the construction
contract pursuant to no more than five (5) draw requests approved by Landlord
and Tenant. Each draw request must fully comply with the requirements of the
construction contract. Landlord shall submit copies of each draw request to
Tenant. Tenant shall have ten (10) days after receipt within which to review the
draw request and approve or disapprove same. If Tenant approves the draw
request, Tenant shall pay to Landlord, for payment to the Contractor, Tenant's
pro rata share of the total amount of the approved draw request. Tenant may make
such payment by check made jointly payable to Landlord and Contractor. If Tenant
disapproves the draw request, Tenant shall provide to Landlord a written notice
specifying in detail the reasons for disapproval. Landlord shall then cooperate
with Tenant to resolve with Contractor the basis for Tenant's disapproval.
Failure of Tenant to disapprove any draw request within the 10-day period shall
constitute Tenant's approval. Each day of delay in completion of construction
caused by Tenant wrongfully withholding payment of its pro rata share of a
particular draw request shall be deemed a day of Tenant's delay.
At any time that Tenant fails to pay its pro rata share of any approved
or deemed approved draw request within any applicable 10-day period, Landlord
shall be entitled to draw against the Letter of Credit the pro rata share of any
draw request owed by Tenant by presenting to the issuer of the Letter of Credit
a draft stating that Tenant has failed to timely pay its pro rata share of a
draw request previously approved by Tenant. Landlord shall have no right to draw
upon the Letter of Credit for payment of any draw request which Tenant has
timely disapproved. In the event Tenant disapproves a draw request which
otherwise would have been approved by Landlord and such disapproval is
determined to have been unjustified, then Tenant shall be responsible to
Landlord for any costs, expenses or penalties assessed against Landlord under
the construction contract as a consequence of such unjustified disapproval. Upon
payment by Tenant of the full amount of its pro rata share of the total
construction costs. Landlord shall provide the issuer of the Letter of Credit
written notice terminating the Letter of Credit.
6. CHANGE ORDERS
Tenant may authorize changes in the work during construction only by
written instructions to Landlord's Representative. All such changes will be
subject to Landlord prior written approval in accordance with Paragraph 3.
Landlord may disapprove any change which would materially delay the scheduled
completion of work. Prior to commencing any change, the Landlord will prepare
and deliver to Tenant, for Tenant's approval, a change order (the "Change
Order") setting forth the total cost of such change, which will include
associated architectural, engineering and construction contractor's fees. If
Tenant fails to approve such Change Order within five (5) days after delivery by
Landlord, Tenant will be deemed to have withdrawn the proposed change and
Landlord will not proceed to perform the change. Upon Landlord's receipt of
Tenant's approval, the Contractor will proceed to perform the change and Tenant
shall pay for same in accordance with Paragraph 5.
7. DELAY
It is agreed that Tenant's obligation for the payment of rental under
the Lease shall not commence until Landlord has substantially completed the work
to be performed by Landlord hereunder and delivered the Premises to Tenant;
provided, however, that if Landlord shall be delayed in substantially completing
said work as a result of delays caused by Tenant, then the obligation of Tenant
for the payment of rental under the Lease shall be deemed to have
4
<PAGE> 30
commenced as of the "Commencement Date" (as defined in Section 2.01 of the Lease
and the Addendum to the Lease) not withstanding that Landlord may not have
caused completion of the work or delivered possession of the Premises as of such
date. Tenant shall have no right to possession of the Premises until the work is
completed by Landlord. Tenant's remedies for Landlord's failure to timely
complete the work and deliver the Premises are as set forth in the Addendum to
the Lease.
8. CONSTRUCTION OF THE PREMISES
a. Landlord's Contractor will construct the tenant improvements within
the Premises under contract with the Landlord. Landlord shall not enter into the
construction contract until such time as Tenant has had opportunity to review
the proposed construction contract and provide its comments to Landlord. Tenant
shall have five (5) business days to review the construction contract and to
provide Landlord with a detailed written disapproval. If no detailed response is
given within said five (5) business days, the construction contract shall be
deemed approved by Tenant. The fees payable for construction of the Tenant
Improvements shall be as follows:
(i) to Contractor, 9.5% of the Tenant Cost Proposal covering
general conditions and profit;
(ii) to Contractor, a project management fee of $30,000.00 to
be paid by Landlord under paragraph 10 but not subject to the 9.5% fee described
in (i) above;
(iii)Dickenson Architectural fees in the amount of $34,700,
which amount shall not be subject to the 9.5% fee described in (i) above; and
(iv) Clark Engineering fees in the amount of $49,680, which
amount shall not be subject to the 9.5% fee described in (i) above.
b. All subcontractors awarded shall be the result of competitively bid
unit price or drawing based contracts which Tenant shall have the right to
review. Tenant may, at its discretion, obtain bids and complete the work at its
direction for nonstandard items limited to millwork, wall covering and carpet.
Tenant shall notify Landlord prior to the bidding of such items of its desire to
assume responsibility for those items. Any delay relating to work performed by
Tenant shall be deemed Tenant's delay.
c. The construction contract shall require the Contractor to insure the
tenant improvements against casualty or other loss and to provide customary
liability insurance during the construction period naming Landlord and Tenant as
loss payees and additional insureds.
9. TENANT'S PUNCH LIST
a. When the Landlord's Contractor believes the Tenant Improvements are
substantially completed, and prior to Landlord's delivery of the Premises to
Tenant, Landlord shall give Tenant three (3) business days prior notification
for Tenant to inspect the Tenant Improvements. Tenant's Representative shall
completely examine the Premises and complete with Landlord's Representative a
list of all items to be completed by Contractor to finish the work. Such list
shall be formalized by Landlord and signed by both Landlord and Tenant. The
Tenant Improvements shall be deemed "substantially completed" when the Premises,
as improved, can be legally occupied by Tenant without material interference
with Tenant's business, with only minor "punch list" items remaining to be
completed. Landlord's good faith and reasonable determination of substantial
completion shall be conclusive. The Tenant Improvements shall not be deemed
"substantially completed" if the outstanding punch list items, in the aggregate,
total more than 1.0% of the Tenant Improvement contract price.
b. Landlord shall diligently proceed to have all items noted on the
list completed as soon as possible. Any work damaged during Tenant's move in or
occupancy shall be repaired or replaced at Tenant's sole cost and expense.
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<PAGE> 31
10. TENANT IMPROVEMENTS AT LANDLORD'S COST AND EXPENSE
Landlord agrees to provide Tenant an allowance of $862,580.00 to
complete the Tenant Improvements in the Premises ("Tenant Allowance"). The
Tenant allowance shall include any and all city permits, space planning (in the
amount limited by Section 2c), engineering, architectural and construction
costs, (but excluding the fee of Landlord's contractor for project management,
which Landlord shall pay directly to Contractor in an amount not to exceed
$30,000, Tenant to have no obligation with respect to such fee). The Tenant
Allowance shall be used only to plan and construct improvements which are real
property fixtures that will remain with the Premises, and may not be used to
purchase or construct trade fixtures, furniture, or other personal property. All
costs in excess of such amount shall be the sole responsibility of the Tenant
including but not limited to any and all change orders requested by Tenant.
11. SHELL CONSTRUCTION
Landlord shall provide as part of the initial construction of the
Building the following items: (i) outside walls, columns and unfinished concrete
floors, broom clean; (ii) building standard power supplied to the Building core,
per building specifications. Tenant shall be entitled to a proportionate share
of building standard power initially supplied to the Building core based upon
the pro rata portion of the Building demised to Tenant under the Lease.
12. RESPONSIBILITY FOR DESIGN
Tenant will be responsible for the design, function and maintenance of
all improvements, whether or not approved by Landlord or installed by Landlord's
Contractor at Tenant's request. Landlord's preparation of the Tenant Working
Drawings and performance of Landlord's duties hereunder do not constitute any
representation or warranty as to the adequacy, efficiency, performance or
desirability of the Tenant Improvements in the Premises.
13. MISCELLANEOUS
In the event of any conflict between the terms of this Work Letter
Agreement and the remainder of the Lease, as modified by the Addendum thereto,
the terms of the Lease, as modified, will control.
TENANT INITIALS __________ LANDLORD INITIALS __________
6
<PAGE> 1
EXHIBIT 11
BOWMAR INSTRUMENT CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FISCAL YEAR
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME PER COMMON SHARE - PRIMARY:
INCOME:
Income from Continuing Operations $ 1,333,333 $1,272,000 $ 4,110,000
Less: Dividends on Preferred Stock 360,000 360,000 360,000
----------- ---------- -----------
Income Applicable to Continuing Operations 973,333 912,000 3,750,000
Income (Loss) on Discontinued Operations (811,000) 18,000 (207,000)
----------- ---------- -----------
Net Income Applicable to Common Stock $ 162,333 $ 930,000 $ 3,543,000
=========== ========== ===========
SHARES:
Weighted Average Number of Common
Shares Outstanding 6,640,772 6,462,077 6,426,378
Number of Common Stock Equivalents
Assuming Exercise of Options Reduced
by the Number of Shares Which Could
Have Been Purchased With the Proceeds
From Exercise of Such Options 21,513 102,910 188,863
----------- ---------- -----------
Weighted Average Number of Shares
and Common Stock Equivalents 6,662,285 6,564,987 6,615,241
=========== ========== ===========
Income Per Common Share - Continuing Operations $ 0.14 $ 0.14 $ 0.57
Loss on Discontinued Operations Per Common Share $ (0.12) 0.00 (0.03)
----------- ---------- -----------
Net Income Per Share-Primary $ 0.02 $ 0.14 $ 0.54
=========== ========== ===========
NET INCOME PER COMMON SHARE - FULLY DILUTED:
INCOME:
Income From Continuing Operations $ 1,333,333 $1,272,000 $ 4,110,000
Income (Loss) From Discontinued Operations (811,000) 18,000 (207,000)
----------- ---------- -----------
Net Income $ 522,333 $1,290,000 $ 3,903,000
=========== ========== ===========
SHARES:
Weighted Average Number of Shares
and Common Stock Equivalents 6,801,961 6,564,987 6,615,241
Number of Shares of Common Stock
Issued Upon Conversion of
Preferred Stock 1,598,346 1,598,907 1,599,467
----------- ---------- -----------
Weighted Average Number of Shares
and Common Stock Equivalents
Assuming Conversion of Preferred Stock 8,400,307 8,163,894 8,214,708
=========== ========== ===========
Income on Continuing Operations Per Common Share-Fully Diluted $ 0.50
Loss on Discountinued Operations Per Common Share-Fully Diluted $ (0.02)
-----------
NET INCOME PER COMMON SHARE-FULLY DILUTED $ 0.48
=========== ========== ===========
</TABLE>
Note: The 1997 and 1996 fully diluted Net Income per share is considered to be
the same as the primary Net Income per share since the effect of the potentially
dilutive preferred stock is currently antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 1,218
<SECURITIES> 0
<RECEIVABLES> 4,519
<ALLOWANCES> (43)
<INVENTORY> 8,158
<CURRENT-ASSETS> 17,173
<PP&E> 8,920
<DEPRECIATION> (6,278)
<TOTAL-ASSETS> 21,509
<CURRENT-LIABILITIES> 7,351
<BONDS> 4,546
0
120
<COMMON> 672
<OTHER-SE> 8,481
<TOTAL-LIABILITY-AND-EQUITY> 21,509
<SALES> 22,189
<TOTAL-REVENUES> 22,189
<CGS> 13,169
<TOTAL-COSTS> 13,169
<OTHER-EXPENSES> 6,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 2,119
<INCOME-TAX> 786
<INCOME-CONTINUING> 1,333
<DISCONTINUED> (811)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 522
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
