<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996 Commission File 0-8822
CAVCO INDUSTRIES, INC.
An Arizona Corporation No. 86-0214910
1001 North Central, 8th Floor, Phoenix, AZ 85004
Registrant's Telephone No. (602) 256-6263
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each Class on which registered
- ------------------- -------------------
<S> <C>
</TABLE>
None None
Securities registered pursuant to Section 12(g) of the Act:
Five cent ($.05) Par Value Common Stock
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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of November 30, 1996 was $28,035,371.
As of November 30, 1996, the issuer had 3,387,968 shares of its five
cent ($.05) par value Common Stock outstanding.
The Exhibit Index is located on Page .
The total number of pages is .
<PAGE> 2
PART I
ITEM 1: BUSINESS
RECENT DEVELOPMENTS: PROPOSED MERGER.
On December 4, 1996, Cavco Industries, Inc. ("Cavco" or the "Company")
entered into an Agreement and Plan of Merger ("Merger Agreement") by and among
Cavco, Centex Real Estate Corporation ("CREC"), MFH Holding Company, a Nevada
corporation (the "Holding Company"), MFH Acquisition Company, an Arizona
corporation and wholly-owned subsidiary of the Holding Company (the "Merger
Subsidiary") and certain shareholders of Cavco, Al R. Ghelfi, the Chairman of
Cavco, his spouse, Janet M. Ghelfi, and Janal Limited Partnership, an Arizona
limited partnership ("Janal") (the "Shareholder Parties"). The purpose of the
transactions contemplated by the Merger Agreement is to effect the acquisition
by CREC, through its ownership of shares in the Holding Company, of
approximately 78% of the equity interest in Cavco, with the remaining
approximately 22% equity interest to be retained by the Shareholder Parties
through their ownership of shares in the Holding Company. If the transactions
contemplated by the Merger Agreement are consummated, all shares of Cavco Common
Stock held by shareholders of Cavco other than the Shareholder Parties, together
with 1,047,288 shares of Cavco Common Stock held by the Shareholder Parties,
will be converted into the right to receive $26.75 in cash (or in the case of
shareholders who exercise appraisal rights, the amount determined under
applicable law). Consummation of the transactions contemplated by the Merger
Agreement is subject to certain conditions, including the approval of a majority
of the outstanding shares of Cavco common stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Part II of
this Form 10-K for additional information concerning the transactions
contemplated by the Merger Agreement.
(a) GENERAL
Cavco is the largest manufacturer of residential and recreational
manufactured housing in Arizona. The Company began as an unincorporated
association in 1965, manufacturing truck campers under the name Roadrunner
Manufacturing Company. In 1966, the Company changed its name to Cavalier
Manufacturing Company and it incorporated in 1968. In 1974, the Company changed
its name to Cavco Industries, Inc.
In November 1986, the Company began manufacturing relocatable commercial
modular structures for sale or lease, marketed by a division of the Company
doing business as CVC Leasing ("CVC"). In August 1994, the Company sold the
relocatable commercial modular structures business of CVC and founded National
Security Containers, Inc. ("NSC") to market and lease security storage
containers and trailer vans. The Company owns 100% of NSC's stock.
In March 1987 the Company founded Action Healthcare Management Services,
Inc., ("Action," formerly known as Action Health Care, Inc.) to provide health
care utilization management and other health care services. The Company owned
approximately 93% of Action's stock. The Company sold the assets of Action on
September 30, 1996.
2
<PAGE> 3
In December 1991, the Company founded Sun Built Homes, Inc., ("Sun Built")
to develop manufactured housing subdivisions and sell manufactured homes in
established subdivisions. The Company owns 100% of Sun Built's stock.
The Company's executive office is located at 1001 N. Central, 8th Floor,
Phoenix, Arizona 85004. Its telephone number is (602) 256-6263.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates principally in three industries: manufactured housing,
leasing, and real estate development. Information with respect to net sales,
operating profit (loss) and identifiable assets by industry segment is set forth
in Note 11 of the Notes to Consolidated Financial Statements in Part II of this
Form 10-K.
(c) NARRATIVE DESCRIPTION OF BUSINESS
I. MANUFACTURED HOUSING
DESCRIPTION OF BUSINESS
The Company is a manufacturer of quality residential and recreational
manufactured housing. Cavco's manufactured housing products are manufactured in
one of three facilities located in Arizona and transported in one or more
sections for installation utilizing their own chassis on either temporary or
permanent foundations. Although Cavco's manufactured housing products are
designed to be transportable, fewer than five percent are ever moved from their
original site after installation.
The Company is subject to the regulations of federal and state agencies
which dictate building codes for manufactured housing. In manufacturing its
homes, Cavco implements efficient assembly line techniques and uses materials
similar to those used in site-built homes. The Company purchases components from
outside sources, installs electrical, plumbing and heating systems and
fabricates sub-floors, walls and cabinets. Interior walls are constructed with a
drywall material and exterior walls from wood products, vinyl lap, aluminum or
anodized steel; roof construction utilizes asphalt shingles or galvanized steel.
Cavco's housing products are distributed under various trademarks, with
models available in a variety of floorplans ranging in size of approximately
399 square feet for a recreational/retirement park home to a range of 546
to 2,026 square feet for a residential home. A typical home includes a living
room, dining room, one or two baths and one or more bedrooms. The base price
of the Company's homes includes carpeting, major appliances, draperies and
forced air furnaces. The Company offers numerous options and customizes
models to meet the needs of different geographical areas. Retail prices of
the Company's homes range from $19,000 to $100,000. The average price of a
recreational/retirement park home is approximately $28,000, and the average
price of a residential home is approximately $40,000.
METHOD OF DISTRIBUTION
The Company sells its manufactured homes through a network of independent
dealers and generally does not sell products directly to the general public,
except for sales in certain subdivisions developed by the Company's Sun Built
subsidiary. See "Description of Business -- Real Estate Development." The retail
prices of the Company's manufactured homes are set by
3
<PAGE> 4
individual dealers and not by the Company. Many of the Company's independent
dealers operate more than one retail outlet. The Company presently has
approximately 200 outlets in 10 states, Canada and Japan, of which there are
approximately 103 in Arizona, 27 in New Mexico, 20 in Colorado, 15 in Utah, 6 in
Texas, 4 each in Nevada and Washington, 3 in California, 2 in Idaho, 1 in
Oregon, 7 in Canada and 8 in Japan. Most of the Company's dealers sell competing
products, although from time to time the Company also may enter into exclusive
agreements with certain dealers.
The Company's dealers finance their purchase of manufactured homes through
floor plan financing arrangements with third-party lenders. Generally, the
Company receives a commitment from the dealer's lender for each order, which is
earmarked for the home ordered, identified by its serial number. The Company
then manufactures the home and ships it to the dealer. The dealer is responsible
for all shipping costs. Payment is due from the third party floor plan lender
upon the dealer's notice of delivery and acceptance of the product. The length
of time it takes to manufacture and ship a home after an order is placed varies
according to the Company's backlog.
The Company is contingently liable under terms of repurchase agreements
with the third party lenders that provide dealer floor plan financing
arrangements. These arrangements, which are customary in the industry, provide
for the repurchase of the manufacturer's products in the event the dealer
defaults on payments. The risk of loss is spread over numerous dealers and
financing institutions and is further offset by the resale value of repurchased
units. The Company has not incurred any significant losses from these
arrangements since its inception.
The Company extends a limited warranty to original retail purchasers of
manufactured housing products. The Company warrants structural components for 12
months and nonstructural components for 90 days. The Company's warranty does not
extend to installation, setup or appliances. Appliances are warranted by their
original manufacturer.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company has not experienced any material difficulty in purchasing its
raw materials or component parts. The Company buys wood, wood products,
aluminum, steel, tires, hardware, windows and doors from manufacturers and
distributors located primarily in California and Arizona. Approximately 39
percent of the unit cost of the Company's manufactured homes is attributable to
raw wood products. The majority of the other component parts of the Company's
homes are purchased manufactured components.
PATENTS, TRADEMARKS AND LICENSES
The Company does not own any material patents, licenses, franchises,
trademarks or concessions in connection with its manufactured housing business.
The Company does not sell or grant franchises to its dealers.
SEASONALITY
The Company's manufactured housing business is not seasonal.
INVENTORY
The Company does not maintain a significant finished product inventory.
4
<PAGE> 5
CUSTOMERS
The Company currently has approximately 200 independent dealer outlets. No
dealer exceeded 10% of the Company's sales volume for the year ended September
30, 1996. The Company does not believe that the loss of any dealer would have a
material adverse effect on the Company.
BACKLOG
The Company's backlog of firm orders for manufactured homes as of September
30, 1996 was approximately $11,500,000 (710 floors) as compared with September
30, 1995, when the backlog was approximately $19,300,000. The Company currently
requires approximately six to eight weeks to fill an order. The Company
presently anticipates that the entire backlog at September 30, 1996 will be
filled during the 1997 fiscal year.
GOVERNMENT CONTRACTS
None of the Company's business is subject to renegotiation of profits or
termination of contracts at the election of the government.
COMPETITION
The Company sells its manufactured housing products through independent
dealers located in the states of Arizona, New Mexico, Colorado, Utah, Texas,
Nevada, Washington, California, Idaho, Oregon, as well as Canada and Japan. The
Company estimates that there are approximately 7 other manufacturers competing
for a significant share of the Arizona market. The Company believes that its
business represents an approximate 31% share of the Arizona market and a small
share of the market in such other states. The largest competitors of the Company
are Fleetwood Enterprises, Palm Harbor Homes, Inc., Schult Homes Corporation and
Champion Enterprises, Inc. Most of these competitors have manufacturing
facilities in Arizona and all have significantly greater financial,
manufacturing and marketing resources than Cavco. The Company believes that
competition in the manufactured housing industry is being affected by
consolidation and by increasing competition from geographically diversified
companies and vertically integrated competitors that combine manufacturing
operations with other complementary services and operations, such as a retail
sales network, mortgage financing, insurance and other services. The Company
believes the principal factors affecting competition in the manufactured housing
market are price, product quality and reliability, reputation and service.
RESEARCH AND DEVELOPMENT
During the last two fiscal years, the amount the Company has spent on
research and development was immaterial.
ENVIRONMENTAL CONTROLS
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
its capital expenditures, earnings or competitive position.
EMPLOYEES
The Company employs approximately 1,056 people in its manufacturing
segment. Of these, 93 are salaried managerial, office and clerical workers; 946
are hourly production workers, and 17 are commissioned salespeople.
5
<PAGE> 6
FOREIGN OPERATIONS
The Company does not have any foreign operations.
II. LEASING OPERATIONS
DESCRIPTION OF BUSINESS
The Company sells and leases security storage containers ("containers") and
trailer vans ("vans") through its NSC subsidiary. The containers are used ocean
cargo containers, previously used for secure overseas shipment of packaged
goods. The Company purchases the containers from various vendors and refurbishes
them at its own fabricating facility or by using various outside contractors.
The Company patches, sands, repaints and installs its patented locking units on
the containers before transferring them to its leasing branch offices. The vans
are purchased from various transportation companies usually through brokers,
transported to the Company's leasing branches and refurbished at its own
facilities or using outside contractors. Generally, the vans leased by the
Company are used for ground transportation of goods.
METHOD OF DISTRIBUTION
NSC currently sells or leases containers and vans directly to customers
through nine offices located in Arizona, Texas, Colorado, Louisiana and
Tennessee. At the customer's request, NSC will contract or use its own equipment
to deliver the container or van to the customer's site. Pricing is dependent
upon competition and demand within each geographical area.
SOURCES AND AVAILABILITY OF PRODUCTS
NSC has not experienced, and does not anticipate, any significant
difficulty in purchasing containers or trailer vans in sufficient quantity to
supply its business.
PATENTS, TRADEMARKS AND LICENSES
NSC owns a patent on a single lever locking system designed to secure its
containers. The patent expires in June 2014.
GOVERNMENT CONTRACTS
None of NSC's business is subject to renegotiation of profits or
termination of contracts at the election of the government.
COMPETITION
Competition in the container and van leasing business in the Company's
markets consists primarily of privately owned companies that concentrate on
container sales. The Company believes that the principal factors affecting
competition in the leasing business are price and service.
RESEARCH AND DEVELOPMENT
During the year, the amount NSC has spent on research and development was
immaterial.
CUSTOMERS; SEASONALITY
NSC sells or leases containers and vans directly to any business with a
need for additional storage space. Typical customers include retail stores,
construction companies, and educational and government institutions. NSC
experiences seasonal upturns during holiday periods, when retailers require
storage space for extra merchandise. The terms of the leases generally range
from
6
<PAGE> 7
one month to three years, with an average rental period of six months. The
Company believes that there is increasing demand throughout the business
community for secure storage due to increasing theft and vandalism. The business
of NSC is not dependent upon any one customer.
ENVIRONMENTAL CONTROLS
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
the capital expenditures, earnings or competitive position of NSC.
EMPLOYEES
NSC has approximately 71 employees. Of these, approximately 6 are
executives or managers, 10 are branch managers, 14 are sales representatives, 29
are hourly production and transportation workers, and 12 are office and clerical
workers.
FOREIGN OPERATIONS
NSC does not have any foreign operations.
III. REAL ESTATE DEVELOPMENT
DESCRIPTION OF BUSINESS
The Company organized its Sun Built subsidiary in December 1991, to develop
manufactured housing subdivisions, purchase developed lots and to sell
manufactured homes in established subdivisions. The Company has generally sought
to acquire land with the intent to complete the sale of housing units within 36
to 60 months from the date of acquisition. Generally, this involves acquiring
land that is properly zoned and is either ready for development or already
developed. Homes sold by Sun Built are manufactured by the Company at the
Company's existing manufacturing plants. The average size of these homes ranges
from 576 to 1,800 square feet, with retail selling prices ranging from $30,200
to $86,800, excluding the land. Competition is intense in the residential
development market. Pricing is dependent upon competition and demand within each
geographical area.
METHOD OF DISTRIBUTION
Sun Built sells lots in its subdivisions and manufactured homes directly to
the consumer. Sun Built does not provide financing to its customers, but may
from time to time assist customers in obtaining third party lender financing.
Sun Built distributes its products through fully developed subdivisions in which
Sun Built either has an agreement to sell the homes or may have a percentage of
ownership.
SOURCES AND AVAILABILITY OF PRODUCTS
Sun Built has not experienced, and does not anticipate, any problems in
purchasing its manufactured homes, all of which are produced by the Company.
PATENTS, TRADEMARKS AND LICENSES
Sun Built does not own any materially significant patents, licenses,
franchises, trademarks or concessions. Sun Built does not sell or grant
franchises.
7
<PAGE> 8
GOVERNMENT CONTRACTS
None of Sun Built's business is subject to renegotiation of profits or
termination of contracts at the election of the government.
COMPETITION
Sun Built competes with a large number of firms, most of which have
substantially greater financial, marketing and development resources than Sun
Built. To date, all of Sun Built's development and sale of lots and manufactured
homes has been made in Arizona. The residential housing industry is essentially
a local business and is intensely competitive. The industry is cyclical and is
affected by changes in local economic conditions, long-term and short-term
interest rates, federal mortgage financing programs and, to a lesser extent,
changes in property taxes and energy costs, federal income tax laws and various
demographic factors. The Company believes the main competitive factors affecting
Sun Built's operations are price, location, quality and design of homes,
availability and cost of land, development and product acquisition cost,
marketability and reputation.
RESEARCH AND DEVELOPMENT
During the last fiscal year, the amount Sun Built has spent on research and
development was immaterial.
ENVIRONMENTAL CONTROLS
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
the capital expenditures, earnings or competitive position of Sun Built.
EMPLOYEES
Sun Built has 2 employees: 1 project manager and 1 salesperson.
FOREIGN OPERATIONS
Sun Built does not have any foreign operations.
ITEM 2: PROPERTIES
I. MANUFACTURED HOUSING
The Company's executive, accounting and engineering offices are located at
1001 N. Central Avenue, Suite 800, Phoenix, Arizona. In June, 1996, the Company
entered into a 5-year lease for 20,188 square feet of office space.
Approximately 5,000 square feet is occupied by offices of NSC. Lease payments
total $18,506 per month for the first two years, $18,926 for the third year, and
$19,347 for the fourth and fifth years. The Company may exercise two 5-year
options on the property.
The Company entered into a 5-year lease in February, 1993, consisting of
approximately 188,000 square feet which are primarily production facilities with
some office space, located at 1300 S. Litchfield Road, Goodyear, Arizona. In
December, 1993, The Company added 5,860 square feet to the lease. The Company
produces manufactured homes on this property. The cost
8
<PAGE> 9
of the lease is $18,423 per month. The Company has three 5-year options it may
exercise on this property.
The Company acquired the manufacturing facilities located at 2502 W.
Durango, Phoenix, Arizona in August, 1988. On this property are buildings
totaling approximately 75,000 square feet, which are primarily production
facilities with some office space. The Company produces manufactured homes on
this property. The loan on this property is amortized over a 13 year term. A
payment of $8,070, plus interest at prime plus 1%, is due monthly, with the
balance due and payable in August, 2002. Debt secured by the property totaled
$1,154,068 and $1,250,913 at September 30, 1996 and 1995, respectively.
The Company leases approximately 4.7 acres of property at 1700 S. 27th
Avenue, Phoenix, Arizona. The property is used as a holding yard for finished
homes until they are shipped to dealers. The original terms of the lease run
from February 1, 1994 to January 31, 1999, with monthly rent at $1,721. The
lease provides for two 5-year extension options, and a purchase option of
$256,000 at the effective date of the lease, escalating at 4% per year.
The Company owns manufacturing facilities located at 3502 W. Lower Buckeye
Road, Phoenix, Arizona. On this property are buildings which contain
approximately 60,000 square feet, primarily production facilities with some
office space. The Company produces recreational and residential homes on this
property. There is no mortgage on this property.
In September, 1996 the Company purchased approximately 22 acres of land
located at 80 Don Luis Trijello Blvd., Belen, New Mexico. The Company is
building a 140,000 square foot production facility on this property, which will
include 8,000 square feet of office space. Total construction costs will
approximate $4.8 million. The facility will be used to produce manufactured
homes. Production is scheduled to begin in fiscal 1997, under a newly formed
subsidiary, Cavco Industries of New Mexico, Inc.
All of the properties on which the Company's plants are located contain
sufficient room to expand production, if necessary. The Company believes its
plants, equipment and offices are in good condition and are adequate for the
Company's foreseeable business requirements.
II. LEASING OPERATIONS
NSC's executive and accounting offices are located at 1001 N. Central
Avenue, Suite 800, Phoenix, Arizona. See first paragraph of Manufactured Housing
section above.
NSC's Phoenix branch is located at 2229 W. Roosevelt, Phoenix, Arizona. In
June, 1994, NSC entered into a 3-year lease, commencing September 1, 1994 for a
2.5 acre lot with a 2,100 square foot building. Monthly lease payments are
$2,500. NSC uses the property for its leasing and sales office, and to store
unleased containers.
NSC's Tucson branch is located at 7011 N. Camino Martin, Tucson, Arizona.
In October, 1996 NSC entered into a 3-year lease. Monthly lease payments are
$915. NSC uses the property for its leasing and sales office, and to store
unleased containers.
9
<PAGE> 10
NSC has a leasing and sales location on rented property at 15960 East
Colfax Avenue, Aurora, Colorado. The lease is effective December 1, 1995 and
expires November 30, 2000. Monthly rent is $2,250. NSC uses the property for its
leasing and sales office, and to store unleased containers.
In January, 1996 NSC became the assignee of a lease for premises at 1819 W.
Northwest Highway, Dallas, Texas. The property consists of approximately 8.16
acres of land with office and warehouse space. NSC uses the property for its
leasing and sales office, as well as for storage of unleased containers and
trailer vans. The lease terminates on December 31, 2000 and requires rent
payments of $4,500 per month.
NSC entered into a 5-year lease, commencing August 1, 1994 for
approximately 2.25 acres of fenced-in land with a 2,400 square foot office
building and a 2,800 square foot maintenance building. The property is located
at 13390 I-35 South, Von Orney, Texas. One of the buildings is used as a leasing
and sales office for NSC's San Antonio branch. The other building is used for
repair and maintenance of containers. The land is also used to store unleased
containers and trailer vans. Monthly rent on the property totals $2,250. NSC has
an option to renew the lease for an additional 5-year term.
NSC relocated its Houston branch to 11827 Eastex Freeway, Houston, Texas.
The property consists of approximately 8.81 acres of land, which will be used
for storage of unleased containers and trailer vans. NSC purchased a modular
office building to use as a leasing and sales office at this location. The lease
term of the property is 36 months, commencing December 1, 1995, with monthly
rent of $4,000.
NSC's Houston branch was formerly located at 12350 Amelia, Houston, Texas.
NSC leased a building and a 2.055 acre tract of land. The lease continues
through June 10, 1999. Rent on the property is $1,200 per month.
Also in Houston, NSC leases a building and a one acre tract of land in the
James Hamilton Survey No. 53 in Harris County, Texas. On these premises, NSC
refurbishes and stores purchased containers before they are transferred to the
leasing branches. Current monthly rent is $1,900 and increases to $2,000 per
month in August 1996. The lease commenced August 1, 1994 and terminates July 31,
1997.
In May, 1995, NSC purchased 8 acres of land at 7180 Copper Queen, El Paso,
Texas. The Company constructed a maintenance facility on the property for
refurbishment and repair of its lease fleet. The facility is approximately 7,500
square feet and includes 2,688 square feet of office and warehouse space.
NSC leases a 10 acre parcel of land at Lot #D, Block 4, Copperfield
Industrial Park, El Paso, Texas. The Company uses the land for storage of its
trailer vans. Monthly rent payments are $4,400. The lease commenced in November,
1996 and terminates in May, 1997, at which point it continues on a
month-to-month basis.
10
<PAGE> 11
III. REAL ESTATE DEVELOPMENT
A Sun Built sales office is located at 496 W. Windham Blvd., Green Valley,
Arizona, in a model home at its Canyon View subdivision. The home is 1,010
square feet. The home and land were purchased by Sun Built for approximately
$91,000.
ITEM 3: LEGAL PROCEEDINGS
The Company is subject to certain legal proceedings and claims that arise
in the conduct of its business. In the opinion of management, the amount of
liability, if any, as a result of these claims and proceedings is not likely to
have a material effect on the financial condition or results of operations of
the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders of the Company
during the fourth quarter of the 1996 fiscal year.
11
<PAGE> 12
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Registrant's stock is traded over the counter through the National
Association of Securities Dealers under the symbol CVCO. The following
quotations reflect inter-dealer prices without retail mark-up or mark-down or
commission and may not necessarily represent actual transactions. All prices
have been adjusted (rounded to nearest 1/8) to reflect a three-for-two stock
split effective December 1994.
Year Ended September 30, 1996
<TABLE>
<CAPTION>
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 12-1/8 9-3/4 12-3/4 10-1/2
Second Quarter 14-3/4 11-1/2 15-1/4 12-1/4
Third Quarter 18 13 18-1/4 13-3/4
Fourth Quarter 19-3/4 13-5/8 20-3/8 14-3/8
</TABLE>
Year Ended September 30, 1995
<TABLE>
<CAPTION>
Bid Asked
--- -----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 13-5/6 10-5/6 14-1/2 11-1/2
Second Quarter 12 9-3/4 13 10-1/4
Third Quarter 11-3/4 8-1/2 12-3/4 9
Fourth Quarter 10-3/8 8-3/4 11-1/4 9-3/4
</TABLE>
(The source of the above quotation is NASDAQ.)
(b) As of September 30, 1996, there were approximately 241 record holders of the
Company's Common Stock.
The Company has never paid dividends and has no plans to pay dividends
in the foreseeable future in the event that the transactions contemplated by the
Merger Agreement are not consummated for any reason. Certain financial covenants
in loan agreements to which the Company is a party restrict the payment of
dividends. See Note 5 of Notes to Consolidated Financial Statements. In the
event that the transactions contemplated by the Merger Agreement are
consummated, or alternatively, in the event that the Merger Agreement is
terminated in certain circumstances, the Shareholder Parties and CREC have
entered into certain agreements to cause the Company to pay dividends in certain
circumstances. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Part II of this Form 10-K.
12
<PAGE> 13
ITEM 6: SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein. The selected financial data presented below have
been derived from the Company's consolidated financial statements which have
been audited by Arthur Andersen LLP, independent public accountants, whose
report covering the consolidated balance sheets as of September 30, 1996 and
1995 and the related consolidated statements of earnings and cash flows for each
of the three years in the period ended September 30, 1996 also is included
elsewhere herein. The consolidated statement of earnings data for the years
ended September 30,1993 and 1992 and the consolidated balance sheet data as of
September 30, 1994, 1993, and 1992 are derived from audited financial statements
not included herein.
<TABLE>
<CAPTION>
Five Year Summary of Financial Data
Years Ended September 30,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net sales $130,105,136 112,682,132 90,596,038 56,326,371 41,622,896
Net income from
continuing operations $ 6,932,958 4,643,662 3,897,192 1,897,160 1,371,055
Income per share from
continuing operations $ 2.05 1.37 1.15 .56 .41
Balance Sheet Data:
Total assets $ 65,445,890 51,811,939 41,878,513 30,703,330 25,875,595
Long term obligations $ 17,149,739 13,970,960 6,013,047 7,853,985 7,209,131
Net stockholders' equity $ 28,670,656 22,383,195 18,145,544 11,467,392 9,325,115
</TABLE>
13
<PAGE> 14
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS: PROPOSED MERGER
On December 4, 1996, Cavco entered into the Merger Agreement by and
among Cavco, CREC, the Holding Company, the Merger Subsidiary and the
Shareholder Parties. The Shareholder Parties are Al R. Ghelfi, the Chairman of
Cavco, his spouse, Janet M. Ghelfi and Janal, an Arizona limited partnership.
The general partners of Janal are trusts of which Al R. Ghelfi and Janet M.
Ghelfi are the sole trustees. Janal is the holder of 1,650,000 shares of Cavco
common stock, representing approximately 48.7% of the outstanding shares. Al R.
Ghelfi and Janet M. Ghelfi individually hold, as their community property, an
additional 180,729 shares of Cavco common stock, representing approximately
5.32% of the outstanding shares.
The purpose of the Merger Agreement is to effect the acquisition by
CREC, through its ownership of shares in the Holding Company, of approximately
78% of the equity interest in Cavco, with the remaining approximately 22% equity
interest to be retained by the Shareholder Parties through their ownership of
shares in the Holding Company. If the transactions contemplated by the Merger
Agreement are consummated, all shares of Cavco Common Stock held by shareholders
of Cavco other than the Shareholder Parties, together with 1,047,288 shares of
Cavco Common Stock held by the Shareholder Parties, will be converted into the
right to receive $26.75 in cash (or in the case of shareholders who exercise
appraisal rights, the amount determined under applicable law), as more
particularly described below.
Consummation of the transactions set forth in the Merger Agreement is
conditioned, among other things, upon the Merger Agreement being approved and
adopted by the holders of a majority of the outstanding shares of Cavco Common
Stock, expiration of applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act, absence of any injunction or certain other legal
matters restraining or prohibiting such transactions, the truth and accuracy of
certain representations and warranties, compliance with certain covenants
contained in the Merger Agreement and other usual and customary closing
conditions.
If the transactions contemplated by the Merger Agreement are
consummated, the Merger Subsidiary will merge with and into Cavco (the
"Merger"), the Shareholder Parties will contribute 783,441 shares of Cavco
Common Stock to the Holding Company in exchange for Holding Company shares, and
all other shares of Cavco Common Stock (other than shares held by shareholders
who exercise appraisal rights under Arizona law) will be converted into the
right to receive $26.75 per share in cash (the "Merger Consideration"). In
exchange for Holding Company shares, CREC will contribute cash to the Holding
Company in an amount sufficient to pay the Merger Consideration and any amounts
payable to dissenting shareholders. Each Merger Subsidiary share that is
outstanding will be converted into the right to receive one share of common
stock in Cavco, as the surviving corporation, and the corporate existence of the
Merger Subsidiary will cease.
Upon consummation of the transactions contemplated by the Merger
Agreement, Cavco, as the surviving corporation, will be a wholly owned
subsidiary of the Holding Company. CREC will hold approximately 78% of the
common stock of the Holding Company, and the Shareholder Parties will hold the
remaining approximately 22% of such common stock. CREC, the Holding Company and
the Shareholder Parties have agreed to enter into a Shareholders'
14
<PAGE> 15
Agreement upon consummation of the Merger, pursuant to which all of their shares
will be subject to certain transfer restrictions, and the shares held by the
Shareholder Parties will be subject to certain put options (beginning in 2000)
and certain call options (beginning in 2002) whereby CREC may acquire all of the
Shareholder Parties' interest in the Holding Company on the terms and conditions
set forth therein (the "Holding Company Shareholders' Agreement"). The Holding
Company Shareholders' Agreement also provides for certain rights of the
Shareholder Parties and CREC to designate directors, super-majority board
approval requirements for significant actions and transactions and agreements
relating to the payment of dividends. The descriptions set forth in this Report
of the transactions contemplated by the Merger Agreement and the proposed
Holding Company Shareholders' Agreement are qualified in their entirety by
reference to the Merger Agreement, a copy of which is incorporated herein by
reference as an Exhibit to this Report, and to the Holding Company Shareholders'
Agreement, a copy of which is attached as Exhibit D to the Merger Agreement.
The Merger Agreement provides that the Merger Agreement may be
terminated by the parties in certain circumstances, including by mutual consent,
or by either party in the event of (i) regulatory, governmental or judicial
actions restraining or prohibiting the transaction, (ii) failure to obtain the
required shareholder approval, (iii) a material violation or breach by the other
party of the representations, warranties and covenants contained in the Merger
Agreement, or (iv) failure to consummate the Merger by December 31, 1997. In
addition, either party may terminate the Merger Agreement in the event the Board
of Directors of Cavco shall have authorized Cavco to enter into an agreement
with a third party with respect to an alternative acquisition proposal meeting
certain conditions specified in the Merger Agreement, as summarized below.
Cavco has agreed that, upon execution of the Merger Agreement and until
the transactions contemplated thereby have been consummated (or until the Merger
Agreement is terminated), neither Cavco nor its representatives will initiate
any contact with, solicit, encourage or enter into or continue any discussions,
negotiations, understandings or agreements with any third parties with respect
to any other acquisition proposal or disclose any non-public information
regarding Cavco or any of its businesses to such third parties. Notwithstanding
the foregoing, to the extent that the Board of Directors of Cavco (or a
committee thereof) reasonably determines based on the advice of its counsel that
it is required to do so by virtue of its fiduciary obligations under applicable
law, the Company may furnish and discuss non-public information concerning Cavco
or its businesses in response to unsolicited requests therefor and may
participate in discussions and negotiations and enter into agreements regarding
an alternative transaction, provided certain conditions are met. In general,
Cavco may furnish and discuss such information with any third party the Board of
Directors reasonably determines is financially qualified to consummate a
proposed transaction and may enter into negotiations with such a third party if
(i) the consideration to be paid to the shareholders other than the Shareholder
Parties under the alternative transaction exceeds by at least $1,000,000 the
amount payable to such shareholders under the Merger Agreement; (ii) the
alternative transaction is not subject to any conditions or limitations which
make it not likely to be consummated; (iii) the terms and conditions of the
alternative transaction are no less favorable to such shareholders than the
transactions contemplated by the Merger Agreement, (iv) Cavco shall have timely
notified CREC of the alternative transaction and (v) CREC shall not have
delivered to Cavco a counteroffer topping such alternative transaction by at
least $1,000,000 in consideration to the shareholders other than the Shareholder
Parties (a "Topping Offer"). In general, Cavco may enter into an agreement with
a third party with respect to such transaction if (i) the foregoing
15
<PAGE> 16
conditions are met, (ii) the third party offer has not been materially and
adversely modified, (iii) at least ten days shall have passed since CREC was
notified, and CREC shall not have responded with a Topping Offer and (iv) Cavco
has paid to CREC certain termination fees and expenses described below.
The Merger Agreement provides for payment to CREC by Cavco of a
termination fee of $2,500,000 and reimbursement of certain expenses in an amount
up to $300,000 in the event that the Merger Agreement is terminated by Cavco in
order to accept an alternative proposal from a third party as described above,
or if the Merger Agreement is terminated for any other reason, other than (i) by
mutual consent; (ii) certain governmental actions restraining or prohibiting the
transaction; (iii) because the Merger has not been consummated by December 31,
1997 and CREC elects to terminate; or (iv) because Cavco and the Shareholder
Parties have elected to terminate due to a material violation or breach by CREC.
The Merger Agreement also provides for the payment to Cavco by CREC of a
termination fee and reimbursement of expenses, in the same amounts, in the event
that the Merger Agreement is terminated because (i) the Merger has not been
consummated by December 31, 1997 and CREC elects to terminate, or (ii) Cavco and
the Shareholder Parties elect to terminate due to a material violation or breach
by CREC.
The foregoing descriptions of certain provisions of the Merger
Agreement are qualified in their entirety by reference to the Merger Agreement,
a copy of which is incorporated herein by reference as an Exhibit to this
Report.
As stated above, one of the conditions for consummation of the
transactions set forth in the Merger Agreement is the approval of the holders of
a majority of the outstanding shares of Cavco common stock. On December 4, 1996,
the Shareholder Parties entered into a Voting Agreement with CREC, whereby the
Shareholder Parties agreed to vote all 1,830,729 shares of Cavco common stock
owned by them (representing approximately 54% of the total shares presently
outstanding) in favor of the Merger Agreement and against any inconsistent
transactions. In addition, the Shareholder Parties have agreed to restrict their
ability to sell or transfer any such shares or to grant any proxies or to enter
into any other voting arrangements with respect to such shares. The descriptions
set forth in this Report of the terms of the Voting Agreement are qualified in
their entirety by reference to the Voting Agreement, a copy of which is
incorporated herein by reference as an Exhibit to this Report.
Also on December 4, 1996, the Shareholder Parties entered into a Stock
Purchase Agreement with CREC, whereby the parties have agreed that in the event
the Merger Agreement is terminated for any reason other than (i) by mutual
consent, (ii) because the Merger has not been consummated by December 31, 1997
and CREC elects to terminate, or (iii) because of a material violation or breach
by CREC, the Shareholder Parties will sell to CREC, and CREC will purchase from
the Shareholder Parties, an aggregate of 1,047,288 shares of Cavco Common Stock
(representing approximately 31% of the total shares presently outstanding) (the
"Subject Share Purchase"). If the transactions contemplated by the Stock
Purchase Agreement are consummated, the Shareholder Parties and CREC have agreed
to enter into a Shareholders' Agreement with regard to their shares of Cavco
Common Stock (the "Cavco Shareholders' Agreement") and to use their best efforts
to cause the Company to become a party thereto. The Cavco Shareholders'
Agreement provides for certain transfer restrictions on the Cavco Common Stock
held by CREC and the Shareholder Parties and provides that such shares will be
subject to certain put options (beginning in 2000) and certain call options
(beginning in 2002) whereby CREC may acquire all of the Shareholder Parties'
Cavco common stock on the terms and
16
<PAGE> 17
conditions set forth therein. The Cavco Shareholders' Agreement also provides
certain agreements among the Shareholder Parties and CREC with respect to the
election of directors, super-majority board approval requirements for
significant actions and transactions and agreements relating to the payment of
dividends. The descriptions set forth in this Report of the terms of the Stock
Purchase Agreement and the proposed Cavco Shareholders' Agreement are qualified
in their entirety by reference to the Stock Purchase Agreement, a copy of which
is incorporated herein by reference as an Exhibit to this Report and to the
Cavco Shareholders' Agreement, the form of which is attached as Exhibit B to the
Stock Purchase Agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended fiscal 1996 with working capital of $9,381,984 compared
to $8,168,792 at the end of fiscal 1995. The Company's cash position improved as
a result of cash generated from operations and the receipt of proceeds from its
long term funding source for additions to NSC's lease fleet.
Uses of cash 1996 included capital expenditures of $13.8 million, increases
in notes receivable of $.4 million and additions to investments in partnerships
of $.1 million. The Company increased its NSC lease fleet by $11.8 million and
spent $2 million on property, plant and equipment additions. Property, plant and
equipment additions include $590,000 spent on land and a building for NSC's El
Paso location. Another $210,000 was used to purchase delivery vehicles for NSC.
The Company also spent approximately $520,000 on various computer programs,
network and communication systems.
The Company has a $4 million revolving bank line of credit that may be used
from time to time to fund working capital needs. The Company borrowed and repaid
$800,000 on this line during the year. Available borrowings are subject to a
borrowing base formula based on inventories and accounts receivable. The Company
had no amounts outstanding under the line of credit at the end of fiscal 1996.
Sun Built has a $1,400,000 line of credit that is used to finance purchases of
manufactured homes for its subdivisions. Repayments are made from proceeds on
the sales of the homes. During fiscal 1996, Sun Built borrowed $1,977,776 and
repaid $2,296,958 on its line of credit and approximately $700,000 remained
available for borrowing at the end of fiscal 1996. NSC has a $15 million line of
credit arrangement to support its lease fleet expansion. The lending institution
advanced $7,000,000 during 1996. The Company repaid $2,333,323 on this line
during 1996. The remaining $1,036,216 of long term debt repayments in fiscal
1996 were for mortgages and other loans of the Company. The Company received
$1.2 million of proceeds from the sale of lease fleet units and $1.7 million of
proceeds from collections on notes receivable in the normal course of its
business during fiscal 1996.
The Company plans capital expenditures in fiscal 1997 of approximately $4.8
million budgeted for construction of a new manufacturing facility in Belen, New
Mexico, to be financed in part through industrial revenue bond financing
currently under negotiation. The Company also plans to invest up to $500,000 in
fiscal 1997 for computer software and system hardware upgrades. The Company
believes that its existing cash, available borrowings, lines of credit, and cash
generated from operations will be sufficient to meet capital expenditure, debt
service and other liquidity requirements for the next fiscal year.
17
<PAGE> 18
During the past three years, inflation has not had a significant impact on the
Company's operations. The Company has demonstrated its ability to adjust the
manufacturing costs of its products through engineering changes and effective
price negotiations, and has been able to adjust the selling price of its
products in response to changing costs.
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Sales for fiscal 1996 were $130,105,136, an increase of $17,423,004 or
15.5% over the $112,682,132 reported for 1995. Manufacturing operations
accounted for $11.3 million of the increase primarily as a result increased
capacity due to plant expansion, improved productivity and improved market
conditions. The leasing subsidiary contributed $3.3 million of the increase, as
a result of expanding its lease fleet and adding 4 new branch locations. The
real estate development subsidiary provided $2.8 million of the increase, as a
result of completion of development activity, increased sales at its
subdivisions and the sale of 50 homes to a customer in December 1995.
Gross profit margins increased to 21.0% compared to 18.8 percent in 1995.
Margins in the manufacturing operations increased to 19.2% in 1996 from 17.4% in
1995. Improved efficiencies and higher sales volumes lended to this increase. In
addition, prior year margins were unfavorably affected by a low margin
manufactured home model offered in the spring of 1995. The leasing operations
achieved a 50.1% gross margin in fiscal 1996, compared to 51.4% in fiscal 1995.
The real estate development operations had a gross margin of 15.4% in fiscal
1996, compared to 14.4% in fiscal 1995.
Selling, general and administrative expenses increased overall by
$2,298,858, or 18%, in fiscal 1996. Approximately $1.4 million of the increase
is attributable to the leasing operations, due to increases in wages, rent and
other office costs as the subsidiary continues to develop its corporate office
and open additional branch locations. Selling, general and administrative
expense increases of $720,965, in the manufactured housing segment resulted
primarily from increased employee bonuses, which are based on the pre-tax
operating profits of the Company. The $594,502 increase in interest expense in
fiscal 1996 reflects increased finance costs incurred for expansion of the lease
fleet.
In fiscal 1996, net income was $6,237,461 or $1.84 per share, compared to
$4,237,651 or $1.25 per share in fiscal 1995, an increase of approximately 47%.
The increase in net income was a result of improved sales and gross margins and
increased efficiencies. Income from continuing operations in fiscal 1996 was
$6,932,958 or $2.05 per share, an approximately 49% increase of $2,289,296 or
$.68 per share, over the $4,643,662, or $1.37 per share, reported in fiscal
1995. Losses from discontinued operations in fiscal 1996 totaled $695,497
($339,942 from Action, $355,555 from CVC), compared to $406,011 in 1995
($110,130 from Action, $295,881 from CVC).
FISCAL 1995 COMPARED TO FISCAL 1994
Sales for fiscal 1995 were $112,682,132, an increase of $22,086,094, or
24.4% sales of $90,596,038 in fiscal 1994. The leasing subsidiary provided
approximately $5,000,000 in sales, or 23% of the increase. The manufactured
housing operations accounted for the remaining
18
<PAGE> 19
increase. Plant expansions and upgrades to machinery allowed production levels
to increase at all facilities. The new manufacturing facility added in May 1993
had the most significant favorable impact.
Gross profit margins increased to 18.8% in fiscal 1995, compared to 18.1%
in fiscal 1994. Margins in the manufactured housing operations decreased from
18.2% in fiscal 1994 to 17.4% in fiscal 1995, primarily due to the Company's
offering of a series of low cost, low margin special floor plans in the spring.
The decrease in manufacturing margins was more than offset in fiscal 1995 by the
achievement of a 51.4% gross profit margin in the leasing operations.
Selling, general and administrative expenses increased overall by
$3,064,564, or 31%, in fiscal 1995. Most of the increase was due to expansion of
the leasing operations in fiscal 1995. The $542,237 increase in interest expense
reflects increased finance costs incurred from the Company's use of its lines of
credit.
In fiscal 1995, net income was $4,237,651 or $1.25 per share, compared to
$6,605,678 or $1.95 per share in fiscal 1994, a decrease of approximately 36%.
The decrease in net income was a result of the gain from the sale of
discontinued leasing operations in fiscal 1994. Income from continuing
operations in fiscal 1995 was $4,643,662 or $1.37 per share, an approximately
19% increase of $746,470 or $.22 per share, over the $3,897,192, or $1.15 per
share, reported in fiscal 1994. Income from discontinued operations and from the
gain on the sale of discontinued leasing operations in fiscal 1994 was $436,167
and $2,272,319, respectively, compared to a loss from discontinued operations in
1995 of $406,011.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 20
Consolidated Financial Statements:
Consolidated Balance Sheets - September 30, 1996 and 1995 21
Consolidated Statements of Earnings -
Years Ended September 30, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows -
Years Ended September 30, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25
</TABLE>
Note: Schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or
related notes.
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cavco Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CAVCO
INDUSTRIES, INC. (an Arizona corporation) and subsidiaries as of September 30,
1996 and 1995, and the related consolidated statements of earnings and cash
flows for the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cavco Industries, Inc. and
subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Phoenix, Arizona,
December 4, 1996.
20
<PAGE> 21
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and 1995
Assets
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $13,298,107 8,140,730
Receivables
Trade accounts, net of $969,000 and $280,000
reserve for uncollectible accounts in
1996 and 1995, respectively 2,412,340 3,164,862
Notes, net of $332,000 reserve in 1996 627,241 511,302
Other 145,714 509,369
----------- -----------
Total receivables 3,185,295 4,185,533
----------- -----------
Inventories
Manufacturing:
Work in process 852,716 807,949
Raw materials 3,869,300 2,971,581
Real estate held for sale 6,156,056 6,133,089
----------- ---------
Total inventories 10,878,072 9,912,619
----------- -----------
Prepaid expenses 619,791 834,713
Deferred tax charge 1,026,214 552,981
----------- -----------
Total current assets 29,007,479 23,626,576
----------- -----------
Notes receivable, net of current portion 1,501,685 1,162,415
Property, plant and equipment, at cost 15,241,264 14,285,539
Less accumulated depreciation 5,246,987 4,666,351
----------- ---------
Net property, plant and equipment 9,994,277 9,619,188
----------- -----------
Assets under lease 22,188,592 14,366,138
Less accumulated depreciation 876,594 596,007
----------- -----------
Net assets under lease 21,311,998 13,770,131
----------- -----------
Investment in partnerships 2,644,075 2,534,703
Other assets 986,376 1,098,926
----------- ---------
$65,445,890 51,811,939
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 22
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and 1995
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current liabilities
Notes payable $ 703,682 1,022,864
Current installments of long term debt 3,409,763 2,444,248
Accounts payable 4,990,907 5,009,125
Accrued expenses 7,957,659 6,939,129
Income taxes 2,563,484 42,418
----------- -----------
Total current liabilities 19,625,495 15,457,784
----------- -----------
Long term debt, excluding current installments 15,479,607 12,692,661
Deferred income taxes 1,670,132 1,278,299
Stockholders' equity
Common stock, $.05 par value; 8,000,000 shares
authorized; 3,387,968 and 3,382,968 shares
issued and outstanding in 1996 and 1995,
respectively 169,399 169,149
Capital in excess of par value 361,804 312,054
Retained earnings 28,139,453 21,901,992
----------- -----------
Net stockholders' equity 28,670,656 22,383,195
----------- ----------
$65,445,890 51,811,939
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
22
<PAGE> 23
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $130,105,136 112,682,132 90,596,038
Cost of sales 102,801,345 91,469,469 74,238,342
------------ ------------ ------------
Gross profit 27,303,791 21,212,663 16,357,696
Selling, general and administrative expenses 15,197,212 12,898,354 9,833,790
------------ ------------ ------------
Operating income 12,106,579 8,314,309 6,523,906
------------ ------------ ------------
Other income (expense):
Interest income 519,802 287,385 175,957
Interest expense (1,590,054) (995,552) (453,315)
Miscellaneous 521,431 152,940 156,444
------------ ------------ ------------
(548,821) (555,227) (120,914)
------------ ------------ ------------
Income from continuing operations before income taxes 11,557,758 7,759,082 6,402,992
Income taxes 4,624,800 3,115,420 2,505,800
------------ ------------ ------------
Income from continuing operations 6,932,958 4,643,662 3,897,192
------------ ------------ ------------
Discontinued operations:
Income (loss) from operations of Action (less
income taxes of ($188,200), ($73,420) and
$21,300 for 1996, 1995 and 1994, respectively) (282,202) (110,130) 31,660
Loss on sale of Action (less income taxes of
($38,500)) (57,740) -- --
Income (loss) from operations of CVC Leasing (less
income taxes of ($237,100), ($194,000) and
$260,800 for 1996, 1995 and 1994, respectively) (355,555) (295,881) 404,507
Gain on sale of CVC (less income taxes of $ 1,465,000) -- -- 2,272,319
------------ ------------ ------------
Net income $ 6,237,461 4,237,651 6,605,678
============ ============ ============
Income per share from continuing operations $ 2.05 1.37 1.15
Income (loss) per share from operations of
discontinued Action subsidiary (.08) (.03) .01
Loss per share from sale of Action subsidiary (.02) -- --
Income (loss) per share from operations of
discontinued CVC division (.11) (.09) .12
Income per share from gain on sale of CVC division -- -- .67
------------ ------------ ------------
Net income per share $ 1.84 1.25 1.95
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
23
<PAGE> 24
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,237,461 6,605,678
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of CVC Leasing division -- -- (3,737,319)
Depreciation and amortization expense 1,818,825 1,727,696
Provision for losses on receivables 688,675 280,000 --
Provision for deferred income taxes (81,400) 703,929 (455,900)
(Gain) loss on sales of assets under lease 1,278,990 (389,409) (118,512)
Change in assets and liabilities:
(Increase) decrease in receivables 63,847 1,160,874 (581,448)
(Increase) decrease in manufacturing inventories (942,486) (641,325) (3,739,014)
(Increase) decrease in real estate held for sale 99,033 (1,067,249) (2,833,311)
(Increase) decrease in prepaid expenses 214,922 (373,198) 117,989
(Increase) decrease in other assets 17,777 (241,244) (481,330)
Increase (decrease) in accounts payable (18,218) (83,062) 1,305,794
Increase (decrease) in accrued expenses 1,018,530 466,753 2,252,398
Increase (decrease) in income taxes 2,521,066 (2,583,262) 2,313,896
Increase (decrease) in lease deposits
and other liabilities -- (97,309) 190,682
------------ ----------- ----------
Net cash provided by operating activities 12,917,022 3,100,845 2,215,136
------------ ----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,014,579) (2,292,217) (1,962,510)
Proceeds from sales of property, plant and
equipment 297,466 111,254 --
Additions to assets under lease (11,782,166) (11,292,377) (8,182,092)
Proceeds from sales of assets under lease 1,231,099 2,713,985 773,288
Increase in notes receivable -- (78,500)
Proceeds from collections on notes receivable 1,676,128 1,352,273 420,328
Additions to investment in partnerships (109,372) (1,212,979) (1,298,172)
Net proceeds from sale of CVC Leasing division -- -- 10,464,504
------------ ----------- ----------
Net cash provided by (used for)
investing activities (11,120,924) (10,620,061) 136,846
------------ ----------- ----------
Cash flows from financing activities:
Borrowing under lines of credit 2,777,776 7,989,543 7.442,376
Repayment of lines of credit (3,096,958) (8,621,169) (6,990,149)
Proceeds from long-term debt 7,000,000 8,603,857 5,598,713
Repayment of long-term debt (3,369,539) (1,318,885) (775,126)
Proceeds from issuance of common stock 50,000 -- --
------------ ----------- ----------
Net cash provided by financing activities 3,361,279 6,653,346 5,275,814
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents 5,157,377 (865,870) 7,627,796
Cash and cash equivalents at beginning of year 8,140,730 9,006,600 1,378,804
------------ ----------- ----------
Cash and cash equivalents at end of year $ 13,298,107 8,140,730 9,006,600
============ =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE> 25
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1996, 1995, and 1994
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements of Cavco Industries, Inc.
(the Company) for 1996, 1995 and 1994 include the accounts of
Cavco Industries, Inc. and its wholly-owned subsidiaries, Sun
Built Homes, Inc. (Sun Built) and National Security Containers,
Inc. (NSC). In July, 1996 the Company formed a new subsidiary,
Cavco Industries of New Mexico, Inc. The Company is building a
manufacturing facility, which is scheduled to begin production in
fiscal 1997. All material intercompany transactions have been
eliminated in the consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market (net
realizable value). Cost is determined by using standard cost
(which approximates actual cost on a first-in, first-out basis)
for finished goods and work-in process and actual cost on a
first-in, first-out basis for raw materials.
(c) Product Warranty
The Company's products carry a one-year warranty on structural
components to the original retail customer. The Company also
warrants certain nonstructural components for 90 days. The
warranty covers defective materials and workmanship. The Company's
experience allows it to reasonably estimate the amount of warranty
expense expected to be incurred for products sold. Warranty
expense for the years ended September 30, 1996, 1995 and 1994 was
$2,017,788, $1,946,297 and $1,664,204, respectively.
(d) Real Estate Held for Sale
Real estate held for sale consists primarily of land purchased by
Sun Built and homes manufactured by the Company for sale in
residential subdivisions. Sun Built capitalizes certain interest
costs incurred with developing the land, and such interest will be
included in cost of sales as property is sold to the buyer. The
amount of interest capitalized during the years ended September
30, 1996 and 1995 was $56,997 and $127,732, respectively.
In most cases, the customer obtains financing from an outside
source and pays cash for the purchase. In accordance with rules
established by Statement of Financial Accounting Standards No. 66
(Accounting for Sales of Real Estate), revenues are recognized
upon close of sale, when the property has transferred to the
buyer.
(e) Investment in Partnerships
In November, 1992, the Company formed PDG/Prescott Development
Group, L.L.C., a limited liability company, with another company
for the purpose of developing a manufactured housing subdivision.
The Company is a 50% partner in the LLC and accounts for its
investment on the equity method. The Company's investment in the
LLC was $2,370,461 and $2,275,313 at September 30, 1996 and 1995,
respectively.
25
<PAGE> 26
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(e) Investment in Partnerships (continued)
In August, 1994, Sun Built formed Rural Southwest, L.L.C., a
limited liability company, with another company. Sun Built is a
50% owner in a LLC formed in August, 1994, to develop a
manufactured housing subdivision. Sun Built accounts for its
investment on the equity method. Its investment was $273,614 and
$259,390 at September 30, 1996 and 1995, respectively.
(f) Revenue Recognition
The Company recognizes product revenue upon shipment of product.
Revenue from services is recognized when services are performed.
Lease income is recognized over the terms of the leases.
(g) Statement of Cash Flows
For purpose of these statements, cash and cash equivalents include
cash on hand and cash in short-term investments with original
maturities of less than three months (primarily money market
funds). Information that does not result in cash receipts or cash
payments in the period, but which affects the financing and
investing activities of the Company is included in supplemental
disclosures as follows.
Supplemental Disclosures of Non-cash Investing and Financing
Activities:
In 1996, the Company sold $1,238,182 of lease assets for notes
receivable. The Company purchased $122,000 of real estate held for
sale, financed by long term debt. Also in 1996, the Company sold
the majority of the assets of its Action subsidiary and received
a $442,000 note.
In 1995, the Company sold $523,276 of lease assets for notes
receivable. The Company purchased $541,600 of real estate held for
sale, financed by long term debt. Inventory held for sale or lease
of $2,207,197 was transferred into assets under lease.
In 1994, the Company sold $1,015,133 of lease assets for notes
receivable. The Company purchased $470,118 of lease assets
financed by notes payable. The Company purchased $818,784 of real
estate held for sale, assuming $414,384 in notes payable and
financing $404,400 by long term debt. Also in 1994, the Company
sold its CVC Leasing division. See Note 13 for detail of non-cash
items.
Supplemental disclosure of Cash Flow information:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $1,622,675 1,020,766 1,109,739
Income Taxes $1,720,234 2,540,433 2,394,904
</TABLE>
26
<PAGE> 27
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
(h) Depreciation of Assets Under Lease
During 1996 the Company completed a review of its depreciation
estimates for assets under lease. The Company determined that the
actual lives of the assets were generally longer than the useful
lives used for depreciation purposes. The Company also recognized
that the assets retained a salvage value. Therefore, the Company
extended the estimated useful lives of the assets under lease and
incorporated a salvage value. The effect of this change in
estimate reduced depreciation expense for the year ended September
30, 1996 by $531,366 and increased net income from continuing
operations by approximately $318,800, or $.09 per share.
(i) Accounting Statements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS"), No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which the Company will be required to implement
effective for the fiscal year ending September 30, 1997. SFAS No.
121 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If the sum of
the expected future cash flows (undiscounted and without interest
charges) from an asset to be held and used is less than the
carrying value of the asset, an impairment loss must be recognized
in the amount of the difference between the carrying value and
fair value. Assets to be disposed of must be valued at the lower
of carrying value or fair value less costs to sell. Management of
the Company believes that if SFAS No. 121 were implemented
currently, no material impairment loss would be recognized.
(j) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities at September 30, 1996 and 1995, and the reported
amounts of revenues and expenses during the three years in the
period ended September 30, 1996. Actual results could differ from
those estimates.
(j) Reclassifications
Certain amounts from prior years' financial statements have been
reclassified to conform to the current year presentation.
(2) Accounts and Notes Receivable
Notes receivable include amounts due under finance leases ($1,780,686 and
$1,633,607 at September 30, 1996 and 1995, respectively) and amounts due
from sales of real estate held for sale ($200,000 and $16,610 at September
30, 1996 and 1995, respectively). The finance leases are secured by the
related assets under lease, and the notes on real estate sales are secured
by deeds of trust. Also included in notes receivable is the balance on a
line of credit extended to a dealer ($38,240 and $23,500 at September 30,
1996 and 1995, respectively) and the $110,000 net book value of a note
receivable ($442,000 less a reserve of $332,000) related to the sale of
Action in 1996.
27
<PAGE> 28
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes for Consolidated Financial Statements
(2) Notes Receivable (continued)
The aggregate maturities of the notes receivable for the five years
subsequent to September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 959,241
1998 612,326
1999 259,555
2000 179,351
2001 144,446
Thereafter 306,007
----------
$2,460,926
==========
</TABLE>
The Company's customer base is widely dispersed geographically. No single
customer accounts for over 10% of the receivables balance at September 30,
1996.
(3) Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over the estimated
useful lives of the respective assets on a straight-line basis. Leasehold
improvements are amortized on a straight-line basis over their estimated
useful lives or the terms of the respective leases, whichever is shorter.
Repair and maintenance costs are expensed as incurred. A summary of
property, plant and equipment, at cost, follows:
<TABLE>
<CAPTION>
Average
Depreciable September 30,
Lives (Years) 1996 1995
-------------- ---- ----
<S> <C> <C> <C>
Land - $ 2,759,158 2,455,801
Buildings 15-30 2,500,201 2,115,744
Plant equipment 5-10 3,287,115 3,035,233
Office equipment 3-10 1,596,623 1,909,801
Automotive equipment 3 1,693,223 1,868,784
Building and leasehold improvements 3-20 3,001,618 2,892,126
Construction in progress - 403,326 8,050
----------- ----------
$15,241,264 14,285,539
=========== ==========
</TABLE>
(4) Notes Payable
The Company has a $4,000,000 revolving line of credit with a bank, with an
interest rate of prime plus 1/2%, expiring on January 31, 1997. This line of
credit is secured by the Company's inventories and accounts receivable.
Sun Built has a $1,400,000 line of credit with a financial institution, with
an interest rate of prime plus 1%, expiring in January 1997. This line of
credit is secured by certain real estate held for sale.
28
<PAGE> 29
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Notes Payable (continued)
During 1995 NSC utilized a temporary line of credit to fund additions to
assets under lease. The maximum borrowed during the year was $2,750,000 at
an average interest rate of 9.40%. The line was paid off in June 1995.
Pertinent information with respect to the bank lines of credit is as
follows:
<TABLE>
<CAPTION>
Company line of credit: September 30,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding balance at year end -- -- --
Interest rate at year end 8.75% 9.25% 8.25%
Maximum credit available 4,000,000 4,000,000 3,500,000
Maximum borrowing during year 800,000 3,750,000 3,500,000
Average outstanding borrowings (a) 10,959 1,220,000 1,539,726
Average yearly interest rate (a) 9.25% 9.5% 7.3%
</TABLE>
(a) The average outstanding borrowings during the periods were calculated by
dividing the weighted average daily balance by 365. The average yearly interest
rate during the period was calculated by dividing the interest expense by the
average outstanding borrowings.
<TABLE>
<CAPTION>
Sun Built line of credit: September 30,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding balance at year end 703,682 1,022,864 1,184,372
Interest rate at year end 9.75% 9.75% 9.5%
Maximum credit available 1,400,000 1,375,000 1,184,372
Maximum borrowing during year 1,389,364 1,360,570 1,184,372
Average outstanding borrowings (b) 1,062,850 1,178,397 597,614
Average interest rate for year (b) 9.16% 10.32% 8.15%
</TABLE>
(b) Average outstanding borrowings during the periods were calculated by
dividing the month-end balances (including beginning of year) by 13. Average
yearly interest rates were calculated by dividing the interest expense by the
average outstanding borrowings.
29
<PAGE> 30
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Long-Term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Notes payable to a financial
institution, due in monthly
installments of $216,667 plus
interest ranging from 8.63% to
9.06%, secured by assets under lease
and related accounts receivable of
NSC. The notes are amortized over a
five year period and are due and
payable in July 2000, January 2001
and October 2001. (See (b) below). $12,266,658 7,599,981
Convertible note trust, interest
payable quarterly at 8%, unsecured,
balance due and payable in April
1999. (See (a) below) 4,100,000 4,100,000
Mortgage note payable, due in
monthly installments of $8,070 plus
interest at prime plus 1%, (9.25% at
September 30,1996) secured by deed
of trust on real estate. The
mortgage is amortized over a 13-year
term, with the balance due and
payable in August 2002. (See (b) below). 1,154,068 1,250,913
Notes payable to a title company,
due in monthly installments of
$5,555 including interest at 10%,
secured by real estate held for
sale, balances due and payable
ranging from March 1997 to January
1999. 489,459 589,268
Note payable to bank, due in monthly
installments of $19,259 including
interest at 9.755%, secured by plant
equipment, due and payable in
September, 1998. 402,522 584,598
Note payable due in monthly
installments of $2,601, including
interest at a rate of 9%, secured by
a deed of trust. The note is
amortized over a 30-year term and is
due and payable in July, 2011. 287,989 293,009
Note payable due in monthly
installments of $3,416, including
interest at a rate of 13% secured by
a deed of trust. The note is
amortized over a 15-year term and is
due and payable in November, 2000. 131,347 153,663
</TABLE>
30
<PAGE> 31
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
(5) Long-Term Debt (continued)
Notes payable to finance companies, due
in monthly installments totaling $2,447,
including interest at various rates ranging
between 6.6% and 11.5%, balances due and
payable ranging from January 1997 to October
1998, secured by automotive and office
equipment. 29,584 88,205
Note payable to bank, due in monthly
installments of $27,778 plus interest
at prime plus 1/2%, (8.75% at September 30,
1996) secured by plant equipment, due and
payable in October, 1996. 27,743 361,088
Note payable to bank, paid in Sept. 1996. -- 116,184
18,889,370 15,136,909
Less current portion 3,409,763 2,444,248
----------- ----------
Long term debt, net of current portion $15,479,607 12,692,661
=========== ==========
</TABLE>
(a) At any time during the term of the note, all or any portion of
the principal balance is convertible, at the Company's option,
into shares of the Company's Common Stock at $16 per share, if the
trading price of Common Stock exceeds $20 per share for a period
of at least 20 trading days prior to the conversion. The Company
also has an option to prepay up to one half of the outstanding
principal balance of the loan after October, 1995. Such prepayment
can be made in Common Stock, at $16 per share, if the stock price
exceeds $16 per share for a period of at least 20 trading days
prior to the payment date. See Note 16 of Notes to Consolidated
Financial Statements -- "Subsequent Events."
(b) Certain of the Company's loan agreements require compliance
with financial covenants, the most significant of which specify a
minimum current ratio, minimum owner's equity, working capital,
debt coverage ratio, debt service coverage ratio, and minimum
tangible net worth. The agreements also state that any dividends
to stockholders must be approved by the lending institution. At
September 30, 1996, the Company was not in compliance with the
covenant related to debt service coverage ratio for one of its
subsidiaries. The Company obtained a waiver from the bank.
The aggregate maturities of long-term debt for the five years subsequent to
September 30, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 3,409,763
1998 3,685,009
1999 7,350,292
2000 2,608,159
2001 911,427
Thereafter 924,720
-----------
$18,889,370
===========
</TABLE>
31
<PAGE> 32
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Income Taxes
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- ------
<S> <C> <C> <C>
1996: Federal $3,202,500 63,900 3,266,400
State 877,100 17,500 894,600
---------- -------- ---------
$4,079,600 81,400 4,161,000
========== ======== =========
1995: Federal $1,683,500 552,800 2,236,300
State 460,500 151,200 611,700
---------- -------- ---------
$2,144,000 704,000 2,848,000
========== ======== =========
1994: Federal $3,696,400 (357,900) 3,338,500
State 1,012,400 (98,000) 914,400
---------- -------- ---------
$4,708,800 (455,900) 4,252,900
========== ======== =========
</TABLE>
Income tax expense amounted to $4,161,000 for the year ended September 30,
1996 (an effective rate of 40.0%) $2,848,000 for the year ended September
30, 1995 (an effective rate of 40.1%) and $4,252,900 for the year ended
September 30, 1994 (an effective rate of 39.2%). The actual tax expense
differs from the "expected" tax expense (computed by applying the U.S.
Federal corporate tax rates to earnings before income tax) as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal corporate tax rate 34.0 % 34.0 34.0
State income taxes, net of
federal income tax benefit 6.1 6.1 6.1
Other (0.1) -- (0.9)
---- ---- ----
Effective tax rate 40.0 % 40.1 39.2
==== ==== ====
</TABLE>
Deferred tax assets and liabilities represent the estimated future tax
effects attributable to timing differences in the recognition of revenue and
expense items for financial statement and tax return purposes. The
components of the Company's deferred income tax benefits and liabilities
follows:
<TABLE>
<CAPTION>
September 30,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Current:
Accrued warranty expense $ 404,545 355,104
Reserve for uncollectible accounts 515,272 110,924
Deferred rent 17,723 48,011
Accrued vacation and holiday 47,382 40,471
Accrued bonuses 21,438 15,067
Accrued state tax deduction 19,854 (16,596)
---------- -------
Deferred tax charge $1,026,214 552,981
========== =======
</TABLE>
32
<PAGE> 33
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Income Taxes (continued)
<TABLE>
<S> <C> <C>
Long-term:
Excess of tax over book
depreciation $(1,774,067) (1,310,517)
Loss in partnership (33,221) (43,827)
Advance rents received (16,709)
Excess of tax over book amortization
of intangibles 57,806 30,862
Excess of book gain over tax gain
on sale of assets 61,892 61,892
Loss on marketable securities 17,458 --
----------- ----------
Deferred tax liability $(1,670,132) (1,278,299)
=========== ==========
</TABLE>
(7) Employee Benefit Plans
The Company's profit sharing plan is a defined contribution plan which
covers all employees. After two years of service have been completed,
employees begin participation on the first day of the sixth month or the
first day of the plan year, whichever is earlier. Participants are 100%
vested immediately upon entry into the Plan. The Plan was designed to comply
with the requirements of ERISA. Contributions to the Plan are determined
annually by the Board of Directors. The Company contributed $100,000 and
$200,000 to the Plan for the years ended September 30, 1995 and 1994,
respectively. There was no contribution to the Plan for the year ended
September 30, 1996.
The Company adopted a 401(k) plan in January, 1995. All employees are
eligible to participate after completing four months of service, and may
begin participation on the following January 1 or July 1, whichever is
earlier. Participants may defer and contribute up to 15% of annual
compensation (subject to limits set by the Internal Revenue Service) to the
401(k) plan. The Company matches 25% of the employee's contribution, up to
6% of his or her compensation. The Company contributed $120,631 to the
401(k) plan for the year ended September 30, 1996 and $68,924 for the year
ended September 30, 1995.
(8) Stockholders' Equity
The number of shares used in computing earnings per common share was
3,383,173 for 1996 and 3,382,968 for 1995 and 1994. The number of shares
reflects a three-for-two stock split effective December, 1994. Fully diluted
earnings per share are the same as primary earnings per share.
In August 1995, the Company entered into a qualified stock option purchase
agreement with an employee. The agreement allows the employee to purchase up
to 50,000 shares of the Company's Common Stock at $10 per share (fair market
value at the date of the grant). The options vest at 10% per year, beginning
on September 1, 1996. In September 1996, the employee exercised his vested
options and purchased 5000 shares for $50,000.
33
<PAGE> 34
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Financing Arrangements and Commitments
The Company is contingently liable under terms of repurchase agreements
covering dealer floor plan financing arrangements. These arrangements, which
are customary in the industry, provide for the repurchase of products sold
to dealers in the event of default on payments by the dealer. The risk of
loss is spread over numerous dealers and financing institutions and is
further offset by the resale value of repurchased units. The Company has not
incurred any significant losses from these arrangements since inception.
During 1996 and 1995, the Company entered into financing arrangements
whereby certain dealers would be assisted in obtaining financing for
purchases of Cavco manufactured homes. The Company has guaranteed the
flooring lines extended to the dealers by the financing institutions. The
Company's maximum liability to financial institutions was $500,000 in 1996
and $6,500,000 in 1995.
The Company is the guarantor on a loan agreement which allowed PDG/Prescott
Development Group, L.L.C. formed in November, 1992 (see Note 1) to borrow
$3,750,000 from investors. The loan is paid out over five years, based on
scheduled sales of lots. The amount guaranteed by the Company has been
offset by proceeds received on the lot sales, leaving a balance of
$2,720,145 and $3,177,285 at September 30, 1996 and 1995, respectively.
(10) Leases
The Company occupies certain land and office buildings and uses certain
equipment under lease arrangements classified as operating leases. Real
estate taxes, insurance and maintenance expenses are obligations of the
Company.
At September 30, 1996, future minimum lease payments due under
noncancellable operating leases, excluding executory costs, are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30 Amount
------------ ------
<S> <C>
1997 $ 902,414
1998 492,837
1999 246,848
2000 139,767
2001 29,208
----------
Total $1,811,074
==========
</TABLE>
Total rental expense for 1996, 1995 and 1994 was $1,112,787, $1,051,884 and
$902,332, respectively.
(11) Industry Segment Information
The Company operates principally in three industries: Manufactured Housing,
Leasing, and Real Estate Development. Operations are conducted in Arizona
and, to a much lesser extent, the Company operates or sells to dealers for
resale in Nevada, Colorado, Idaho, California, Utah, Washington, New Mexico,
Oregon, Texas, Canada and Japan. Operating profit consists of total revenue
less cost of sales and operating expenses. None of the following have been
included in the computation of gross operating profit: general corporate
expenses, non-operating income and expenses and income taxes.
34
<PAGE> 35
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Industry Segment Information (continued)
Identifiable assets are those assets used in the operations of each
industry segment. General corporate assets primarily consist of cash,
temporary investments, deferred tax benefits and other current assets.
Information with respect to industry segments as of September 30, 1996,
1995 and 1994 is set forth as follows:
<TABLE>
<CAPTION>
Manufactured Leasing Real Estate General
Housing Operations Develop't Corporate Total
------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1996
Sales to unaffiliated
customers $114,833,294 8,315,739 6,906,103 -- 130,105,136
Operating profit (loss) 13,052,622 650,242 262,198 (1,858,483) 12,106,579
Identifiable assets 12,090,632 28,309,303 7,164,970 17,880,985 65,445,890
Depreciation and amortization 732,204 840,783 25,118 220,720 1,818,825
Capital expenditures 485,464 13,262,338 -- 48,943 13,796,745
1995
Sales to unaffiliated
customers $103,560,443 5,037,282 4,084,407 -- 112,682,132
Operating profit (loss) 9,439,956 421,795 15,213 (1,562,655) 8,314,309
Identifiable assets 11,914,234 19,416,794 7,026,052 13,454,859 51,811,939
Depreciation and amortization 674,658 786,370 35,678 230,990 1,727,696
Capital expenditures 1,089,116 12,438,891 28,507 28,080 13,584,594
1994
Sales to unaffiliated
customers $ 85,969,747 -- 4,626,291 -- 90,596,038
Operating profit (loss) 7,692,540 -- 177,379 (1,346,013) 6,523,906
Identifiable assets 10,501,021 13,175,553 5,448,625 12,753,314 41,878,513
Depreciation and amortization 521,786 661,824 29,049 162,874 1,375,533
Capital expenditures 1,181,074 8,665,060 137,846 160,622 10,144,602
</TABLE>
No customers accounted for more than 10% of sales for the year ended
September 30, 1996. Sales to one manufactured housing customer amounted to
$18,129,289, or 15.5% of sales for the year ended September 30, 1995. Sales
to two manufactured housing customers amounted to $17,388,700 and
$10,999,677 (18.9% and 11.9% of sales, respectively) for the year ended
September 30, 1994.
Results for leasing operations in 1994, under CVC Leasing, are included in
discontinued operations. Leasing operations for 1995 and 1996 reflect the
results of NSC.
35
<PAGE> 36
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Accrued Expenses
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
September 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Wages $1,126,611 964,821
Sales promotion programs 2,923,682 2,427,033
Accrued warranty 1,021,172 896,372
Industrial insurance 1,422,566 1,308,813
Property taxes 458,113 326,315
Other 1,005,515 1,015,775
---------- ---------
$7,957,659 6,939,129
========== =========
</TABLE>
(13) Discontinued Operations
On August 1, 1994, the Company sold the relocatable mobile and modular
commercial structures and related buildings and equipment of its CVC
leasing division for $20.1 million, to an unrelated company. Approximately
$8.0 million was used to pay off notes payable associated with the assets
sold; a $1.2 million note receivable was due from the purchaser; net cash
proceeds totaled $10.9 million. The net value of assets sold, plus other
costs related to the sale, amounted to $16.4 million, resulting in a net
gain of $3.7 million.
Net income (loss) from CVC leasing operations is included in the
consolidated statements of income under "discontinued operations". Revenues
from such operations were $15,000 for 1996, $2,072,569 for 1995 and
$8,253,530 for 1994. Revenues in 1995 and 1996 were produced from the sales
of jobs that were in progress when the division was sold.
Assets and liabilities related to CVC remaining on the balance sheet as of
September 30, 1996 include trade accounts receivable ($280,322), balance
remaining from purchaser of CVC ($72,568) and rent due on CVC properties
($44,738). Assets and liabilities related to CVC remaining on the balance
sheet as of September 30, 1995 include trade accounts receivable
($378,406), balance remaining from purchaser of CVC ($509,369), and rent
due on CVC properties ($121,191).
On September 30, 1996, the Company sold the accounts receivable, related
service contracts and office equipment of its subsidiary, Action Healthcare
Management Systems, Inc. (Action), to an unrelated company for $442,000.
The net value of assets sold, plus other costs related to the sale,
amounted to $538,240, resulting in a pretax loss of $96,240. The purchaser
issued a $442,000 note to the Company, to be paid over 10 years, at an
interest rate of 8%, balance due and payable in March 2005.
Net income (loss) from Action is included in the consolidated statements of
income under "discontinued operations". Revenues from Action were $576,991
for 1996, $1,026,230 for 1995 and $1,465,525 for 1994. Other than the
$442,000 note receivable from the purchaser, there are no material assets
or liabilities related to Action remaining on the balance sheet as of
September 30, 1996.
36
<PAGE> 37
CAVCO INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, accounts
payable, accrued expenses and other payables approximate fair value because
of the short maturity of these financial instruments. Notes payable bear
interest at market rates, therefore the carrying amounts of the outstanding
borrowings approximate fair value.
Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instruments. These
estimates are subjective in nature and involve uncertainties and judgment
and therefore cannot be determined with precision. Changes in assumptions
could significantly affect these estimates.
(15) Supplemental Financial Data (unaudited)
Selected quarterly financial data for the years ended September 30, 1996
and 1995 is set forth below. Earnings per share were adjusted to reflect
the three-for-two stock split effective December 1994. Amounts differ from
amounts previously reported on the Company's Form 10-Q Reports due to
reclassification of discontinued operations of the Company's Action
subsidiary.
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1996
Net sales $30,689,331 33,341,439 33,016,732 33,057,634
Gross profit $ 6,484,942 6,126,555 5,930,941 8,761,353
Net income from
continuing operations $ 1,722,501 1,355,685 1,424,925 2,429,847
Income per share from
continuing operations $ . 51 .40 .42 .72
1995
Net sales $30,140,661 28,506,700 25,914,959 29,146,042
Gross profit $ 6,042,484 4,984,232 3,972,700 6,495,106
Net income from
continuing operations $ 1,628,149 956,026 499,164 1,450,193
Income per share from
continuing operations $ . 48 .28 .15 .43
</TABLE>
(16) Subsequent Events
On December 5, 1996, the Company announced that it has entered into a
Merger Agreement which provides for the sale of approximately 78% of the
equity interest in the Company to an unrelated company. The Merger
Agreement has been approved by the Boards of Directors of both companies.
The Merger Agreement is subject to approval by Cavco shareholders, certain
regulatory filings and other conditions. The Company expects the Merger to
be completed by the end of its second fiscal quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for additional information concerning the transactions contemplated by the
Merger Agreement.
In November 1996, the Company made a cash prepayment of $2,050,000 of the
$4,100,000 unpaid principal balance of the Convertible Note due April 1,
1999, as permitted by the terms of the Note. See Note 5 above.
37
<PAGE> 38
<PAGE> 39
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the Company's independent accountants
on accounting and financial disclosure matters.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors and executive officers as of September 30, 1996 are
as follows:
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Al R. Ghelfi 57 Chairman of the Board, Chief Executive
Officer, Director
Brent Ghelfi 35 Executive Vice President and Chief
Operating Officer, Director
Ruth Smith 66 Secretary and Director
Robert Wold 78 Director
William Blandin 47 Director
Stephen H. Kleemann 52 Director
Robert Ward 46 Vice President, Treasurer and Chief
Financial Officer
Wendell Hargis 41 Vice President of Manufacturing Operations
James Samuel Parlette 43 Vice President of Sales and Marketing
</TABLE>
AL R. GHELFI is the Chairman of the Board of Directors and served as
President and Chief Executive Officer of the Company from 1974 through October
1996. In 1968, when the Company was formed, through 1973, Mr. Ghelfi was Vice
President, Secretary and Treasurer of the Company. He has served as a Director
since inception. He works full-time for the Company. Mr. Ghelfi is also the
Chairman of the Board of Directors of Sun Built and NSC. Al Ghelfi is the father
of Brent Ghelfi.
BRENT GHELFI served as Executive Vice President and Chief Operating
Officer during fiscal 1996 and was named President and Chief Executive Officer
of Cavco in October 1996. Mr. Ghelfi has served as a Director of the Company
since February 1995. He previously served the Company as Vice President and
General Counsel. He has been employed by the Company since January 1995 and
works full time for the Company. In addition to his duties as President and
Chief Executive Officer for Cavco, he is also the President of Sun Built. Prior
to joining Cavco, he was a partner with the Phoenix law firm of Meyer,
Hendricks, Victor, Osborn &
38
<PAGE> 40
Maledon, specializing in corporate litigation and labor law. He was with the law
firm for more than six years. Brent Ghelfi is the son of Alfred R. Ghelfi.
RUTH SMITH has been the Secretary and a Director of the Company since
1974. She came to the Company in 1968 and, except for one year, has been with
the Company since that time. She now works part-time for the Company.
ROBERT WOLD has been a Director of the Company since 1991. Mr. Wold is
the president of Manufactured Housing Counselors, Inc., a management consulting
firm specializing in manufactured buildings. The Company retains Manufactured
Housing Counselors, Inc. as an operations consultant.
WILLIAM R. BLANDIN has been a Director of the Company since 1985. He
also served as Executive Vice President of the Company from 1984 through October
1996.
STEPHEN H. KLEEMANN has been a Director of the Company since 1984. Mr.
Kleemann is a principal in Kleemann Capital Management, Inc., a financial
consulting company in Santa Barbara, California. The Company retains Kleemann
Capital Management, Inc. as a financial consultant.
ROBERT WARD is Vice President, Treasurer and Chief Financial Officer of
the Company. He has been employed by the Company since 1978. He works full-time
for the Company. He became Treasurer of the Company in 1984 and Vice President
and Chief Financial Officer in 1990. Mr. Ward also serves as Secretary,
Treasurer and a director of Sun Built and NSC.
WENDELL HARGIS was named Executive Vice President of the Company in
October 1996. He has been employed by the Company since 1988 and held the
position of Vice President of Manufacturing Operations from 1992 through October
1996. He works full-time for the Company.
JAMES SAMUEL PARLETTE is the Vice President of Sales and Marketing, a
position he has held since March 1996. Formerly the General Sales Manager of the
Company's Litchfield division, Mr. Parlette has been with the Company since
1993. Prior to joining Cavco, Mr. Parlette was a division manager for Universal
Forest Products at its Chandler, Arizona division from 1988 to 1993 and a
general sales manager for Palm Harbor Homes, Inc. at its Austin, Texas facility
from 1982 to 1988.
39
<PAGE> 41
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company and its subsidiaries, as well as other
compensation, during the Company's last three fiscal years, to the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers ("Named Executive Officers") in all capacities in
which they serve.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
- ----------------------------------------------------------------------------------------------------------
Securities All Other
Fiscal Year Underlying Compensation
Name and Principal Position Ended Salary ($) Bonus ($) Options (#) ($)(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Al R. Ghelfi 1996 149,932 384,420 112,369(2)
Chairman, Chief Executive 1995 146,276 281,407
Officer, Director 1994 146,276 514,823 49,412
51,723
William R. Blandin 1996 200,000 128,596
Executive Vice President, 1995 79,420 495,324 6,347
Director 1994 70,928 635,009 13,573
12,220
Robert Ward 1996 54,725 308,311 12,706
Vice President, Treasurer, 1995 53,341 225,584 11,430
Chief Financial Officer 1994 53,341 222,726
8,976
Brent Ghelfi
Vice President-General 1996 78,000 391,144 4,754
Counsel, Chief Operating Officer 1995 52,500 149,064 --
Wendell Hargis 1996 72,700 467,663 50,000 28,618(3)
Vice President of 1995 70,928 247,434 9,283
Manufacturing Operations 1994 70,928 301,538 6,776
Samuel Parlette 1996 69,000 190,248 5,893
Vice President of 1995 40,000 95,588 --
Sales and Marketing 1994 40,000 94,143 --
</TABLE>
- ---------------------
(1) Includes profit sharing and 401(k) contributions, medical insurance
payments, travel allowances, personal use of Company vehicles and charges for
the portion of group life insurance premium paid by the Company.
(2) Includes $61,873 premiums on insurance policies with a $12,000,000 death
benefit, paid by the registrant, in which the executive officer will receive an
interest in cash surrender value under the policy.
(3) Includes $20,500 premiums on an insurance policy with a $60,000 death
benefit, paid by the registrant, in which the executive officer will receive an
interest in cash surrender value under the policy.
40
<PAGE> 42
OPTION GRANTS, EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information regarding stock
option grants to the Named Executive Officers:
OPTION GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------
POTENTIAL
REALIZABLE
PERCENT OF VALUE AT
TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES IN EXERCISE OR FOR OPTION TERM($)(3)
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) YEAR ($/SHARE)(2) DATE 5% 10%
- ---- ----------- ---- --------- ---- -- --
<S> <C> <C> <C> <C> <C> <C>
Wendell Hargis 50,000(1) 100% $10.00 08/18/05 $314,448 $796,873
</TABLE>
- --------------------
(1) The options granted are incentive stock options issued in fiscal 1995,
effective as of August 18, 1995 under the Company's 1985 Incentive Stock Option
Plan (the "Plan"). Ten percent of these options become exercisable on August 18
in each year, beginning August 18, 1996. Under the Plan, the Company has the
right to accelerate the vesting of these options in connection with certain
mergers and other transactions, including but not limited to the Merger, in
which case the options are cancelled if not exercised within 30 days. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments: Proposed Merger."
(2) The exercise price per share was equal to the fair market value of the
Common Stock on the date of grant, as determined by the Board of Directors.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains are
based on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date and
are not presented to forecast possible future appreciation, if any, in the price
of the Common Stock. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise of the options or the sale of the underlying shares. The actual gains,
if any, on the stock option exercise will depend on the future performance of
the Common Stock, the optionee's continued employment through applicable vesting
periods and the date on which the options are exercised.
41
<PAGE> 43
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
NAME EXERCISE (#) REALIZED($)(1) END (#) AT FISCAL YEAR END ($)(2)
- ---------------------------------------------------------------------------------------------------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
<S> <C> <C> <C> <C>
Wendell Hargis 5,000 $49,390 0/45,000 $0/$427,500
</TABLE>
- --------------------
(1) The "Value Realized" reflects the appreciation on the date of exercise,
based on the excess of the fair market value of the shares on the date of
exercise over the exercise price. These amounts do not necessarily reflect cash
realized upon the sale of those shares, as an executive officer may keep the
shares exercised, or sell them at a different time and price.
(2) The "Value" set forth in this column is based on the difference between the
fair market value at September 30, 1996 ($19.50 per share bid price as reported
by the National Association of Securities Dealers) and the option exercise
price, multiplied by the number of shares underlying the option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert Wold, a member of the Company's compensation committee, is President of
Manufactured Housing Counselors, Inc., a management consulting firm specializing
in manufactured buildings, which is retained by the Company as an operations
consultant. The Company paid approximately $40,000 to Manufactured Housing
Counselors, Inc. for consulting services in fiscal 1996. Stephen H. Kleemann, a
member of the Company's compensation committee, is a principal in a financial
consulting company known as Kleemann Capital Management, Inc., which is retained
by the Company as a financial consultant. The Company paid approximately $48,000
to Kleemann Capital Management, Inc. for consulting services in fiscal 1996.
42
<PAGE> 44
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
On December 4, 1996, Cavco and Al Ghelfi, the Chairman of Cavco, agreed
to enter into a Consulting Agreement, which will become effective upon the
consummation of the transactions contemplated by the Merger Agreement or
alternatively, upon consummation of the Subject Share Purchase, as the case may
be. The term of the Consulting Agreement is five years; however, either party
may accelerate the expiration date if CREC acquires all of the Shareholder
Parties' Cavco common stock. During the term of the Consulting Agreement, Al
Ghelfi has agreed to provide consulting services requested by the Board of
Directors of Cavco in connection with its business. Upon effectiveness of the
Consulting Agreement, Al Ghelfi will be entitled to receive consulting fees,
reimbursement of expenses and certain group benefits, on the terms and
conditions specified in the Consulting Agreement. The Consulting Agreement also
provides that Al Ghelfi will not engage in certain activities competitive with
the business of Cavco for a period of three (3) years following termination of
the Consulting Agreement in certain circumstances. The description set forth in
this Report of the terms of the Consulting Agreement is qualified in its
entirety by reference to the Consulting Agreement, a copy of which is
incorporated herein by reference as an Exhibit to this Report.
On December 4, 1996, Cavco and Brent Ghelfi, the President and Chief
Executive Officer of Cavco, agreed to enter into a five-year Employment
Agreement, which will become effective upon consummation of the transactions
contemplated by the Merger Agreement or alternatively, upon consummation of the
Subject Share Purchase, as the case may be. During the term of the Employment
Agreement, Brent Ghelfi has agreed to continue to serve as Chief Executive
Officer of the Company, subject to the direction of the Board of Directors. Upon
effectiveness of the Employment Agreement, Brent Ghelfi will be entitled to
receive salary and cash bonuses, reimbursement of expenses, and other specified
individual and group benefits, pursuant to the terms and conditions set forth in
the Employment Agreement, and in addition, will be entitled to receive certain
options to purchase shares of common stock of Centex Corporation, the parent
company of CREC. The Employment Agreement also provides that Brent Ghelfi will
not engage in certain activities competitive with the business of Cavco for a
period of three (3) years following termination of the Employment Agreement in
certain circumstances. The description set forth in this Report of the terms of
the Employment Agreement is qualified in its entirety by reference to the
Employment Agreement, a copy of which is incorporated herein by reference as an
Exhibit to this Report.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Part II of this Report for additional information concerning the
transactions contemplated by Merger Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the 1996 fiscal year, Wendell Hargis, then Executive Vice
President of Manufacturing Operations, exercised an option to purchase 5,000
shares of Cavco Common Stock. A beneficial ownership report on Form 4 was not
timely filed to report the exercise of such option. See "Executive
Compensation." In February 1995, Brent Ghelfi was elected Vice President and
Wendell Hargis was elected Vice President of Manufacturing Operations of the
Company and in March 1996, James Samuel Parlette was elected Vice President of
Sales and Marketing of the Company. An initial statement of beneficial ownership
on Form 3 was not timely filed to report any of these events.
43
<PAGE> 45
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of November 29, 1996, with respect
to beneficial ownership of the Company's Common Stock by each person, including
any "group" as that term is used in Section 13(d) of the Securities Exchange Act
of 1934, who is known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial of Beneficial Percent of
Title of Class Owner Ownership Class(1)
- -------------- ------------------------------ ----------------- ----------
<S> <C> <C> <C>
$.05 Par Value Al R. Ghelfi 1,830,729 shares(2) 54.04%
Common Stock 5655 N. Camelback Canyon Dr.
Phoenix, AZ 85018
$.05 Par Value Stephen H. Kleemann 272,025 shares 8.03%
Common Stock 526 Via Sinuosa
Santa Barbara, CA 93110
$.05 Par Value FMR Corp. 238,550 shares(3) 7.04%
Common Stock 82 Devonshire St.
Boston, MA 02109
</TABLE>
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of November 29, 1996,
with respect to beneficial ownership of the Company's Common Stock by each Named
Executive Officer, each director, and all directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial of Beneficial Percent of
Title of Class Owner Ownership Class(1)
- -------------- ------------------------------ ----------------- ----------
<S> <C> <C> <C>
$.05 Par Value Al R. Ghelfi 1,830,729 shares(2) 54.04%
Common Stock 5655 N. Camelback Canyon Dr.
Phoenix, AZ 85018
$.05 Par Value Ruth Smith 42,340 shares(4) 1.25%
Common Stock 19016 N. 88th Dr.
Peoria, AZ 85382
</TABLE>
44
<PAGE> 46
<TABLE>
<S> <C> <C> <C>
$.05 Par Value Stephen H. Kleemann 272,025 shares 8.03%
Common Stock 526 Via Sinuosa
Santa Barbara, CA 93110
$.05 Par Value Wendell Hargis 5,000 shares(5) *
Common Stock 1711 N. Lindsay Rd.
Mesa, AZ 85213
$.05 Par Value Robert Ward 3,750 shares *
Common Stock 2953 E. Blackhawk Dr.
Phoenix, AZ 85024
$.05 Par Value All Executive Officers and 2,153,844 shares 63.57%
Common Stock Directors as a Group (9 persons)
- --------------------
</TABLE>
* Represents less than 1% of outstanding shares.
(1 Based on 3,387,968 shares of the Company's $.05 par value common stock issued
and outstanding.
(2) Represents (i) 1,650,000 shares held by Janal Limited Partnership, the sole
general partners of which are trust in which Al Ghelfi and his spouse, Janet M.
Ghelfi, are the sole trustees, and (ii) 180,729 shares held by Al Ghelfi and
Janet M. Ghelfi as community property.
(3) As reported on the February 14, 1996 Schedule 13G filed by FMR Corp.
(4) 38,840 of the shares shown are held in joint tenancy with spouse, Robert J.
Smith.
(c) CHANGES IN CONTROL
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -Recent Developments: Proposed Merger" in Part II of this
Form 10-K, incorporated herein by reference, for a description of arrangements
known to the Company the operation of which may at a subsequent date result in a
change of control of the Company
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Recent Developments: Proposed Merger" in Part II of
this Form 10-K and "Executive Compensation -- Employment Contracts, Termination
of Employment and Change-in-Control Arrangements" and " -- Compensation
Committee Interlocks and Insider Participation" in Part III of this Form 10-K,
incorporated herein by reference.
46
<PAGE> 47
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
1. Financial statements - See Index to Consolidated Financial
Statements at Item 8 of this Form 10-K.
2. Financial statement schedules - See Index to Consolidated
Financial Statements at Item 8 of this Form 10-K.
3. Exhibits - The following Exhibits are filed herewith or
incorporated herein by reference. The Company hereby agrees to
furnish supplementally to the Commission a copy of any schedule
omitted from any such Exhibit.
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of December 4,
1996, among Centex Real Estate Corporation, a Nevada
corporation, MFH Holding Company, a Nevada corporation,
MFH Acquisition Company, an Arizona corporation, Cavco
Industries, Inc., an Arizona corporation, Al R. Ghelfi,
Janet M. Ghelfi and Janal Limited Partnership, an
Arizona limited partnership, incorporated herein by
reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated December 12, 1996 and filed
with the Commission on December 16, 1996 (File No.
0-8822) (the "1996 Form 8-K").
3.1 Articles of Incorporation of the Company and amendments
to the Articles of Incorporation attached as an Exhibit
to the Company's Form 10 dated September 30, 1978,
incorporated herein by reference.
3.2 Bylaws of the Company and amendments to Bylaws attached
as an Exhibit to the Company's Form 10 dated September
10, 1978, incorporated herein by reference.
3.3. Amended Articles of Incorporation and Bylaws dated
March, 1981 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended
47
<PAGE> 48
September 30, 1981, incorporated herein by reference.
3.4 Amended Articles of Incorporation and Bylaws dated
April, 1992 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30, 1992,
incorporated herein by reference.
3.5 Amended Articles of Incorporation and Bylaws dated
November 1994, attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30, 1994,
incorporated herein by reference.
10.1(2) 1985 Incentive Stock Option Plan, dated August 18,
1985, attached as an Exhibit to the Company's Form 10-K
for the fiscal year ended September 30, 1985,
incorporated herein by reference.
10.2 PDG/Prescott Development Group, L.L.C. Operating
Agreement attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
10.3 PDG/Prescott Development Group, L.L.C. Loan Agreement,
attached as an Exhibit to the Company's Form 10-K for
the fiscal year ended September 30, 1993, incorporated
herein by reference.
10.4 PDG/Prescott Development Group, L.L.C. Irrevocable
Guarantee attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
10.5 Cavco Convertible Note Trust Agreement, Loan Agreement
and Promissory Note dated April 12, 1994 attached as an
Exhibit to the Company's Form 10-K for the fiscal year
ended September 30, 1994, incorporated herein by
reference.
10.6(1)(2) Incentive Stock Option Agreement between the Company
and Wendell Hargis dated August 18, 1995.
48
<PAGE> 49
10.7(1) Asset Purchase Agreement dated September 20, 1996
between Action Healthcare Management Services, Inc. and
Vanilla, Inc.
10.8(1)(2) Form of Indemnification Agreement between the Company
and each of its directors dated as of December 2, 1996.
10.9(2) Consulting Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Al R. Ghelfi, incorporated herein by
reference to Exhibit 99.3 to the 1996 Form 8-K.
10.10(2) Employment Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Brent M. Ghelfi, incorporated herein
by reference to Exhibit 99.4 to the 1996 Form 8-K.
10.11(1) Standard Industrial Lease - Multi-Tenant dated February
1, 1993 by and between Loral Corporation and Cavco
Industries, Inc.
21(1) Subsidiaries of the registrant
27 Financial Data Schedule
99.1 Voting Agreement dated as of December 4, 1996, between
Centex Real Estate Corporation, a Nevada corporation,
and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 99.1 to the
1996 Form 8-K.
99.2 Stock Purchase Agreement dated as of December 4, 1996,
between Centex Real Estate Corporation, a Nevada
Corporation, and Al R. Ghelfi, Janet M. Ghelfi and
Janal Limited Partnership, an Arizona limited
partnership, incorporated herein by reference to
Exhibit 99.2 to the 1996 Form 8-K.
- -------------------------
(1) Filed herewith
(2) Management contract or compensatory plan
49
<PAGE> 50
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
year ended September 30, 1996.
(c) Exhibits
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item 14(a)(3) above.
(d) Financial Statement Schedules
See Item 14(a)(2) above.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 27th day of
December, 1996.
Cavco Industries, Inc.
By: /s/ Brent Ghelfi
--------------------------------
Brent Ghelfi, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
By: /s/ Al Ghelfi Chairman of the Board, December 27, 1996
---------------------------- Director
Al Ghelfi
By: /s/ Brent Ghelfi President, Chief
---------------------------- Executive Officer, December 27, 1996
Brent Ghelfi Director
By: /s/ Ruth Smith Senior Vice President, December 27, 1996
---------------------------- Secretary, Director
Ruth Smith
By: /s/ Robert Ward Vice President,
---------------------------- Principal Financial and December 27, 1996
Robert Ward Accounting Officer
By: /s/ William Blandin Director December 27, 1996
----------------------------
William Blandin
By: /s/ Stephen Kleemann Director December 27, 1996
-----------------------------
Stephen Kleemann
By: /s/ Robert Wold Director December 27, 1996
-----------------------------
Robert Wold
</TABLE>
51
<PAGE> 52
EXHIBIT INDEX
<TABLE>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of December 4,
1996, among Centex Real Estate Corporation, a Nevada
corporation, MFH Holding Company, a Nevada
corporation, MFH Acquisition Company, an Arizona
corporation, Cavco Industries, Inc., an Arizona
corporation, Al R. Ghelfi, Janet M. Ghelfi and Janal
Limited Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated December
12, 1996 and filed with the Commission on December 16,
1996 (File No. 0-8822) (the "1996 Form 8-K").
3.1 Articles of Incorporation of the Company and
amendments to the Articles of Incorporation attached
as an Exhibit to the Company's Form 10 dated September
30, 1978, incorporated herein by reference.
3.2 Bylaws of the Company and amendments to Bylaws
attached as an Exhibit to the Company's Form 10 dated
September 10, 1978, incorporated herein by reference.
3.3. Amended Articles of Incorporation and Bylaws dated
March, 1981 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30,
1981, incorporated herein by reference.
3.4 Amended Articles of Incorporation and Bylaws dated
April, 1992 attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30,
1992, incorporated herein by reference.
3.5 Amended Articles of Incorporation and Bylaws dated
November 1994, attached as an Exhibit to the Company's
Form 10-K for the fiscal year ended September 30,
1994, incorporated herein by reference.
10.1 1985 Incentive Stock Option Plan, dated August 18,
1985, attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1985,
incorporated herein by reference.
10.2 PDG/Prescott Development Group, L.L.C. Operating
Agreement attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
</TABLE>
52
<PAGE> 53
<TABLE>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
10.3 PDG/Prescott Development Group, L.L.C. Loan Agreement,
attached as an Exhibit to the Company's Form 10-K for
the fiscal year ended September 30, 1993, incorporated
herein by reference.
10.4 PDG/Prescott Development Group, L.L.C. Irrevocable
Guarantee attached as an Exhibit to the Company's Form
10-K for the fiscal year ended September 30, 1993,
incorporated herein by reference.
10.5 Cavco Convertible Note Trust Agreement, Loan Agreement
and Promissory Note dated April 12, 1994 attached as
an Exhibit to the Company's Form 10-K for the fiscal
year ended September 30, 1994, incorporated herein by
reference.
10.6(1)(2) Incentive Stock Option Agreement between the Company
and Wendell Hargis dated August 18, 1995.
10.7(1) Asset Purchase Agreement dated September 20, 1996
between Action Healthcare Management Services, Inc.
and Vanilla, Inc.
10.8(1)(2) Form of Indemnification Agreement between the Company
and each of its directors dated as of December 2,
1996.
10.9(2) Consulting Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Al R. Ghelfi, incorporated herein by
reference to Exhibit 99.3 to the 1996 Form 8-K.
10.10(2) Employment Agreement dated as of December 4, 1996, by
and between Cavco Industries, Inc., an Arizona
corporation, and Brent M. Ghelfi, incorporated herein
by reference to Exhibit 99.4 to the 1996 Form 8-K.
10.11(1) Standard Industrial Lease - Multi-Tenant dated February
1, 1993 by and between Loral Corporation and Cavco
Industries, Inc.
21(1) Subsidiaries of the registrant
27 Financial Data Schedule
99.1 Voting Agreement dated as of December 4, 1996, between
Centex Real Estate Corporation, a Nevada corporation,
and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 99.1 to
the 1996 Form 8-K.
99.2 Stock Purchase Agreement dated as of December 4, 1996,
between Centex Real Estate Corporation, a Nevada
Corporation,
</TABLE>
53
<PAGE> 54
<TABLE>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
and Al R. Ghelfi, Janet M. Ghelfi and Janal Limited
Partnership, an Arizona limited partnership,
incorporated herein by reference to Exhibit 99.2 to
the 1996 Form 8-K.
</TABLE>
- ------------------------
(1) Filed herewith
(2) Management contract or compensatory plan
54
<PAGE> 1
EXHIBIT 10.6
INCENTIVE STOCK OPTION AGREEMENT
BY THIS INCENTIVE STOCK OPTION AGREEMENT ("Agreement") effective this
18th day of August, 1995 (the "Grant Date"), CAVCO INDUSTRIES, INC., an Arizona
corporation, (the "Company") and WEN HARGIS, a key employee of the Company (the
"Optionee") hereby state, confirm, represent, warrant and agree as follows:
I
RECITALS
1.1 The Company, through its Board of Directors (the "Board"), has
determined that in order to attract and retain the best available personnel for
positions of substantial responsibility, to provide additional incentive to key
employees of the Company and to promote the success of the Company's business,
it must offer a compensation package that provides such employees of the Company
a chance to participate financially in the success of the Company by developing
an equity interest in it.
1.2 As part of the compensation package, the Company has adopted a 1985
Incentive Stock Option Plan (the "Plan"), the provisions of which are expressly
incorporated herein and made a part hereof as though set forth herein.
1.3 By this Agreement, the Company and the Optionee desire to establish
the terms upon which the Company is willing to grant to the Optionee, and upon
which the Optionee is willing to accept from the Company an option to purchase
shares of the common stock of the Company ("Common Stock").
II
AGREEMENTS
2.1 Grant of Incentive Stock Option. Subject to the terms and
conditions hereinafter set forth, the Company grants to the Optionee the right
and option (the "Option) to purchase from the Company all or any part of an
aggregate number of 50,000 shares of Common Stock, authorized but unissued or,
at the option of the Company, treasury stock if available (the "Optioned
Shares").
2.2 Exercise of Option. Subject to the terms and conditions of this
Agreement, the Option may be exercised only by completing and signing a written
notice in substantially the following form:
1
<PAGE> 2
I hereby exercise the Option granted to me by Cavco Industries, Inc.
and elect to purchase shares of no par value Common Stock of Cavco
Industries, Inc., for the purchase price to be determined under
Paragraph 2.3 of the Incentive Stock Option Agreement dated the 1st day
of September, 1985.
2.3 Purchase Price. The price to be paid for the Optioned Shares (the
"Purchase Price") shall be $10.00 per share which was not less than the fair
market value (as defined under Section 2(i) of the Plan) of the Optioned Shares
as determined by the Board on the Grant Date, or, in the case of an option
granted to an employee who, on the Grant Date, owns ten percent (10%) or more of
the Common Stock, as such amount is calculated under Section 422A(b)(6) of the
Internal Revenue Code, as amended ("Code"), not less than one hundred and ten
percent (110%) of the fair market value of the Optioned Stock.
2.4 Payment of Purchase Price. Payment of the Purchase Price may be
made as follows:
(a) In United States dollars in cash or by check, bank draft or money
order payable to the Company, or
(b) At the discretion of the Board, through the delivery of shares of
Common Stock with an aggregate fair market value at the date of such
delivery, equal to the Purchase Price, or
(c) By a combination of both (a) and (b) above, or
(d) In the manner provided in Section 2.5 below.
The Board shall determine acceptable methods for tendering Common Stock as
payment upon exercise of an Option and may impose such limitations and
conditions on the use of Common Stock to exercise an Option as it deems
appropriate.
2.5 Loans of Guarantees. The Board may, in its absolute discretion and
without any obligation to do so, assist Optionee in the exercise of this Option
by:
(a) Authorizing the extension of a loan to Optionee from the Company;
or
(b) Permitting Optionee to pay the exercise price for the Shares in
installments over a period of years; or
(c) Authorizing a guaranty by the Company of a third-party loan to
Optionee.
The terms of any loan, installment, method of payment or guaranty (including the
interest rate and terms of repayment) shall be established by the Board, in its
sole discretion.
2
<PAGE> 3
2.6 Reduction in Optioned Shares. The number of Optioned Shares to
which an Optionee is entitled shall be reduced by the number of Optioned Shares
purchased by Optionee.
2.7 Exercisability of Option. Subject to the provisions of Paragraph
2.9, and except as otherwise provided in Paragraphs 2.10 and 2.11, the Option
may be exercised by the Optionee only while in the employ of the Company which
shall include any parent ("Parent") or subsidiary ("Subsidiary") corporation of
the Company (as defined in Sections 425(e) and (f), respectively, of the Code)
in whole or in part from time to time during the period beginning August 18,
1995, but only in accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage of
Elapsed Number of Years Shares Subject To An
After Grant Date Option Which May Be Exercised
---------------- -----------------------------
<S> <C>
None None
One 10%
Two 20%
Three 30%
Four 40%
Five 50%
Six 60%
Seven 70%
Eight 80%
Nine 90%
Ten 100%
</TABLE>
Provided, however, that as provided in Paragraph 2.8, no part of the Option
shall be exercised prior to the expiration by reason of lapse of time or
exercise in full or all incentive stock options granted to Optionee by Company
prior to the Grant Date.
2.8 Sequential Exercise. Not withstanding any other provision of the
Agreement, the Option may not be exercised while there is outstanding any
incentive stock option which was granted, before the Grant Date, to the Optionee
to purchase the Common Stock of the Company or any other corporation which, on
the Grant Date, was a Parent or Subsidiary of the Company or any predecessor of
such a Parent or Subsidiary. Any incentive stock option shall be considered
outstanding until exercised in full or until it expires by reason of lapse of
time. For the purposes of the Agreement, the term "incentive stock option" shall
mean an option which is intended to qualify as an incentive stock option within
the meaning of Section 422A of the Code.
2.9 Termination of Option. Except as otherwise provided herein, the
Option, to the extent not heretofore exercised, shall terminate upon the first
to occur of the following dates:
3
<PAGE> 4
(a) The date on which the Optionee's employment by the Company is
terminated except if such termination is voluntary with the consent of
the Board, or occurs due to retirement with the consent of the Board,
death or disability within the meaning of Section 105(d)(4) of the
Code;
(b) Thirty (30) days after voluntary termination with the consent of
the Board or termination due to retirement with the consent of the
Board;
(c) Ninety (90) days after termination due to disability within the
meaning of Section 105(d)(4) of the Code;
(d) One hundred eighty (180) days after the Optionee's death; or
(e) August 18, 2005 (being the expiration of ten (10) years from the
Grant Date).
2.10 Adjustments. In the event of any merger, consolidation, stock
dividend, split-up, combination or exchange of shares or recapitalization or
change in capitalization, the number and kind of Optioned Shares (including any
Option outstanding after termination of employment or death) and the Option
Price per share shall be proportionately and appropriately adjusted without any
change in the aggregate Option Price to be paid therefor upon exercise of the
Option. The determination by the Board as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
2.11 Acquisition. If any person, corporation or other entity or group
thereof (the "Acquiror") directly or indirectly makes an acquisition (an
"Acquisition"), other than by merger or consolidation or purchase from Company,
of the beneficial ownership (as that term is used in Section 13(d)(1) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder) of shares of Common Stock which, when added to any other shares the
beneficial ownership of which is held by the Acquiror, shall have more than
twenty percent (20%) of the votes that are entitled to be cast at meetings of
stockholders, any portion of the Option which was not currently exercisable
pursuant to Paragraph 2.7 prior to the date of the Acquisition becomes
immediately exercisable and Optionee may elect, during the period commencing on
the date of the Acquisition and ending at the close of business on the thirtieth
(30th) day following the date of the Acquisition, to exercise the Option in
whole or in part. In the event the thirtieth (30th) day referred to in this
paragraph shall fall on a day that is not a business day, then the thirtieth
(30th) day shall be deemed to be the next following business day.
2.12 Notices. Any notice to be given under the terms of the Agreement
("Notice") shall be addressed to the Company in care of its Secretary at 301
East Bethany Home Road, Suite C178, Phoenix, Arizona 85012, or at its then
current corporate headquarters. Notice to be given to the Optionee shall be
addressed to him at his then current residential address as appearing on the
payroll records.
4
<PAGE> 5
Notice shall be deemed duly given when enclosed in a properly sealed envelope
and deposited by certified mail, return receipt requested, in a post office or
branch post office regularly maintained by the United States Government.
2.13 Notification of Disposition of Shares. The Optionee hereby
acknowledges that a disposition of shares of Common Stock acquired upon the
exercise of the Option within two (2) years from the Grant Date or within one
(1) year after the transfer of such shares of Common Stock to him would result
in detrimental income tax consequences to the Optionee.
The Optionee hereby agrees to promptly notify the Company of any disposition of
shares of Common Stock within either of the above time limitations.
2.14 Modification of Agreement. The Board may at any time and from time
to time direct that the Agreement be modified in such respects deemed advisable
in order that the Option shall constitute an incentive stock option pursuant to
Section 422A of the code.
2.15 Transferability of Option. The option shall not be transferable by
the Optionee otherwise than by the will or the laws of descent and distribution,
and may be exercised during the life of the Optionee only by the Optionee.
2.16 Optionee Not A Shareholder. The Optionee shall not be deemed for
any purposes to be a shareholder of the Company with respect to any of the
Optioned Shares except to the extent that the Option herein granted shall have
been exercised with respect thereto and a stock certificate issued therefor.
2.17 Disputes Or Disagreements. As a condition of the granting of the
Option herein granted, the Optionee agrees, for himself, his personal
representative and his beneficiary(s), that any disputes or disagreements which
may arise under or as a result of or pursuant to this Agreement shall be
determined by the Board in its sole discretion, and that any interpretation by
the Board of the terms of this Agreement shall be final, binding and conclusive.
IN WITNESS WHEREOF, the company has caused this instrument to be executed by its
duly authorized officer, and the Optionee has hereunto affixed his signature.
ATTEST:
CAVCO INDUSTRIES, INC.
/s/ Robert Ward /s/ Al Ghelfi
- ------------------- ---------------------
Assistant Secretary President
/s/ Wen Hargis
---------------------
Optionee
5
<PAGE> 1
EXHIBIT 10.7
ASSET PURCHASE AGREEMENT
This is an Agreement between ACTION HEALTHCARE MANAGEMENT SERVICES,
INC., a corporation incorporated under the laws of the State of Arizona, with
its principal place of business at 301 E. Bethany Home Road, Suite 178, Phoenix,
Arizona 85012 ("Seller") and VANILLA, INC., an Arizona corporation, with its
principal place of business at 301 E. Bethany Home Road, Suite C-278, Phoenix,
Arizona 85012("Buyer"), each of which agrees as follows:
R E C I T A L S:
WHEREAS, Seller is in the business of providing health care quality
management and cost containment services to various companies providing health
care benefits to their employees and/or employees' dependents;
WHEREAS, Buyer desires to purchase the Acquired Assets, as hereinafter
defined, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, and covenants contained, the parties hereto
understand and agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Each reference contained in this Agreement to:
(a) "Accounts Receivable" shall mean all of the amounts due
Seller as of the Closing Date.
(b) "Acquired Assets" shall have the meaning set forth in
Paragraph 2.1(a) hereof.
(c) "Agreement" shall refer to this Asset Purchase Agreement
and all exhibits and schedules thereto, as the same may be amended from time to
time.
(d) "Assumed Liabilities" shall have the meaning set forth in
Paragraph 2.1(b) hereof.
(e) "Bill of Sale and Assumption Agreement" shall refer to the
Bill of Sale and Assumption Agreement given by Seller to Buyer for the Acquired
Assets substantially in the form of Exhibit "A."
(f) "Closing" shall mean 5:00 P.M. local time in Phoenix,
Arizona on September 30, 1996, or such later date as may be mutually agreed to
by the parties, on
1
<PAGE> 2
which Seller transfers or causes the transfer of the Acquired Assets and the
Assumed Liabilities to Buyer pursuant to the terms of this Agreement, and "day
of Closing" and "Closing Date" shall be deemed to refer to such day.
(g) "Code" shall refer to the Internal Revenue Code of 1986,
as amended from time to time.
(h) "Contracts" shall mean the contracts described on Schedule
1 attached hereto and by this reference incorporated herewith.
(i) "Furniture, Fixtures and Equipment" shall refer to the
Furniture, Fixtures and Equipment described on Schedule 2 attached hereto and by
this reference incorporated herewith.
(j) "Indemnification Event" shall refer to any action,
proceeding or claim for which a person is entitled to indemnification under this
Agreement.
(k) "Indemnitor" shall refer to the indemnifying person in the
case of any obligation to indemnify another person pursuant to the terms of this
Agreement.
(l) "Software" shall mean the Case Management software
acquired by Seller from National Case Management used in the operation of
Seller's business and licensed by Seller from time to time to large case
management companies.
(m) "Name" shall mean the right to the name Action Healthcare
Management Services, Inc.
ARTICLE II
PURCHASE OF ASSETS
2.1 (a) Acquired Assets. Upon the terms and subject to the conditions
of this Agreement, at the Closing Buyer shall purchase from Seller, and Seller
shall sell, assign, transfer and convey to Buyer, without recourse, all right,
title and interest in and to all of the following assets, properties, rights,
contracts and claims as the same shall exist on the Closing Date (collectively,
the "Acquired Assets"):
(i) All ownership interest in the Furniture, Fixtures
and Equipment;
(ii) All Contracts and the payments coming due under
such Contracts after the Closing Date;
(iii) All proceeds, rights, claims, credits, causes of
action or rights of setoff against third parties relating to or arising
out of the Furniture,
2
<PAGE> 3
Fixtures and Equipment, and the Contracts after the Closing Date, and
the right to commence suit against such parties for any such claims;
(iv) All of Seller's telephone numbers in Phoenix,
Arizona, including, but not limited to, to wit: (602) 265-0681 and
(800) 433-6915;
(v) The Software;
(vi) The Name;
(vii) The Accounts Receivable.
(b) Liabilities Assumed by Buyer. Upon the terms and subject
to the conditions of this Agreement, Buyer shall, without recourse, assume or be
obligated to pay when due, perform, or discharge the following liabilities,
obligations and related expenses of Seller arising out of, incurred in
connection with, or otherwise relating to, the Acquired Assets (collectively,
the "Assumed Liabilities"):
(i) All liabilities and obligations arising after the
Closing from the Furniture, Fixtures and Equipment, the Contracts, and
the Software; and
(ii) All risk of loss or damage to the Furniture,
Fixtures and Equipment or liability arising as a result of ownership
thereof arising after the Closing Date;
(iii) All claims arising from the sale or licensing of
the Software by Buyer to third parties (excepting claims by third
parties of ownership of the Software);
(iv) Any Taxes which are allocated to Buyer pursuant to
Paragraph 5.1;
(v) The obligations to U.S. West for the telephone
numbers transferred under Paragraph 2.1(a)(iv) above.
2.2 The Purchase Price. The Purchase Price for the Acquired Assets,
excluding the Software, shall be the sum of $442,000 payable by Buyer's
Promissory Note (the "Note") which will bear interest at the rate of 8% per
annum from and after the Close of Escrow. Said Note shall be in the form annexed
hereto as Exhibit "B" and by this reference incorporated herewith, secured by a
Security Agreement in the form of Exhibit "C" attached hereto and by this
reference incorporated herewith. The Note shall bear interest at the rate of 8%
per annum amortized over a period of ten years payable in blended monthly
amortized installments of $5,735.69 with the entire unpaid principal balance and
any interest accrued thereon due and payable on or before September 30, 2001.
3
<PAGE> 4
2.3 Allocation of Purchase Price. The Purchase Price shall be allocated
as follows:
<TABLE>
<S> <C>
Furniture, Fixtures and Equipment $100,000
Future Profits to be Realized on
Contracts $ 40,000
Software $250,000
Covenant Not to Compete $ 10,000
Accounts Receivable $ 42,000
</TABLE>
No portion of the Purchase Price shall be allocated to the telephone number or
the future receivables under the Contracts.
2.4 Additional Payments for Software. Buyer agrees that from the first
sale or license of the right to use the Software, Seller shall receive 85% of
the proceeds net of the selling cost of the Software and any training included
in the licensure of the Software by Buyer to a third party (the "Net Proceeds").
The amounts payable hereunder to Seller shall be additional consideration to the
amounts payable under the Note and as additional consideration for the sale of
the Software. Thereafter, Seller shall receive 25% of the Net Proceeds, as
defined above, of any sale of the Software for a period commencing on the
Closing date and ending on September 30, 1999. One-half of the amounts received
by Seller shall be applied to the Note as a prepayment thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
As of the Closing Date, Seller makes the following representations and
warranties to Buyer:
3.1 Organization of Seller, etc. Seller is a corporation duly
organized, validly existing and in good standing under the laws of Arizona, has
the corporate power to execute, deliver and perform its obligations under this
Agreement and has the corporate power to own and lease its properties and to
carry on its business as now being conducted.
3.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and approved by all necessary corporate action on the
part of Seller, and this Agreement has been duly executed and delivered by
Seller, and represents the valid and binding obligation of Seller enforceable
against it in accordance with its terms, except as enforcement hereof may be
limited by the bankruptcy laws of the United States or other state insolvency
laws.
3.3 No Breach of Statute or Contract, Government Authorizations, etc.
Neither the execution and delivery of this Agreement by Seller nor compliance by
Seller
4
<PAGE> 5
with the terms and provisions hereof will conflict with or result in a breach of
any of the terms, conditions or provisions of (i) its Articles of Incorporation
or Bylaws, (ii) any judgment, order, injunction, decree or ruling of any court
or of any governmental authority to which Seller is subject, or (iii) any
agreement, contract or commitment to which Seller is a party or to which the
Acquired Assets are subject, the breach of which (a) would have a material
adverse effect on the Acquired Assets, or (b) would materially impair the
ability of Seller to perform its obligations under this Agreement.
3.4 No Litigation or Adverse Events. To the knowledge of Seller, there
are no suits, actions, administrative, arbitration or other proceedings,
including, without limitation, any counterclaims relating to ownership of the
Acquired Assets or the Assumed Liabilities which are pending or have been
threatened in writing on the date of this Agreement.
3.5 Brokers' or Finders' Fees, etc. No person acting on behalf or under
the authority of Seller is or will be entitled to any broker's or finder's fee
or commission or similar fee, directly or indirectly, from Buyer in connection
with any of the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the Closing Date, Buyer makes the following representations and
warranties to Seller:
4.1 Organization of Buyer, etc. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Arizona
and has the power to execute, deliver, and perform its obligations under this
Agreement.
4.2 Authorization of Agreement. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and approved by all necessary corporate action on the
part of Buyer, and this Agreement has been duly executed and delivered by Buyer
and represents the valid and binding obligation of Buyer enforceable against it
in accordance with its terms, except as enforcement hereof may be limited by the
bankruptcy laws of the United States or other state insolvency laws.
4.3 No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement nor compliance with the terms and provisions hereof
by it will conflict with or result in a breach of any of the terms, conditions
or provisions of (i) the Articles of Incorporation or Bylaws of Buyer, or (ii)
any judgment, order, injunction, decree or ruling of any court or of any
governmental authority, or any laws, statute or regulation, to which Buyer is
subject, or (iii) any agreement, contract or commitment to which Buyer is a
party or is subject, the breach of which would materially impair the ability of
Buyer to perform its obligations under or pursuant to this Agreement. There are
no approvals
5
<PAGE> 6
required to permit the consummation by Buyer of the transaction contemplated by
this Agreement.
4.4 Brokers' or Finders' Fees, etc. No Person acting on behalf of or
under the authority of Buyer is or will be entitled to any broker's or finder's
fee or other commission or similar fee, directly or indirectly, from Seller in
connection with any of the transactions contemplated herein.
4.5 Furniture, Fixtures and Equipment, Contracts and Software. Buyer is
acquiring and will use the Furniture, Fixtures and Equipment, Contracts and
Software in the ordinary course of its business for the purpose of furnishing
services to the parties to the Contracts and sale and licensing of Software and
all other lawful purposes.
4.6 Performance. Buyer will faithfully perform and discharge the
Assumed Liabilities when due in the ordinary course of its business.
ARTICLE V
COVENANTS; INDEMNITIES
5.1 Tax Matters.
(a) Cooperation. Prior to and after the Closing, to the extent
consistent with each party's then current published records retention policies,
Seller and Buyer shall cooperate with each other and make available to each
other such tax data and other information as may be reasonably required for the
preparation by Buyer or Seller of any tax returns, elections, claims for refund,
consents or certificates required to be prepared and filed by Buyer or Seller.
(b) Allocation of Purchase Price. The allocation of the
Purchase Price as stated in Paragraph 2.2 is based upon the principles of
Section 1060 of the Code, and Seller and Buyer agree to timely file all federal,
state, local and foreign tax returns and reports consistent with this
allocation. Seller hereby designates its Treasurer as the individual to be
responsible for satisfaction of the provisions of this Paragraph 5.1(b), and
Buyer hereby designates Jean Rice as the individual to be responsible for
satisfaction of the provisions of this Paragraph 5.1(b).
(c) Seller's Taxes. Seller shall pay when due (i) all capital,
franchise, foreign, federal, state and local income Taxes with respect to
ownership of the Acquired Assets prior to the Closing Date, (ii) subject to
Paragraphs 5.1(d) and 5.1(e), all of Seller's income Taxes arising out of the
transfer of the Acquired Assets from Seller to Buyer, and (iii) all rental,
sale, use, goods and services, excise and personal property Taxes arising out of
or relating to the Contracts which are attributed to any period ending on or
prior to the Closing Date.
6
<PAGE> 7
(d) Buyer's Taxes. Buyer shall be liable for and shall pay
when due (i) all capital, franchise, foreign, federal, state and local income
Taxes with respect to ownership of the Acquired Assets and all other Taxes with
respect to the Acquired Assets on or after the Closing Date, (ii) all personal
property Taxes, whether or not billed, arising out of or relating to the
Furniture, Fixtures and Equipment or the Contracts which are attributed to any
period ending after the Closing Date, whether billed or assessed prior to, on or
after the Closing, except as required to be paid by Seller pursuant to Paragraph
5.1(c)(iii) all rental, sale, use, goods and services and excise Taxes arising
out of or relating to the Contracts and Furniture, Fixtures and Equipment which
are attributed to any period after the Closing Date.
(e) Transfer and Sales Taxes. Buyer shall bear and pay all
sale, use, or goods and services Taxes upon or with respect to the sale or
transfer of the Acquired Assets by Seller to Buyer pursuant to this Agreement.
To the extent that applicable law or regulation imposes upon Seller the
obligation to report or pay such Taxes, Buyer shall promptly reimburse Seller
therefor upon receipt of Seller's invoice for the amount of such payment and
such supporting documentation as Buyer may reasonably require. If the sale or
transfer of any or all of the Acquired Assets is exempt from such Taxes, Buyer
and Seller shall provide the other party with appropriate exemption documents if
required by applicable law for qualification for such exemption.
(f) Filing of Tax Returns; Costs. Seller shall be responsible
for the timely filing (including any appropriate extensions) of all Tax returns
ending prior to the Closing Date. Buyer shall be responsible for the timely
filing (including any appropriate extensions) of all Tax returns required by law
to be filed in respect of the Acquired Assets for periods ending on or after
Closing Date. Interest, penalties, refunds, credits and expenses in connection
with Taxes due under this Paragraph 5.1 shall be the responsibility of the party
required to pay the related underlying Taxes.
5.2 Indemnifications, Assumptions of Liability and Related Matters.
(a) Seller shall, from and after the Closing, on an after-tax
basis, indemnify, defend, and hold harmless Buyer and each of its directors,
officers, and employees from and against any and all Damages arising directly
out of: (i) any material breach of any representation or warranty made by Seller
in this Agreement; or (ii) any failure to perform duly and punctually any
material covenant, agreement or undertaking on the part of Seller contained in
this Agreement; or (iii) any material misrepresentation in or omission from any
schedule or exhibit delivered by Seller pursuant to the terms of this Agreement;
or (iv) its fraud in connection with any Acquired Asset or Assumed Liability;
provided, however, that Seller's liability under this Paragraph 5.2(a) will be
limited to direct damages and shall not include indirect, incidental, or
consequential damages, including, without limitation, lost profits.
7
<PAGE> 8
(b) Seller shall, from and after the Closing, on a net
after-tax basis, indemnify and hold harmless Buyer and its directors, officers,
and employees from and against any and all damages with respect to Taxes
relating to the Acquired Assets and Assumed Liabilities for the period prior to
Closing except as provided in Paragraphs 5.1(d) and 5.1(e).
(c) Buyer shall, from and after the Closing, on a net
after-tax basis, indemnify and hold harmless Seller and its directors, officers,
and employees from and against any and all damages with respect to Taxes
relating to the Acquired Assets and the Assumed Liabilities for the period on or
after the Closing and as set forth in Paragraphs 5.1(d) and 5.1(e), except as
provided in Paragraph 5.1(c).
(d) Buyer shall, on a net after-tax basis, indemnify, defend,
and hold harmless Seller and its directors, officers, and employees from and
against any and all damages arising directly out of: (i) any material breach of
any representation or warranty made by Buyer in this Agreement; or (ii) any
failure to perform duly and punctually any material covenant, agreement or
undertaking on the part of Buyer contained in this Agreement; or material
misrepresentation in or omission from any schedule or exhibit delivered by Buyer
pursuant to the terms of this Agreement, or (iv) its fraud in connection with
any Acquired Asset or Assumed Liability; provided, however, that Buyer's
liability under this Paragraph 5.2(d) will be limited to direct damages and
shall not include indirect, incidental, or consequential damages, including,
without limitation, lost profits.
(e) Buyer shall indemnify and hold harmless Seller from and
against all damages or claims for loss of any person or entity arising out of or
incident to the ownership, possession, operation, control, use or maintenance of
the Furniture, Fixtures and Equipment, the Contracts or the Software arising
after delivery of the Acquired Assets to Buyer.
(f) Except as otherwise expressly provided in this Paragraph
5.2(f), the representations and warranties contained in this Agreement shall
survive the Closing hereunder until the expiration of one hundred eighty (180)
days following the Closing Date, and, notwithstanding anything to the contrary
contained in Paragraphs 5.2(a) or 5.2(d), there shall be no right to
indemnification with respect to a breach of a representation or warranty unless
a claim with respect thereto is asserted in writing against the Indemnitor prior
to the expiration of one hundred eighty (180) days from the Closing Date,
provided, however, that Seller shall be obligated to indemnify Buyer against any
adverse claims by third parties to the ownership of the Software for a period of
three years from and after the Closing. The representations, warranties and
indemnities contained in Paragraphs 5.2(b), 5.2(c) and 5.2(e) hereof shall
survive until it is no longer possible in law for the indemnified party to
sustain damages by reason of any breach thereof. No party shall be entitled to
payment of indemnity amounts hereunder in respect of an item of Furniture,
Fixtures or Equipment or a Contract unless the damages result from an event that
is indemnifiable under this Paragraph 5.2. The inability of a
8
<PAGE> 9
lessee or obligor to make scheduled payments under such Contract shall not of
itself be an indemnifiable event.
(g) Notwithstanding anything to the contrary set forth in this
Paragraph 5.2, it is expressly agreed that, subject to the provisions of this
Paragraph 5.2(g), Buyer has assumed and shall bear the risk of loss under the
Contracts from and after the Closing Date. Buyer acknowledges that the Contracts
are cancelable by the other parties on 30 or 60 day notices, as applicable.
(h) For the purposes of administering the indemnification
provisions of this Paragraph 5.2, the following procedures shall apply from and
after the Closing Date:
(i) Each indemnified party shall notify the
Indemnitor of any Indemnification Event in writing within thirty (30)
days following the receipt of notice of the commencement of any action
or proceeding or within thirty (30) days of (a) the assertion of any
claim against such indemnified party or (b) the discovery by such
indemnified party of any loss, giving rise to indemnity pursuant to
this Paragraph 5.2 and shall indicate in such notification whether such
indemnified party is requesting indemnification with respect to such
Indemnification Event and the amount of indemnification initially
anticipated. The failure to give notice as required by this Paragraph
5.2(h)(i) in a timely fashion shall not result in a waiver of any right
to indemnification hereunder except to the extent that the Indemnitor's
ability to defend against the event with respect to which
indemnification is sought is adversely affected by the failure of the
indemnified party to give notice in a timely fashion as required by
this Paragraph 5.2(h)(i).
(ii) In cases where the Indemnitor has assumed the
defense or settlement with respect to an Indemnification Event, the
Indemnitor shall be entitled to assume the defense or settlement
thereof with counsel of its own choosing, which counsel shall be
reasonably satisfactory to the indemnified party, provided that: (a)
the indemnified party (and its counsel) shall be entitled to continue
to participate at its own cost in any such action or proceeding or in
any negotiations or proceedings to settle or otherwise eliminate any
claim for which indemnification is being sought provided that the
indemnified party shall not be entitled to settle without the approval
of the Indemnitor; and (b) the Indemnitor shall not be entitled to
settle, compromise, decline to appeal, or otherwise dispose of any such
action, proceeding or claim without the consent or agreement of the
indemnified party (which consent will not be unreasonably withheld or
delayed) provided, that if such consent is withheld the Indemnitor's
liability shall be limited to the amount for which the Indemnitor
agreed with the claimant to settle and the Indemnitor shall remain
responsible for its costs and attorneys' fees to the date such
settlement was rejected by the indemnified party and the indemnified
party
9
<PAGE> 10
shall be responsible for the costs and attorneys' fees in respect of
such claim thereafter.
5.3 Cooperation.
(a) Each party agrees to make available such personnel and
documents as the other party may reasonably request related to the Acquired
Assets, or the Assumed Liabilities to enable such party to collect, defend,
prosecute and/or settle any claims or litigation relating thereto; provided,
however, that such request shall not unreasonably interfere with the operation
of the business of such party.
(b) Each party agrees to make available such files and
documents, including, without limitation, true and correct copies of Contracts
delivered at Closing, as the other party may reasonably request, and to
cooperate with the other party in order to enable such party to collect any
Taxes from lessees, obligors or borrowers to which such party may be entitled to
reimbursement; provided, however, that such request shall not unreasonably
interfere with the operation of the business of such party and that cooperation
shall be to the extent reasonably consistent with such party's then current
published records retention policies and its reasonably available personnel.
(c) Each party agrees to hold in trust for the benefit of and
remit to the other party any monies received which are properly due to such
other party.
ARTICLE VI
CLOSING
6.1 The Closing. The Closing of the sale of the Acquired Assets and the
Assumed Liabilities hereunder shall be held on or before September 30, 1996. At
the Closing, Buyer shall make, execute and deliver a Note in the form annexed
hereto as Exhibit "B" to Seller, together with the Security Agreement in the
form annexed hereto as Exhibit "C" securing payment and performance of the Note;
and (ii) assume the Assumed Liabilities.
6.2 Conditions to the Obligations of Buyer. The obligations of Buyer to
purchase the Acquired Assets and to assume the Assumed Liabilities shall be
subject to the following conditions: (i) Seller shall have executed and
delivered to Buyer the Bill of Sale and Assumption Agreement, and such other
bills of sale, endorsements, assignments and other instruments of transfer and
conveyance as shall reasonably be requested by Buyer to vest in Buyer full
right, title and interest in the Acquired Assets (subject to such exceptions as
are permitted to exist herein); and (ii) Seller shall have prepared Articles of
Amendment to its Articles of Incorporation changing its Name from Action
Healthcare Management Services, Inc. and assigning the right to use the Name to
Buyer. At the Closing, Seller shall allow Buyer to take actual possession and
operating control of the Acquired Assets.
10
<PAGE> 11
6.3 Conditions to the Obligations of Seller. The obligations of Seller
to sell the Acquired Assets shall be subject to the following condition: Buyer
shall have executed and delivered to Seller the Bill of Sale and Assumption
Agreement and Seller shall have received at the Closing such other instruments
as may be reasonably requested by Seller to effect the assumption by Buyer of
the Assumed Liabilities.
ARTICLE VII
GENERAL
7.1 Amendments. This Agreement may only be amended, modified,
superseded or canceled and any of the terms, covenants, representations,
warranties or conditions hereof may be waived only by an instrument in writing
signed by each of the parties hereto or, in the case of a waiver, by or on
behalf of the party waiving compliance.
7.2 Integrated Contract. This Agreement and the Exhibits and Schedules
hereto, and any written amendments to this Agreement satisfying the requirements
of Paragraph 7.1 constitute the entire agreement between Seller and Buyer
regarding the Acquired Assets and the Assumed Liabilities.
7.3 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ARIZONA, WITHOUT REGARD TO THE PRINCIPLES REGARDING CHOICE OF LAW.
7.4 Dispute Resolution. In the event of a dispute between the parties
to this Agreement, the parties agree to promptly meet and confer with the goal
of settling such dispute. If the parties are unable to reach a prompt, amicable
agreement concerning such dispute, the parties agree to submit the matter to
non-binding mediation. If the parties cannot agree on a mediator, the American
Arbitration Association will be requested to provide a mediator with expertise
in container leasing and asset sale transactions. The mediation fee, if any,
shall be divided equally by the parties.
Failing resolution by mediation, such dispute shall be decided
by neutral, binding arbitration in accordance with Arizona Revised Statutes
Section 12-1501, et seq., and not by court action except as provided by Arizona
law for judicial review of arbitration proceedings. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall be agreed on by the parties or appointed by
request according to the procedures of the American Arbitration Association.
Each party shall bear its own attorneys' fees and costs and the arbitrator's
fees and disbursements shall be borne equally by the parties.
7.5 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given when sent by registered mail or certified
mail,
11
<PAGE> 12
postage prepaid, by overnight courier service, or by telex, telecopy or other
written form of electronic communication (with confirmed receipt to the sender):
If to Seller to: Action Healthcare Management Services, Inc.
301 E. Bethany Home Road, Suite 178
Phoenix, Arizona 85012
Phone: 602/265-0580; Fax: 602/277-3647
Attention: Robert C. Ward
If to Buyer to: Vanilla, Inc.
301 E. Bethany Home Road, Suite C-278
Phoenix, Arizona 85012
Phone: 602/265-0681; Fax: 602/265-0202
or to such other address as shall be furnished in writing by Buyer or Seller, as
the case may be, to the other (except that a notice of change of address shall
not be deemed to have been given until received by the addressee).
7.6 Assignment. No assignment may be made by either party of its rights
or obligations hereunder, except to the Permitted Assignee as defined in
Paragraph 1.1(l) above. Unless otherwise agreed in writing, no such assignment
shall affect the rights and obligations of the parties hereunder.
7.7 Headings. The descriptive headings of the several Articles and
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
7.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party hereto.
7.9 Expenses. Except as otherwise specifically set forth herein, Seller
and Buyer will each be responsible for the payment of their own respective costs
and expenses incurred in connection with the negotiations leading up to and the
performance of their respective obligations pursuant to this Agreement.
7.10 Exclusive Remedies. The remedies provided for in this Agreement
shall be the exclusive remedies available to the parties hereunder in regard to
the subject matter hereof or to Acquired Assets or the Assumed Liabilities.
12
<PAGE> 13
ARTICLE VIII
COVENANT NOT TO COMPETE
8.1 Covenant Not to Compete. Seller agrees not to engage in, directly
or indirectly, the business of providing health care quality management and cost
containment services to various companies providing health care benefits to
their employees and/or employees' dependents, either directly or indirectly, in
the State of Arizona for a period of five years from and after the Closing Date.
Seller agrees that in the event of a violation of this covenant to compete,
Buyer would not have an adequate remedy at law and that Buyer may enforce the
provisions of this covenant not to compete by injunctive relief.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf by its officers or representative
thereunto duly authorized, all as of the ___ day of ____________, 1996.
SELLER: ACTION HEALTHCARE MANAGEMENT SERVICES, INC.
By:_______________________________
Name: Robert L. Ward
Title_____________________________
BUYER: VANILLA, INC.
By:_______________________________
Title:_____________________________
13
<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
This Agreement is made as of the 2nd day of December, 1996, by and
between CAVCO INDUSTRIES, INC., an Arizona corporation (the "Company"), and
__________________________ ("Director").
W I T N E S S E T H
WHEREAS, Director is a member of the Board of Directors of the Company
and in that capacity is performing a valuable service for the Company; and
WHEREAS, the Arizona Revised Statutes specifically provide that a
corporation may grant certain indemnification rights to its directors; and
WHEREAS, the by-laws of the Company ("by-laws") provide for the
indemnification of the directors of the Company and expressly contemplate that
additional rights of indemnification may be granted to directors through
agreement or otherwise; and
WHEREAS, the Company has been advised that the Company's D&O Insurance
coverage is subject to significant limitations, that companies are experiencing
increasing difficulty in obtaining and retaining such insurance, that premiums
continue to rise for such insurance and that there can be no assurance that
directors' and officers' liability insurance will remain available on adequate
terms at a cost acceptable to the Company; and
WHEREAS, the Company, in order to induce Director to continue to serve
the Company, has agreed to provide Director with the benefits contemplated by
this Agreement, which benefits are intended to supplement or replace, if
necessary, any D&O Insurance maintained by the Company from time to time;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including the Director's
continued service to the Company, the Company and Director hereby agree as
follows:
1. Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Covered Amount" means Loss and Expenses which do not exceed in the
aggregate the Maximum Amount.
"Covered Act" means any breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done or
wrongfully attempted by
1
<PAGE> 2
Director or any of the foregoing alleged by any claimant or any
claim against Director solely by reason of him being a director or
officer of the Company.
"D&O Insurance" means the directors' and officers' liability
insurance, if any, insuring the Company and Director, obtained and
maintained from time to time by the Company.
"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim:
(i) Based upon or attributable to Director gaining in fact any
improper personal benefit to which Director is not entitled, or
as to which Director shall have been adjudged to be liable to the
Company, unless and only to the extent that the court in which
the action or suit relating to such claim was brought or another
court of competent jurisdiction shall determine that, in view of
all the relevant circumstances of the case, Director is fairly
and reasonably entitled to indemnification hereunder for such
Losses or Expenses as such court shall deem proper; or
(ii) For the return by Director of any illegal remuneration paid to
Director without the previous approval of the stockholders of the
Company; or
(iii) For an accounting of profits in fact made from the purchase or
sale by Director of securities of the Company within the meaning
of Section 16 of the Securities Exchange Act of 1934 as amended,
or similar provisions of any state law; or
(iv) Resulting from Director's knowingly fraudulent, dishonest or
willful misconduct; or
(v) The payment of which by the Company under this Agreement is not
permitted by applicable law; or
(vi) The payment of which would cause the total amount of all Losses
and Expenses paid by the Company to exceed the Covered Amount.
"Expenses" means any reasonable expenses incurred by Director as a
result of a claim or claims made against him for Covered Acts
(including a claim or claims made in an action by or in the right of
the Company, to the extent permitted by law) including, without
limitation, counsel fees and costs of investigative, judicial or
administrative proceedings or appeals, but shall not include Fines.
"Fines" means any fine, penalty or, with respect to an employee benefit
plan, any excise tax or penalty assessed with respect thereto.
2
<PAGE> 3
"Loss" means any amount which Director is legally obligated to pay as a
result of a claim or claims made against him for Covered Acts
(including a claim or claims made in an action by or in the right of
the Company, to the extent permitted by law) including, without
limitation, damages and judgments and sums paid in settlement of a
claim or claims, but shall not include Fines.
"Maximum Amount" means, with respect to any claim for indemnification
hereunder, the lesser of (a) the Covered Amount relating to such claim
and (b) the maximum amount, if any, permitted by law to be paid as
indemnification by the Company to Director with respect to such claim.
2. Indemnification. The Company shall indemnify Director and hold him
harmless from the Covered Amount of any and all Losses and Expenses subject, in
each case, to the further provisions of this Agreement.
3. Excluded Coverage.
(a) The Company shall have no obligation to indemnify Director for and
hold him harmless from any Loss or Expense which has been determined, by final
adjudication by a court of competent jurisdiction, to constitute an Excluded
Claim.
(b) The Company shall have no obligation to indemnify Director and hold
him harmless hereunder for any Loss or Expense to the extent that Director is
indemnified by the Company pursuant to the Company's Bylaws or otherwise
indemnified.
4. Indemnification Procedures.
(a) Promptly after receipt by Director of notice of the commencement of
or the threat of commencement of any action, suit or proceeding, if
indemnification with respect thereto may be sought from the Company under this
Agreement, Director shall, as a condition of his right to be indemnified under
this Agreement, notify the Company of the commencement thereof.
(b) If, at the time of the receipt of such notice, the Company has D&O
Insurance in effect, the Company shall give prompt notice of the commencement of
such action, suit or proceeding to the insurers in accordance with the
procedures set forth in the respective policies in favor of Director. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of Director, all Losses and Expenses payable as a
result of such action, suit or proceeding in accordance with the terms of such
policies.
(c) To the extent the Company does not, at the time of the commencement
of or the threat of commencement of such action, suit or proceeding, have
applicable D&O Insurance, or if the insurer providing the D&O Insurance notifies
the Company or
3
<PAGE> 4
Director that the Expenses arising out of such action, suit or proceeding will
not be payable under the D&O Insurance then in effect, the Company shall be
obligated to pay the Expenses of any such action, suit or proceeding in advance
of the final disposition thereof. Unless Director shall have reasonably
concluded that there may be a conflict of interest between the Company and
Director in the conduct of the defense of such action, suit or proceeding, the
Company shall be entitled to assume the defense of such action, suit or
proceeding, with counsel reasonably satisfactory to Director, upon the delivery
to Director of written notice of its election so to do. After delivery of such
notice, the Company will not be liable to Director under this Agreement for any
legal or other Expenses subsequently incurred by the Director in connection with
such defense other than reasonable Expenses of investigation; provided that
Director shall have the right to employ its counsel in any such action, suit or
proceeding but the fees and expenses of such counsel incurred after delivery of
notice from the Company of its assumption of such defense shall be at the
Director's expense; provided further, that if (i) the employment of counsel by
Director has been previously authorized by the Company, (ii) Director shall have
reasonably concluded that there may be a conflict of interest between the
Company and Director in the conduct of any such defense or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such action,
the fees and expenses of counsel shall be at the expense of the Company.
(d) All payments on account of the Company's indemnification
obligations under this Agreement shall be made within sixty (60) days of
Director's written request therefor after incurrence of the applicable Loss or
Expense; provided, that all payments on account of the Company's obligations
under Paragraph 4(c) of this Agreement prior to final disposition of any action,
suit or proceeding shall be made within 20 days of Director's written request
therefor.
(e) Director agrees that he will reimburse the Company for all Losses
and Expenses paid by the Company in connection with any action, suit or
proceeding against Director in the event and only to the extent that a
determination shall have been made by a court in a final adjudication from which
there is no further right of appeal that the Director is not entitled to be
indemnified by the Company for such Expenses because the claim is an Excluded
Claim or because Director is otherwise not entitled to payment under this
Agreement.
5. Settlement. The Company shall have no obligation to indemnify Director
under this Agreement for any amounts paid in settlement of any action, suit or
proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in any manner which would impose any Fine or any
obligation on Director without Director's written consent. Neither the Company
nor Director shall unreasonably withhold their consent to any proposed
settlement.
6. Rights Not Exclusive. The rights provided hereunder shall not be deemed
exclusive of any other rights to which the Director may be entitled under any
bylaw, agreement, vote of stockholders or of disinterested directors or
otherwise, both as to
4
<PAGE> 5
action in his official capacity and as to action in any other capacity by
holding such office, and shall continue after the Director ceases to serve the
Corporation as a Director.
7. Enforcement.
(a) Director's right to indemnification shall be enforceable by
Director in the state courts of the State of Arizona, or in any other court in
which an action, suit or proceeding is brought by a third party plaintiff
resulting in Loss or Expenses for which indemnification is sought. The Company
shall have the burden of proving that indemnification is not required under this
Agreement.
(b) In the event that any action is instituted by Director under this
Agreement, or to enforce or interpret any of the terms of this Agreement,
Director shall be entitled to be paid all court costs and expenses, including
reasonable counsel fees, incurred by Director with respect to such action,
unless the court determines that each of the material assertions made by
Director as a basis for such action were not made in good faith or were
frivolous.
8. Severability. In the event that any provision of this Agreement is
determined by a court to require the Company to do or to fail to do an act which
is in violation of applicable law, such provision shall be limited or modified
in its application to the minimum extent necessary to avoid a violation of law,
and, as so limited or modified, such provision and the balance of this Agreement
shall be enforceable in accordance with their terms.
9. Choice of Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Arizona.
10.Consent to Jurisdiction. The Company and the Director each hereby
irrevocably consent to the jurisdiction of the courts of the State of Arizona
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that except as provided in Section 7(a)
above, any action instituted under this Agreement shall be brought only in the
state courts of the State of Arizona.
11.Successor and Assigns. This Agreement shall be (i) binding upon all
successors and assigns of the Company (including any transferee of all or
substantially all of its assets and any successor by merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Director.
12.Integration Clause; Oral Modification. This Agreement represents the
entire agreement of the parties with respect to the subject matter hereof, and
all agreements entered into prior hereto with respect to the subject matter
hereof are revoked and superseded by this Agreement, and no representations,
warranties, inducements or oral modifications have been made by any of the
parties except as expressly set forth
5
<PAGE> 6
herein or in other contemporaneous written agreements. This Agreement may not be
changed, modified or rescinded except in writing, signed by all parties hereto,
and any attempt at oral modification of this Agreement shall be void and of no
effect.
13.Counterparts. This Agreement may be executed in any number of
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument, and each of said counterparts shall be deemed an original
hereof.
14.Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Director, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
15.Notice. Notice to the Company shall be given at its principal office
and shall be directed to the Corporate Secretary (or such other address as the
Company shall designate in writing to Director). Notice to Director shall be
given to his address set forth below (or such other address as Director shall
designate in writing to the Company). Notice shall be deemed received if sent by
prepaid mail properly addressed, the date of such notice being the date two (2)
days after the date postmarked.
16.Continuation of Indemnification. The indemnification under this
Agreement shall continue as to Director even though he may have ceased to be a
director of the Company and shall inure to the benefit of the heirs and personal
representatives of Director.
17.Coverage of Indemnification. The indemnification under this Agreement
shall cover Director's service as a Director of the Company and all of his acts
in such capacity, including without limitation service on a committee of the
Board of Directors, whether prior to or on or after the date of this Agreement.
IN WITNESS WHEREOF, the Company and Director have executed this Agreement
as of the day and year first above written.
CAVCO INDUSTRIES, INC., an Arizona corporation
By: ___________________________________
Its: ______________________________
[Director]
[Address]
6
<PAGE> 1
EXHIBIT 10.11
STANDARD INDUSTRIAL LEASE--MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[AIR LOGO]
1. PARTIES. This Lease, dated, for reference purposes only, FEBRUARY 1, 1993,
is made by and between Loral Corporation, a New York corporation, with an
office at 600 Third Avenue, New York, NY 10016 (herein called "Lessor") and
CAVCO Industries, Inc., an Arizona corporation with an office at 301 East
Bethany Home Road, Phoenix, AZ 85012 (herein called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of Maricopa, State of Arizona
commonly known as a portion of Building 6 in the Westvalley Technology Centre
located at 1300 South Litchfield Road, Goodyear, AZ as shown on Exhibit "A"
attached hereto, hereinafter referred to as the "Premises," as may be outlined
on an Exhibit attached hereto, including rights to the Common Areas as
hereinafter specified but not including any rights to the roof of the Premises
or to any Building in the Industrial Center. The Premises are a portion of a
building, herein referred to as the "Building." The Premises, the Building, the
Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center." The premises shall include the equipment listed on
Schedule I attached hereto.
2.2 VEHICLE PARKING. Lessee shall be entitled to 300 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles." Such spaces shall be located on the
east side of Litchfield Road as designated by Lessor.
2.2.1 Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.4 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it
may have, to remove the property and charge the cost to Lessee, which cost
shall be immediately payable upon demand by Lessor.
2.5 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center. (See
Addendum)
2.6 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for maintenance purposes, so long as
reasonable access to the Premises remains available; (d) To add additional
buildings and improvements to the Common Areas; (e) To use the Common Areas
while engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; (f) To do and perform such other
acts and make such other changes in, to or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate, so long as access to the premises is not impaired.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Lease shall be for Five (5) Years commencing
on February 1, 1993 and ending on January 31, 1998 unless sooner terminated
pursuant to any provision hereof, or extended pursuant to Paragraph 49.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee
hereunder or extend the term hereof, but in such case, Lessee shall not be
obligated to pay rent or perform any other obligation of Lessee under the terms
of this Lease, except as may be otherwise provided in this Lease, until
possession of the Premises is tendered to Lessee; provided, however, that if
Lessor shall not have delivered possession of the Premises within sixty (60)
days from said commencement date, Lessee may, at Lessee's option, by notice in
writing to Lessor within ten (10) days thereafter, cancel this Lease, in which
event the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the 1st day of each month of the term hereof, monthly
payments in advance of $Seventeen Thousand Eight Hundred Seventy-Nine
($17,879.00) Dollars, subject to the abatements provided for in Paragraph 48.
See Paragraph 61. Lessee shall pay Lessor upon execution hereof $17,879.00 as
Base Rent for February, March, April 1993. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the Base
Rent. Rent shall be payable in lawful money of the United States to Lessor at
the address stated herein or to such other persons or at such other places as
Lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined,
of all Operating Expenses, as hereinafter defined, during each calendar year of
the term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease as 18.1
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as
all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities and fences and gates.
(bb) Trash disposal services.
(cc) Tenant directories.
(dd) Fire detection systems including sprinkler system
maintenance and repair.
1 Initials: [ILLEGIBLE]
-----------
Copyright American Industrial Real Estate Association 1982
-----------
MULTI-TENANT--GROSS
<PAGE> 2
(ee) Security services.
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense."
(ii) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services
set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Industrial
Center already has the same, Lessor already provides the services, or Lessor has
agreed elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each twelve-month period of the Lease term, on the same
day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's
estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each calendar
year a reasonably detailed statement showing Lessee's Share of the actual
Operating Expenses incurred during the preceding year. If Lessee's payments
under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said preceding year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $
- -0- as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required to Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportion to the then current Base Rent as the
initial security deposit bears to the initial Base Rent set forth in paragraph
4. Lessor shall not be required to keep said security deposit separate from its
general accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for manufacture,
assembly and storage of mobile homes and office use incidental thereto, or any
other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants
or restrictions of record, or any applicable building code, regulation or
ordinance in effect on such Lease term commencement date. In the event it is
determined that this warranty has been violated, then it shall be the
obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event Lessee
does not give to Lessor written notice of the violation of this warranty within
six months from the date that the Lease term commences, the correction of same
shall be the obligation of the Lessee at Lessee's sole cost. The warranty
contained in this paragraph 6.2(a) shall be of no force or effect if, prior to
the date of this Lease, Lessee was an owner or occupant of the Premises and, in
such event, Lessor shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and use
by Lessee of the Premises and of the Common Areas. Lessee shall not use nor
permit the use of the Premises or the Common Areas in any manner that will tend
to create waste or a nuisance or shall tend to disturb other occupants of the
Industrial Center.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation. Lessee's failure to give such written notice to
Lessor within thirty (30) days after the Lease commencement date shall cause
the conclusive presumption that Lessor has complied with all of Lessor's
obligations hereunder. The warranty contained in this paragraph 6.3(a) shall be
of no force or effect if prior to the date of this Lease, Lessee was an owner
or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises,
and any covenants or restrictions of record, and accepts this Lease subject
thereto and to all matters disclosed thereby and by any exhibits attached
hereto. Lessee acknowledges that neither Lessor nor Lessor's agent has made any
representation or warranty as to the present or future suitability of the
Premises for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs
4.2 (Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act
or omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage. Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of
the Common Areas and all parts thereof, as well as providing the services for
which there is an Operating Expense pursuant to paragraph 4.2. Lessor shall
not, however, be obligated to paint the exterior or interior surface of
exterior walls, nor shall Lessor be required to maintain, repair or replace
windows, doors or plate glass of the Premises. Lessor shall have no obligation
to make repairs under this paragraph 7.1 until a reasonable time after receipt
of written notice from Lessee of the need for such repairs. Lessee expressly
waives the benefits of any statute now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair. Lessor shall not be liable for damages or loss of
any kind or nature by reason of Lessor's failure to furnish any Common Area
Services when such failure is caused by accident, breakage, repairs, strikes,
lockout, or other labor disturbances or disputes of any character, or by any
other cause beyond the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1
(Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means
of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, ventilating and air conditioning systems (Lessee shall procure and
maintain, at Lessee's expense, a ventilating and air conditioning system
maintenance contract), electrical and lighting facilities and equipment within
the Premises, fixtures, interior walls and interior surfaces of exterior walls,
ceilings, windows, doors, plate glass, and skylights located within the
Premises. Lessor reserves the right to procure and maintain the ventilating and
air conditioning system maintenance contract and if Lessor so elects, Lessee
shall reimburse Lessor, upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at the maximum
rate then allowable by law shall be due and payable as additional rent to
Lessor together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and free of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices. Lessee shall repair any damage to the Premises
occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the Premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs, during
the term of this Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Lessee shall make no change or alteration to the exterior of
the Premises nor the exterior of the Building nor the Industrial Center without
Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility Installations at
the
MULTI-TENANT--GROSS Initials: (ILLEGIBLE)
Copyright American Industrial -----------
Real Estate Association 1982
-----------
-2-
<PAGE> 3
expiration of the term, and restore the Premises and the Industrial Center to
their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the Lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial Center, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to such contested lien claim or
demand indemnifying Lessor against liability for the same and holding the
Premises and the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to Lessor's best
interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property
of Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install
new or additional utility facilities throughout the Building and the Common
Areas for the benefit of Lessor or Lessee, or any other lessee of the
Industrial Center, including, but not by way of limitation, such utilities as
plumbing, electrical systems, security systems, communication systems, and fire
protection and detection systems, so long as such installations do not
unreasonably interfere with Lessee's use of the Premises.
8. INSURANCE: INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease a policy of
Combined Single Limit Bodily Injury and Property Damage insurance insuring
Lessee and Lessor against any liability arising out of the use, occupancy or
maintenance of the Premises and the Industrial Center. Such insurance shall be
in an amount not less than $500,000.00 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against
any liability arising out of the ownership, use, occupancy or maintenance of
the Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Industrial Center improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in an amount not to
exceed the full replacement value thereof, as the same may exist form time to
time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises),
special extended perils ("all risk", as such term is used in the insurance
industry), plate glass insurance and such other insurance as Lessor deems
advisable. In addition, Lessor shall obtain and keep in force, during the term
of this Lease, a policy of rental value insurance covering a period of one
year, with loss payable to Lessor, which insurance shall also cover all
Operating Expenses for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall
not be responsible for paying Lessee's Share of any increase in the property
insurance premium for the Industrial Center specified by Lessor's Insurance
carrier as being caused by the use, acts or omissions of any other lessee of
the Industrial Center, or by the nature of such other lessee's occupancy which
create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in
the property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the
increase is specified by Lessor's insurance carrier as being caused by the
nature of Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in
addition to the rent, Lessee's Share (as defined in paragraph 4.2(a) of the
amount of any increase in premiums for the insurance required under paragraphs
8.2 and 8.3 over and above such premiums paid during the Base Period, as
hereinafter defined, whether such premium increase shall be the result of the
nature of Lessee's occupancy, any act or omission of Lessee, requirements of
the holder of a mortgage or deed of trust covering the Premises, increased
valuation of the Premises, or general rate increases. In the event that the
Premises have been occupied previously, the words "Base Period" shall mean the
last twelve months of the prior occupancy. In the event that the Premises have
never been occupied previously, the premiums during the "Base period"
shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount at the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: $72,000.00. In no event, however, shall Lessee be responsible for
any portion of the premium cost attributable to liability insurance coverage in
excess of $500,000.00 procured under paragraph 8.2.
(d) Lessee shall pay any such premium increases to Lessor
within 30 days after receipt by Lessee of a copy of the premium statement or
other satisfactory evidence of the amount due. If the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall also deliver to Lessee a statement of the amount of such increase
attributable to the Premises and showing in reasonable detail, the manner in
which such amount was computed. If the term of this Lease shall not expire
concurrently with the expiration of the period covered by such insurance,
Lessee's liability for premium increases shall be prorated on an annual basis.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at lease B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to the perils insured
against which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. Lessee and Lessor shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Industrial
Center, or from the conduct of Lessee's business or from any activity, work or
things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and against
any and all claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon, and in case any action or proceeding be
brought against Lessor by reason of any such claim. Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property of Lessee or injury to persons, in, upon or about the
Industrial Center arising from any cause and Lessee hereby waives all claims in
respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Industrial Center, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon
other portions of the Industrial Center, or from other sources or places and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for
any damages arising from any act or neglect of any other lessee, occupant or
user of the Industrial Center, nor from the failure of Lessor to enforce the
provisions of any other lease of the Industrial Center. (SEE ADDENDUM)
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the premises.
MULTI-TENANT--GROSS Initials: (ILLEGIBLE)
Copyright American Industrial -----------
Real Estate Association 1982
-----------
-3-
<PAGE> 4
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent of the then replacement cost
of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost
of the Building.
(e) "Industrial Center Buildings" shall mean all of the
buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact than an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition
that existed prior to the damage occurring excluding all improvements made by
lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect. (SEE ADDENDUM)
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), which damage prevents Lessee from using the
Premises, Lessor may at Lessor's option either (i) repair such damage as soon
as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence
of such damage. In the event Lessor elects to give such notice of Lessor's
intention to cancel and terminate this Lease, Lessee shall have the right
within ten (10) days after the receipt of such notice to give written notice to
Lessor of Lessee's intention to repair such damage at Lessee's expense, without
reimbursement from Lessor, in which event this Lease shall continue in full
force and effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such 10-day
period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage. (SEE ADDENDUM)
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
six months of the term of this Lease there is substantial damage, whether or
not an Insured Loss, which falls within the classification of Premises Partial
Damage, Lessor may at Lessor's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Partial
Damage, during the last six months of the term of this Lease. If lessee duly
exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period by giving written notice to Lessee of Lessor's election to do so within
ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
(SEE ADDENDUM)
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises
pursuant to the provisions of this paragraph 9, the rent payable hereunder for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of such damage, destruction,
repair or restoration. (SEE ADDENDUM)
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax,
as defined in paragraph 10.3, applicable to the Industrial Center, provided,
however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined
in paragraph 4.2(a)) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year 1993.
Such payment shall be made by Lessee within thirty (30) days after receipt of
Lessor's written statement setting forth the amount of such increase and the
computation thereof. If the term of this Lease shall not expire concurrently
with the expiration of the tax fiscal year, Lessee's liability for increased
taxes for the last partial lease year shall be prorated on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by
any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Industrial Center. The term
"real property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee, levy, assessment or
charge hereinabove included within the definition of "real property tax," or
(ii) the nature of which was hereinbefore included within the definition of
"real property tax," or (iii) which is imposed for a service or right not
charged prior to June 1, 1978, or, if previously charged, has been increased
since June 1 1978, or (iv) which is imposed as a result of a transfer, either
partial or total, of Lessor's interest in the Industrial Center or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such transfer, or (v) which is imposed by reason of
this transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
MULTI-TENANT--GROSS Initials: (ILLEGIBLE)
Copyright American Industrial -----------
Real Estate Association 1982
-----------
-4-
<PAGE> 5
12. ASSIGNMENT AND SUBLETTING.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or subletting the terms
of this Lease are materially changed or altered without the consent of Lessee,
the consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or alter
the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this
lease. Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or
their consent thereto and such action shall not relieve Lessee of liability
under this lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included
in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease, Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering
into a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease
and the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
subletting and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessors, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee
under such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in
connection therewith, such attorney's fees not to exceed $350.00 for each such
request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee. (SEE
ADDENDUM)
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph. (SEE ADDENDUM)
(c) Except as otherwise provided in this Lease, the failure by Lessee
to observe or perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by Lessee, other than described in paragraph
(b) above, where such failure shall continue for a period of thirty (30) days
after written notice thereof from Lessor to Lessee; provided, however, that if
the nature of Lessee's noncompliance is such that more than thirty (30) days
are reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) days notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession
of substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days, in the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given Wto
lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof of the amount by which the
unpaid rent for the balance of the term after the time of such award exceeds
the amount of such rental loss for the same period that Lessee proves could be
reasonably avoided; that portion of the leasing commission paid by Lessor
pursuant to paragraph 15 applicable to the unexpired term of this Lease. (SEE
ADDENDUM)
MULTI-TENANT--GROSS Initials: (ILLEGIBLE)
Copyright American Industrial -----------
Real Estate Association 1982
-----------
-5-
<PAGE> 6
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable
time, but in no event later than thirty (30) days after written notice by
Lessee to Lessor and to the holder of any first mortgage or deed of trust
covering the Premises whose name and address shall have theretofore been
furnished to Lessee in writing, specifying wherein Lessor has failed to perform
such obligation; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days are required for performance then
Lessor shall not be in default if Lessor commences performance within such
thirty (30) day period and thereafter diligently prosecutes the same to
completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Industrial Center. Accordingly, if any installment of
Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within ten (10) days after such amount
shall be due, then, without any requirement for notice to Lessee. Lessee shall
pay to Lessor a late charge equal to 6% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a
late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of any of the aforesaid monetary obligations of
Lessee, then Base Rent shall automatically become due and payable quarterly in
advance, rather than monthly, notwithstanding paragraph 4.1 or any other
provision of this Lease to the contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"),
this Lease shall terminate as to the part so taken as of the date the
condemning authority takes title or possession, whichever first occurs. If more
than ten percent of the floor area of the Premises, or more than twenty-five
percent of that portion of the Common Areas designated as parking for the
Industrial Center is taken by condemnation, Lessee may, at Lessee's option, to
be exercised in writing only within ten (10) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice, within
ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. No reduction of rent shall occur if the only area taken
is that which does not have the Premises located thereon. Any award for the
taking of all or any part of the Premises under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
award for loss of or damage to Lessee's trade fixtures and removable personal
property. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
GRUBB & ELLIS Licensed real estate broker(s), a fee as set forth in a separate
agreement between Lessor and said broker(s), XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
Lessee represents that it dealt with no other Broker in connection with this
lease.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, as in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of the requesting party. (SEE ADDENDUM)
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial
Center, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth. (SEE
ADDENDUM)
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest. Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall,
subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall
not excuse or cure any default by Lessee under this Lease; provided, however,
that interest shall not be payable on late charges incurred by Lessee nor on
any amounts upon which late charges are paid by Lessee. (SEE ADDENDUM)
20. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under
the terms of this Lease, including but not limited to Lessee's Share of
Operating Expenses and insurance and tax expenses payable shall be deemed to be
rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction
nor the Lessor or any employee or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use by Lessee of the Premises or the Industrial Center and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during
the term of this Lease except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified mail, and
if given personally or by mail, shall be deemed sufficiently given if addressed
to Lessee or to Lessor at the address noted below the signature of the
respective parties, as the case may be. Either party may be notice to the other
specify a different address for notice purposes except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for notice purposes. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by notice to Lessee. (SEE ADDENDUM)
MULTI-TENANT-GROSS Initials /s/______
c: American Industrial Real Estate Association 1988 _________
6
<PAGE> 7
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, but all Options, if any,
granted under the terms of this Lease shall be deemed terminated and be of no
further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Industrial Center is located and any litigation
concerning this Lease between the parties hereto shall be initiated in the
county in which the Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (SEE ADDENDUM)
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers,lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities
of Lessor pursuant to this paragraph shall be without abatement of rent, nor
shall Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
39. OPTIONS
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or opinion to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other space within the Industrial Center or other
property of Lessor or the right of first offer to lease other space within the
Industrial Center or other property of Lessor; (3) the right or option to
purchase the Premises or the Industrial Center, or the right of first refusal
to purchase the Premises or the Industrial Center, or the right of first offer
to purchase the Premises or the Industrial Center, or the right or option to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or involuntarily,
by or to any person or entity other than Lessee, provided, however, that an
Option may be exercised by or assigned to any Lessee Affiliate as defined in
paragraph 12.2 of this Lease. The Options, if any, herein granted to Lessee are
not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the date after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or (iv) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(b) or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that lessee attempts to exercise the subject
of Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(c)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessee commits default described in paragraphs
13.1(a), 13.1(d) or 13.1 (e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) Lessor gives to Lessee three or more notices
of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the
defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that lessor shall have
no obligation whatsoever to provide guard service or other security measures
for the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at lessor's sole option
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
MULTI-TENANT-GROSS Initials: /s/______
Copyright American Industrial Real Estate Association 1982 _________
-7-
<PAGE> 8
41. Easements. Lessor ???? to itself the right, from time to time, to grant
such easements, ???? dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment, under protest, and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
43. Authority. If Lessee is a corporation, trust or general limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall
become binding upon Lessor and Lessee only when fully executed by Lessor and
Lessee.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs
47 through 70 which constitute a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY
UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
LORAL CORPORATION CAVCO INDUSTRIES, INC.
- ------------------------------------ ----------------------------------
By By /s/ Robert Ward, Vice President
---------------------------------- -------------------------------
By By
---------------------------------- --------------------------------
Executed on Executed on December 28, 1992
------------------ ----------------------
(Corporate seal) (Corporate seal)
ADDRESS FOR NOTICES ADDRESS
Loral Corporation 301 East Bethany Home Road, C178
600 Third Avenue ----------------------------------
- ------------------------------------
New York, NY 10016
Attn: Vice President/General Counsel Phoenix, AZ 85012
- ------------------------------------ ----------------------------------
Rent payments and Copy of Notices to:
Westvalley Technology Centre Attn: Vice President
- ------------------------------------ ----------------------------
P.O. Box 1795
Litchfield Park, AZ 85340
- ------------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
8
<PAGE> 9
Revision
12/18/92
Additions, Changes, and/or Modifications to the basic document language are
identified below and made a part hereto:
Para. 2.5 (Additional language added to the end of the paragraph)
"Lessor shall not discriminate in the enforcement of rules and
regulations unless the non-enforcement materially impacts or
affects the Lessee's business in a negative manner."
Para. 8.7 (Last line of the clause following the word "cause")
Add: "except Lessor's gross negligence or willful misconduct"
Para. 8.8 (Fifth line down following the words "any other cause")
Add: "except Lessor's gross negligence or willful misconduct"
Para. 9.2 (a) (Third line down following the words "tenant improvements")
Add: "installed by Lessee."
Para. 9.3 (a) (Fourth line down following the words "tenant
improvements")
Add: "installed by Lessee."
Para. 9.4(b) (Fifth line down following the words "tenant improvements")
Add: "installed by Lessee."
Para. 9.5(a) (At the end of the paragraph and following the word
"restoration")
Add: "unless caused by the Lessors gross negligence or willful
misconduct
Para. 13.1(a) (At the end of the paragraph and following the word "Lessee")
Add: "unless Lessee elects to vacate the premises but continues
to pay rent according to the lease."
Para. 13.1(b) Change: "three" to "ten" days.
Para. 13.2(a) (Sixth line down)
Delete the words: "amount of such rental loss for the same
period that Lessee proves could be reasonably awarded" and
9
<PAGE> 10
Insert "reasonable rental value of the premises."
Para. 16(a) (First Line)
Change: "10" days to "20" days.
Para. 16(c) Lessee to provide publicly published financial data
(Annual and Quarterly Reports)
Para. 19 (First line following the word "interest"
Insert: "at an annual rate equal to ten percent (10%) per annum
above the prime rate of Bank of America not to exceed"
Para. 23 (Line five between the words "Lessor" and "hereunder")
Insert: "or Lessee"
Delete the word: "Lessor"
Add the words: "either party"
Para. 23 (Line five)
Delete the term: "Lessee"
Add: "the other."
Para. 30(b) (Line two)
Delete "10" days
Insert "20" days
Para. 30(b) (Lines three to five)
Delete: All words following "without further notice to Lessee."
10
<PAGE> 11
ADDENDUM
TO STANDARD INDUSTRIAL LEASE - MULTI-TENANT
Premises at
Westvalley Technology Centre
Dated: February 1, 1993
------------------
Lessor: Loral Corporation
-------------------
Lessee: CAVCO Industrial, Inc.
------------------------
47. Addendum. This Addendum is attached to and made a part of the
Lease of even date herewith between the above named Lessor and Lessee. All
terms, references and names used herein shall have the same meaning as defined
and used in the Lease. However, in the event of any conflict between the
provisions of this Addendum and those in the Lease, the provisions of this
Addendum shall govern and shall be deemed to modify, revise and delete the
provisions in the Lease to the extent of such conflict.
48. Rent Abatement. The Base Rent payable during the months of
February through July of 1993 shall be as follows:
<TABLE>
<CAPTION>
Month Rent To Be Paid
----- ---------------
<S> <C>
February 1993 $ 5,900.00
March 1993 $ 5,900.00
April 1993 $ 5,900.00
May 1993 $11,800.14
June 1993 $11,800.14
July 1993 $11,800.14
</TABLE>
49. Options to Extend the Term
49.1 First Extended Term. Subject to the provisions of
paragraph 49.3, Lessee shall have the option to extend the term of this Lease
beyond the term specified in paragraph 3.1 (herein referred to as the "Initial
Term") for an additional period of five years commencing on the date following
the expiration of the Initial Term (herein referred to as the "First Extended
Term") by giving notice to Lessor of its election so to extend such term on or
prior to March 1, 1997.
49.2 Second Extended Term. Subject to the terms and
conditions set forth in paragraph 49.4, Lessee shall have the option to extend
the term of this Lease for an additional period of five (5) years commencing on
the expiration of the First Extended Term (herein referred to as the "Second
Extended Term") by giving notice to Lessor of its election so to extend such
term on or prior to March 1, 2002.
49.3 Third Extended Term. Subject to the terms and
conditions set forth in paragraph 49.4, Lessee shall have the option to extend
the term of the Lease for an additional five (5) years commencing on the
expiration of the Second Extended Term (herein referred to as the "Third
Extended Term") by giving notice to Lessor of its election so to extend such
term on or prior to March 1, 2007.
49.4 Extension Options Terms and Conditions. Time shall be
of the essence with regard to the exercise by Lessee of the option to extend
the term of this Lease for the First Extended Term, the Second Extended Term,
and the Third Extended Term. It shall be a condition upon Lessee's right to
exercise any of such extension options that Lessee shall not be in default in
the performance of any obligations under this Lease at the time its notice of
election to exercise such option is given. Any exercise of any such option by
Lessee later than permitted in paragraphs 49.1, 49.2 or 49.3 or at a time when
such a default exists shall be ineffective and deemed to be null and void. It
shall be a further condition upon Lessee's right to extend such term for the
Second Extension Term that Lessee shall have properly exercised its option to
extend such term for the First Extended Term. It shall be a further condition
upon Lessee's right to extend such term for the Third
11
<PAGE> 12
Extension Term that Lessee shall have properly exercised its option to extend
such term for the Second Extended Term. In the event that Lessee fails to
exercise its option to extend such term for the First Extended Term in a valid
manner in accordance with this paragraph and paragraph 49.1, then such term
shall expire on the expiration of the Initial Term with no further rights on
the part of Lessee to extend such term. In the event that such term is extended
for the First Extended Term in a valid manner and that thereafter Lessee fails
to exercise its option to extend such term for the Second Extended Term in a
valid manner in accordance with this paragraph and paragraph 49.2, such term
shall expire on the expiration of the First Extended Term with no further
rights on the part of Lessee to extend such term. In the event that such term
is extended for the Second Extended Term in a valid manner and that thereafter,
Lessee fails to exercise its option to extend such term for the Third Extended
Term in a valid manner in accordance with this paragraph and paragraph 49.3
such term shall expire on the expiration of the Second Extended Term with no
further rights on the part of Lessee to extend such term. In the event that
such term is extended for the THIRD Extended Term in a valid manner, then such
term shall expire on the expiration of the THIRD Extended Term with no further
rights on the part of Lessee to extend the term. All of the terms, covenants
and conditions of this Lease shall apply and govern during the First Extended
Term, the Second Extended Term, and the Third Extended Term as fully as during
the Initial Term, except that the Base Rent shall be the amounts determined
pursuant to paragraph 49.5.
49.5 Extended Term Base Rent. The Base Rent payable for each month
during each year of the First Extended Term, the Second Extended Term, and the
Third Extended Term, in accordance with paragraph 4.1 shall be adjusted as of
the date of the commencement of the First Extended Term and as of the date of
the commencement of the Second Extended Term, and as of the date of the
commencement of the Third Extended Term (each such date being herein referred
to as the "Adjustment Date") to reflect fifty percent (50%) of the change, if
any, in the Consumer Price Index (herein referred to as the CPI") for the
calendar month immediately preceding such Adjustment Date from the CPI for
January 1, 1993 (such months being herein referred to as the "Comparison
Months"). The CPI shall be that published by the Bureau of Labor Statistics of
the U.S. Department of Labor for all Urban Consumers for Phoenix, Arizona
(1982-1984 = 100). In the event that the publication of such Index shall be
discontinued or changed, then an alternate Index or other method of adjustment
shall be utilized which would most closely reflect the same change in the cost
of living between January 1, 1993 and the Adjustment Dates as the CPI would. In
the event that Lessor and Lessee cannot agree on such alternate Index, then the
matter shall be submitted to decision by the American Arbitration Association
in accordance with the then rules of said association and the decision of the
arbitrators shall be binding upon the parties. The cost of said arbitrators
shall be paid equally by Lessor and Lessee. The adjustment in the Base Rent to
be made on each Adjustment Date shall be calculated as follows: the Base Rent
payable each month during the year prior to the Adjustment Date shall be
multiplied by a fraction, and the denominator of which shall be the CPI for
JANUARY 1, 1993, and the numerator which shall be an amount equal to: (1) the
CPI for JANUARY 1, 1993, plus (2) fifty percent (50%) of the difference between
the CPI for JANUARY 1, 1993 AND THE CPI FOR THE APPLICABLE COMPARISON MONTH.
The sum so calculated shall be the new monthly Base Rent payable in accordance
with paragraph 4.1 during the First Extended Term, the Second Extended Term, or
the Third Extended Term, as the case may be, commencing on such Adjustment Date
but in no event shall such new monthly rent be less than the Base Rent payable
for the month immediately preceding such Adjustment Date.
50. Initial Improvements. Lessor shall, at its cost, prior to the
commencement of the term of this Lease, construct all of the improvements
described on Schedule II hereto. Except for the improvements described on such
Schedule, Lessee accepts the Premises and the Common Areas in their present
"as-is" condition and Lessee shall, at its cost, be responsible for making all
improvements and alterations which are desired by Lessee or required in order
for Lessee to use and occupy the Premises for the purposes permitted by this
Lease. It is mutually understood that the construction of the drivegate on Yuma
Road may require actions by entities beyond the control of either the Lessee or
Lessor (City of Goodyear and Maricopa County) with regard to construction or
permitting and in the interim period ingress and egress will be provided
through the main drivegate on Litchfield Road. If after due diligence the
Lessor cannot obtain the necessary approvals for the construction of the Yuma
Road drivegate, then Lessee shall accept ingress and egress from the existing
drivegate.
51. Utility Systems. Lessor's responsibility to furnish utilities and
other services to the Premises shall be limited to those available, and to the
extent available, through the equipment, ducts, pipes, panels and systems
existing and serving the Premises as of the date this Lease is executed
("Utility Systems"). Lessor's only responsibility with
12
<PAGE> 13
respect to the maintenance and repair of the Utility Systems shall be to
maintain them in operating condition. In accordance with paragraph 11 of the
Lease, Lessee shall pay for all of the utilities and services referred to
therein as the same are separately metered or, if not separately metered, as
determined by Lessor ("Utility Charges") but in no event more than the Lessor
actually pays for electricity and gas services. In the case of water and waste
disposal services, charges will be a per gallon charge thereby mutually
established but in no event will those charges exceed those established by the
City of Goodyear for equivalent such services. In connection with such
determination by Lessor, Lessee shall at any time and from time to time, at
Lessor's request, provide to Lessor and its representative such access to the
Premises and such information and data as is determined by Lessor to be
relevant to its determination of Utility Charges. Utility Charges determined by
Lessor at any time shall be subject to change at any time and from time to time
as determined by Lessor. Lessee shall pay its Utility Charges as additional
rent upon submission of a written statement from Lessor setting forth the
amount of such Charges.
52. Surrender of Premises. Lessee shall, at its cost and expense,
upon or prior to the expiration date of the term of the Lease on the date
specified as the expiration date or any sooner termination of such term pursuant
to the Lease, be responsible for the removal of all trade fixtures, fuel tanks,
pumps and "fields", vehicles, machinery and other property and equipment at any
time installed in or placed on or operated within the Premises and the
Industrial Center and for the repair of any damage caused by such removal and
the complete restoration of the areas affected thereby to the condition existing
at the commencement date of the Lease term, including the removal and clean-up
of all fuel, oil, grease and other substances which may have emanated from such
fixtures, tanks, pumps, "fields", vehicles, machinery and other property and
equipment, or from the equipment, aircraft, vehicles and other property of third
parties serviced or stored on the Premises by Lessee or otherwise resulting from
the activities of Lessee (references herein to Lessee being deemed to include
its employees, officers, customers, contractors, agents and invitees).
53. Compliance with Laws. Lessee acknowledges, agrees and
represents to Lessor that Lessor has informed Lessee that the Industrial Center
is a legal non-conforming use under applicable Maricopa County Building Code and
Zoning laws and that Lessor makes no representation or warranty to Lessee that
the Premises may be used for the purposes stated in the Lease under the zoning
classification, building codes and local laws and ordinances applicable to the
Premises or that the Premises can be leased and used pursuant to the Lease in
their present physical condition without physical alterations, repairs and/or
additions, structural or non-structural, in order to comply with existing
Federal, state, county and city codes, laws and ordinances, and all directives,
rules and regulations of any duly constituted authority, presently or hereafter
affecting or respecting the Premises (hereinafter referred to as "Laws"), it
being agreed that all such alterations, repairs and/or additions, presently or
hereafter required under such Laws now in effect or hereafter enacted, shall be
carried out at the sole cost and expense of Lessee, even if such compliance
shall be the obligation of Lessor pursuant to such Laws, and that Lessee shall
indemnify, defend (by counsel reasonably satisfactory to Lessor) and hold
harmless Lessor from and against any and all claims, losses, damages,
liabilities, penalties, judgments and costs arising as a result of any failure
to comply with such Laws on the part of Lessee. Lessee specifically acknowledges
that Lessor makes no representation to Lessee as to the accuracy or validity of
any statements made by any governmental official or representative with respect
to the requirements of the Laws applicable to the Premises or the uses permitted
under the Lease. Lessor represents to Lessee that the Premises and materials and
equipment therein and the adjacent surface and subsurface areas of Westvalley
Technology Centre may contain asbestos, so-called PCB's, TCE and solvents and
other substances which are defined as Hazardous or Toxic Materials or Substances
under applicable Laws. Lessor shall not be under any obligation to Lessee to
remove, abate or otherwise remediate any of such existing materials or
substances. Lessee, at its sole cost and expense, shall be responsible for any
removal, abatement, containment or other remedial action required in connection
with any repairs, alterations, additions or other work undertaken by it.
54. Hazardous Materials.
(a) For the purposes of this Section, the following definitions
shall apply:
(i) Hazardous Materials. As used herein, the term
"Hazardous Material" means petroleum products and any other hazardous or toxic
substance, chemical, gas, material or waste, which is or becomes regulated by
any local governmental authority, the State of Arizona or the United States
government, whether originating from the
13
<PAGE> 14
Premises or the Industrial Center, or migrating, flowing, percolating, defusing
or in any way moving onto or under the Premises or the Industrial Center.
(ii) ENVIRONMENTAL LAWS. "Environmental Laws" shall mean and include
all past, present and future statutes, ordinances, rules, regulations and
proclamation of the United States of America, the State of Arizona, Maricopa
County and any other Governmental Agency, having jurisdiction over the Property
related to the protection of the environment including, but not limited to, the
treatment, storage or disposal of Hazardous Materials and any other laws, rules,
regulations, statutes or ordinances related to the protection of the
environment.
(b) Lessee, its agents, servants or employees shall not engage in or
permit any activity on or about the Premises that violates any Environmental
Laws and shall promptly, at Lessees expense, take all investigatory and/or
remedial action required or ordered for cleanup of any contamination of the
Premises or the elements surrounding same created or suffered by Lessee, its
agents, servants, employees or contractors. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders, ground tenant, if any, and the
Premises, harmless from and against any and all costs, claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, sums paid in settlement of claims approved by Lessee, attorneys'
fees, consultants fees and expert fees) caused by, arising out of or related to
(A) the violation of any Environmental Laws by the Lessee, its agents, servants,
employees or contractors on, in or about the Premises or (B) Hazardous Materials
in, on or about the Industrial Center, the building or the Premises which was
created, handled, placed, stored, used, transported or disposed of by Lessee,
its agents, servants, employees or contractors or (C) any such Hazardous
Material with respect to which any court or governmental body, or agency having
jurisdiction over the Industrial Center holds Lessee responsible for or
otherwise requires Lessee to undertake any repair, cleanup, detoxification of
other remedial action excluding however, Hazardous Materials on the Premises
established to have been caused directly by Lessor or its predecessors use of
the Premises.
(c) Lessor and Lessee agrees as follows with respect to the existence
or use of Hazardous Materials on the Premises and in the Industrial Center:
(1) To Lessor's best knowledge, Lessor hereby represents, warrants and
covenants to Lessee as follows:
(i) The Premises and the Industrial Center are, as of the date
of execution hereof, in compliance with all Environmental Laws except as
described in that certain Consent Decree in Civil Action No. 88-1443 PHX EHC,
entitled United States of America, Plaintiff, vs. The Goodyear Tire and Rubber
Company, Loral Defense Systems-Arizona, a Division of Loral Corporation,
Defendants (the "Consent Decree").
(ii) Lessor shall be responsible for all costs (which costs
shall not be included in Common Area Expenses) incurred in complying with any
order, ruling or other requirement of any court or governmental body or agency
having jurisdiction over the Industrial Center requiring Lessor to comply with
any Environmental Laws which relate to Hazardous Material in, on or about the
Industrial Center and the Premises, including, without limitation, the cost of
any required or necessary repair, cleanup or detoxification in the preparation
of any closure or other required plans, excluding, however, any such cost
related to Hazardous Material on the Premises established to have been caused
directly by activities engaged in or permitted by Lessee.
(iii) To the extent commercially practical, Lessor shall take
such action as is necessary to enforce the requirements contained in any leases
or occupancy agreements with other tenants or occupants in the Industrial Center
which relate to the handling, transportation, storage, treatment, use or
disposition of Hazardous Materials by such other tenants or occupants.
(iv) Lessor shall indemnify, defend and hold Lessee, its
directors, officers, employees and agents and any successor to Lessee's interest
in the Premises harmless from and against any and all claims, judgements,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, sums paid in settlement, approved by Lessor, of claims, attorneys'
fees, consultant fees and expert fees) provided, however, that Lessor shall not
be obligated to defend Lessee against third party claims for personal injury or
worker's compensation claims, but shall be liable to pay any judgments arising
thereunder established to have been caused by, arising out of or related to (A)
the breach of any representation, warranty or covenant of Lessor contained
herein or (B) Hazardous Material in, on or about the Industrial Center, the
Building or the Premises which was
14
<PAGE> 15
created, handled, placed, stored, used, transported or disposed of by Lessor or
any party other than Lessee or (C) any such Hazardous Material with respect to
which any court or governmental body or agency having jurisdiction over the
Industrial Center holds Lessor responsible for or otherwise requires Lessor to
undertake any repair, cleanup, detoxification or other remedial action,
excluding, however, Hazardous Material on the Premises established to have been
caused directly by activities engaged in or permitted by Lessee's use of the
Premises or (D) Lessor's failure to comply with its responsibilities under the
Consent Decree.
(3) The parties acknowledge that Lessor is in the process of complying
with the provisions of the Consent Decree. In order to establish a "Base Line"
as of the date Lessee takes possession, the parties have approved a proposal to
employ an Environmental Consultant on behalf of Lessee to conduct a Phase I
Environmental Audit (the "Environmental Audit") of the Premises. The cost of
the Environmental Audit shall be paid for by the Lessor. The Environmental
Audit shall include a Survey of any asbestos containing materials located
within the Premises. Lessee agrees to refrain from engaging in any activity
which might disturb any asbestos containing materials on the Premises. Lessor
acknowledges that it is installing a new roof to the Premises in connection
with this Lease and that as part of such installation, the existing roof to be
removed may contain asbestos. Lessor agrees that the contractors performing the
work shall perform in accordance with the applicable governmental regulations,
including, but not limited to those of the Office of Safety and Health
Administration and the Environmental Protection Agency and the Arizona
Department of Environmental Quality related to the removal of asbestos
containing materials.
(4) Lessee agrees that it shall refrain from using, storing,
discharging or disposing of any Hazardous Materials on, under or from the
Premises without the consent of Lessor to each specific Hazardous Material so
to be used, stored or disposed of. Concurrent with the execution of this Lease
Agreement, Lessee has furnished Lessor the Manufacturers Materials Safety Data
Sheets for all of the materials used by it in the manufacturing process which
may include a Hazardous Material. Lessor acknowledges receipt of those
documents and consents to their use by Lessee on the Premises.
Lessee shall comply with all Environmental Laws which relate to the
handling, transportation, storage, treatment, use or disposal of Hazardous
Material by Lessee on the Premises.
Lessee shall not install any underground tanks or other storage
equipment or facilities, and shall not discharge any Hazardous Materials or
other substances into the sanitary or storm sewer systems serving the Premises
in excess of Lessor's NPDES Permit Number AZ0000108.
Lessee agrees to provide Lessor with copies of all notices received by
Lessee, and all reports and tests prepared by or for Lessee, pursuant to or
relating to such Environmental Laws or in response to any such notice.
(5) In the event any Hazardous Material shall be present in, on or
under the Industrial Center or the Premises at any time during the term hereof,
other than Hazardous Material established to have been caused directly by
Lessee's use of the Premises or as described in the Consent Decree, and such
presence or the cleanup, removal, repair, detoxification or other remedial
action with respect to such Hazardous Material interferes with the conduct of
Lessee's business on the Premises, all rental payable by Lessee hereunder shall
be reduced for the duration of such interference based on the extent of such
interference; provided, however, if such interference is material and
interferes, or reasonably appears that it will interfere, with Lessee's use of
the Premises for at least a one hundred eighty (180) day period, Lessee shall
have the right to terminate this Lease.
(6) The obligations of Lessor and Lessee under this Article shall
survive any termination of this Lease.
55. Included in 54. above.
56. Insurance Requirements. Lessee agrees, at its sole cost and
expense, to:
a. cause all activities in the Premises to be conducted in a manner
which complies with the present and from time to time changed and
modified requirements (hereinafter referred to as "Insurer
Requirements") of the insurance companies at any time and from time to
time carrying the fire and casualty insurance covering the Premises;
15
<PAGE> 16
b. cause all alterations, repairs and additions to be made to the
Premises, both structural and non-structural, which are at any time and
from time to time necessary to comply with present and future Insurer
Requirements in connection with the Lease and the use of the Premises; and
c. pay, as additional rent under the Lease, all increases in the
premiums payable by Lessor for fire and casualty insurance for the Premises
and other buildings owned by Lessor in proximity thereto which result from
the use of the Premises by Lessee.
57. Insurance Coverage. The insurance required of Lessee pursuant to
paragraph 8.1 of the Lease shall be in an amount equal to $2,000,000 per
occurrence.
58. Notices. All notices required or desired to be given hereunder to
either party shall be effective only if mailed, certified mail return receipt
requested or U.S. Postal Services Express Mail or Federal Express Courier with
proof of delivery, and if to Lessee, to the address of Lessee set forth at the
end of the Lease, and if to Lessor, to Loral Corporation, 600 Third Avenue, New
York, New York 10016, Attention Senior Vice President General Counsel, or such
other address changed by such party by notices sent to the other in the manner
herein provided. A copy of all notices given to Lessor shall be sent in the same
manner to Loral Defense systems at Westvalley Technology Centre, 1300 South
Litchfield Road, Goodyear, Arizona 85338.
59. Common Area Regulations. Lessor shall have the right to promulgate
rules and regulations at any time and from time to time governing the use by
Lessee and other tenants of the Industrial Center. Such rules and regulations
may include, without limitation, restrictions on the use of Common Areas in
order to assure unobstructed access to the Airport adjacent to the Industrial
Center and to designate the entrance to the Industrial Center that may be used
by employees of Lessee. Lessee agrees to abide by all reasonable rules and
regulations promulgated by Lessor and submitted in writing to Lessee.
60. Rental Tax. Lessee shall pay to Lessor, as additional rent along with
Base Rent, an amount equal to and in reimbursement of all rental tax payable by
Lessor to the taxing authorities based upon all Rent payable by Lessee under the
Lease.
61. Annexation. Lessor reserves the right to apply for and obtain
annexation of the Industrial Center in the City of Goodyear. Lessee agrees to
cooperate with Lessor in connection with such application and proceedings in
connection therewith. Upon such annexation: (a) the term "real property tax"
shall include those imposed by the City of Goodyear and all water and sewer
charges imposed by the City of Goodyear; (b) the term "laws" when used in this
Lease shall include the laws of the City of Goodyear and (c) all other
provisions of this Lease shall be applied and construed as if the Industrial
Center was in the City of Goodyear as of the commencement of the term of the
Lease. If this change materially interferes with the conduct of Lessee's
business, Lessee can terminate.
62. Assignment and Sublease Profits. In the case of any assignment of this
Lease or any subletting of all or any part of the Premises by Lessee, Lessee
shall pay to Lessor, as additional rent, 50% of all rent, additional rent and
other consideration received by it pursuant to such assignment or sublease in
excess of the rent and additional rent payable hereunder, less the amount of a
reasonable brokerage fee plus tenant improvements incurred by Lessee in
connection therewith.
63. Size of Premises. The square footage area shown on Exhibit "A" attached
hereto represents the gross leasable area of the Premises as determined by
Lessor's Architect. Lessee acknowledges that it has been afforded the
opportunity to independently verify the usable square foot area of the Premises
and the allocable share of Common Area space added thereto in determining gross
leasable area. The square foot area shown on such Exhibit "A" is hereby accepted
by Lessee and shall be binding upon Lessee for all purposes of this Lease.
64. Access. Lessor shall have access to the Premises during the progress of
any repairs or other work in the Premises performed by Lessor pursuant to the
provisions of this Lease and, in connection therewith, to bring in and store
necessary tools and equipment. Lessor shall have access at all times to any area
or equipment or facilities within the Premises which serves the Building or the
Industrial Center including (without limitation) wells, substations, fire pumps
and mains. Lessor shall not be liable for inconvenience, annoyance, disturbance,
loss of business or other damage of Lessee by reason of such access or the
making of such repairs or the performance of any such work
16
<PAGE> 17
or storing such tools and equipment, and the obligations of Lessee under this
Lease shall not be affected thereby, provided that Lessor uses efforts
reasonable under the circumstances to minimize to the extent practical any
resulting inconveniences, annoyance, disturbance, loss of business or other
damage to Lessee by reason of such access or making such repairs or the
performance of any such work or of any of the matters referred to above.
65. Alterations by Lessor. Lessor reserves and shall have the right
from time to time to make alterations to the Building and Common Areas and to
make such additions to the exterior of the Building as are required to comply
with emergency access requirements for any tenants of the Building which do not
materially diminish or interfere with Lessee's use of the Premises. Lessor, at
any time and from time to time, shall have the right to install and thereafter
maintain within the ceiling of the Premises such equipment, conduits and other
items as are necessary to service the Building.
66. Financial Statements; Lien. Deleted - (Lessee to provide Lessor
latest current public financial data.)
67. In accordance with paragraph 3.3, for payment purposes the lease
payments will begin at the first of the month following possession.
68. The items identified in Schedule I remain the property of the
Lessor but will be made available for use by Lessee for the term of the lease
unless specifically stated otherwise.
69. Operating Expenses. Notwithstanding anything to the contrary
contained in Paragraph 4.2 of the Lease Agreement, the term "Operating Expenses"
shall not include: (a) the cost of labor and employees with respect to any
employee above the level of building manager; (b) the cost of labor and
employees with respect to any supervisory or other personnel not located at the
Industrial Center on a full-time basis unless such costs are appropriately
allocated between the Industrial Center and the other responsibilities of such
personnel; (c) the cost of fixturing, furnishing, painting or decorating any
leasable space in the Industrial Center; (d) the cost of any "tenant
allowances", "tenant concessions", and any alterations, improvements, or
replacements made to leasable space in the Industrial Center; (e) cost of
leasehold improvements and other preparations for occupancy made for specific
lessees; (f) amounts paid for legal, brokerage or other professional services in
connection with the leasing of space or in connection with relationships or
disputes with lessees, former lessees, prospective lessees or other occupants;
(g) depreciation and other non-cash charges (except as hereinafter provided);
(h) interest on or amortization of debts; (i) financing or refinancing costs;
(j) brokerage commissions; (k) cost of any work or services performed or
furnished to any tenant to the extent that same is, can be or would customarily
be reimbursed to Lessor or a third party; (l) the cost of completion of the
Building and any other improvements to the Industrial Center; (m) the cost of
correcting any defects in construction; (n) expenses for which Lessor is or will
be reimbursed by insurance proceeds or condemnation awards; (o) advertising and
promotional expenses; (p) income, transfer, inheritance and franchise taxes; (q)
expenses in the nature of interest, fines and penalties; (r) expenses which are
properly allocable to property other than the Industrial Center are located; (s)
rent, additional rent and other charges payable under any ground lease or any
lease superior to this Lease; (t) the cost of installing, operating and
maintaining any specialty service such as an observatory, parking facility
(unless parking is without charge for all lessees and their employees and
guests), a restaurant or luncheon, athletic or recreational club; (u) any
insurance premium to the extent that the cost thereof is reimbursed by any
tenant or other party; (v) any management or similar fee in excess of the
customary fee for a similar property located in the vicinity of the Industrial
Center; (w) any costs or other sums paid to any person or entity related to or
affiliated with Lessor to the extent that same exceeds the reasonable and
customary cost thereof; (x) any repairs, replacements or other expenses
resulting from the negligence or misconduct of Lessor or its employees or
agents; (y) the cost of any electricity or other utilities furnished to any
leasable space; (z) accounting fees incurred in connection with the preparation
of financial statements, tax returns and other documents and information for
Lessor or its mortgagees; (aa) costs of repairs or replacements incurred due to
casualty or condemnation; (bb) costs in connection with services (including
electricity), items, or other benefits of a type which are not standard for the
Industrial Center and which are not available to Lessee without specific charge
therefor, but which are provided to another tenant or occupant of the Industrial
Center, whether or not such other tenant or occupant is specifically charged
therefor by Lessor; (cc) compensation paid to clerks, attendants or other
persons in commercial concessions (such as snack bars, restaurant or newsstand),
if any, operated by Lessor or any subsidiary, affiliate or agent of Lessor; (dd)
rentals and other related
17
<PAGE> 18
expenses, if any, incurred in leasing air conditioning systems, elevators or
other equipment ordinarily considered to be of a capital nature, except
equipment used in providing janitorial services and which is not affixed to the
Industrial Center; (ee) costs and expenses for sculpture, paintings or other
works of art, including costs incurred with respect to the purchase, ownership,
leasing, showing, promotion, repair and/or maintenance of same; (ff)
contributions to operating expense reserves; (gg) initial costs (but not
replacements thereof) of spare parts, tools and equipment used in the operating,
maintenance, cleaning, repair, landscaping and security of the Industrial
Center; (hh) premiums and other charges with respect to rental loss insurance,
(ii) initial costs of interior and exterior landscaping; (jj) contributions to
charitable organizations; (kk) costs incurred in removing the property of former
lessees or occupants of the Industrial Center; and (ll) any items or amounts
which are not reasonable in amount and customarily included in operating
expenses for similar properties located in the vicinity of the Industrial
Center; (mm) the cost of containing, removing or otherwise remediating any
contamination of the land or other portions of the Industrial Center Premises,
or other environmental liability.
The cost of any repairs or replacements which, under generally accepted
accounting principles would be capitalized, shall be amortized on a
straight-line basis and taken as an operating expense over the useful life of
the item in question, but only to the extent that such expenditure otherwise
reduces operating expenses.
Lessee and its representatives shall have the right, at Lessee's
expense, to examine, audit and copy, during normal business hours, Lessor's
books and records pertaining to the operating expenses for the proceeding years
to enable Lessee to verify the accuracy thereof. Lessor shall cooperate with
Lessee in any such examination and shall reimburse Lessee for any overcharge or
at Lessee's election credit same to rent and additional rent due from Lessee.
If such examination shows that the operating expenses were overstated by more
than five percent (5%) for any particular year then Lessor shall reimburse
Lessee for the cost of its audit and investigation. The foregoing provisions
shall survive termination or expiration of the Lease.
70. Right of First Refusal. In the event that Lessor shall, at any
time prior to January 1, 1995, submit a proposal to a prospective tenant for a
lease of all or any part of Building 23 identified on Exhibit "A", then Lessor
shall give Lessee a copy of such proposal. Lessee shall have the right to lease
all or such part of Building 23 on the same Terms and Conditions set forth in
such proposal by giving Lessor, within ten (10) days after such proposal shall
have been given to Lessee, written notice of its election to enter into such
lease. In the event that Lessee shall fail to give lessor such notice of its
election to enter into such lease within such ten (10) day period, or if Lessee
shall be in default in the performance of any obligation under this lease at
the time such election notice is given, then, the right granted herein to enter
into such lease shall become null and void and Lessor shall be free to proceed
to enter into a lease with another tenant on substantially the same Terms and
Conditions provided for in such proposal. However, Lessee shall once again have
the right granted by this paragraph if Lessor fails to enter into a lease on
substantially the same Terms and Conditions provided for in such proposal within
one hundred twenty (120) days after the expiration of such ten (10) day period
referred to above. Lessee agrees to accept a minimum lease period of
twenty-four (24) months in any exercised option.
18
<PAGE> 19
ADDENDUM TO
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
PREMISES AT
WESTVALLEY TECHNOLOGY CENTRE
Dated: February 1, 1993
Lessor: Loral Corporation
Lessee: CAVCO Industries, Inc.
Schedule I
List of Lessor's equipment which will remain within the area identified in
Exhibit "A" (racks, cranes, etc.) to be mutually defined by both parties.
Lessee will be responsible for maintenance and upkeep of any of these items
except for normal and usual wear.
1) Storage racks identified below:
<TABLE>
<CAPTION>
Location Height No. Width No. Depth No. of
Bldg. Type Ft. Uprights Ft. Beam Ft. Arms
- ----- ---- --- -------- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
6 Finger 15 14 8 68
6 Finger 15 18 4 159
6 2 Legs 8 50 7'0" 156 4
Frame
9'4" 50 4
9'0" 170 4
6 2 Legs 10 3 9'0" 16 4'4"
Frame
6 2 Legs 12 5 9'0" 24 3
Frame
6 2 Legs 7'6" 60 4'0" 324 2
Racks
6 2 Legs 7'7" 24 4'0" 120
Racks
</TABLE>
2) 20-ton bridge crane (1 each).
3) 10-ton bridge crane (1 each).
Note: Items two (2) and three (3) above are currently on lease by Loral but
will be made available to Cavco for their use until the expiration of the
equipment lease.
19
<PAGE> 20
ADDENDUM
SCHEDULE II
Item No. Description
1. Remove everything on the floor in the building
2. Remove all robots and associated equipment
3. Remove plasma cutter from north side lean-tos
4. Remove the cut off saw from north side lean-tos
5. Remove the shot blast building and equipment
6. Clean and pain lean-tos #7 and #8
7. Remove all equipment in lean-to near column F
8. Clean and paint lean-tos #2 and #3
9. Remove all fencing in the building
10. Remove modular offices in the south bay
11. Locate air inlet so CAVCO can tie in its own compressor
12. Locate all water and sewer liens
13. Install 50' sliding gate on the north fence per the print
14. Install employee walkway fenced and paved with gate
15. Install concrete ramp at new gate
16. All bathrooms to be clean and functional
17. Install perimeter fence
18. Raise bus bar between G and K columns per the drawing between the north
and middle bay
19. Remove all overhead and steel in the north and middle bays between
columns F and M
20. Remove free standing bridge crane and runway in middle bay on the east
end of the building
21. Repair railroad tracks to a usable condition
20
<PAGE> 21
[SCHEMATIC GOES HERE]
21
<PAGE> 22
EXHIBIT A
PARCEL NO. 1: 500-007-3C
BEGINNING at the Northeast corner of Section 16, Township 1 North, Range 1 West
of the Gila and Salt River Base and Meridian, Maricopa County, Arizona;
thence South 1 degree 52 minutes East on the East line of said Section 16, a
distance of 3321.6 feet to a point, said point being 359.4 feet Northwesterly
at right angle from the center line of Southern Pacific Railroad Company's
constructed Main Tract from Phoenix to Wellton;
thence South 55 degrees 46 minutes West, a distance of 41.4 feet to a point on
the Westerly right-of-way of the Highway along the East line of Section 16,
said point being the beginning of the Westerly right-of-way line of the
Southern Pacific Railroad;
thence continuing South 55 degrees 46 minutes West a distance of 878.8 feet to
a point 25.0 feet Northeasterly measured radially from the center line of the
East leg of the Southern Pacific Railroad Company's Wye Track on the Litchfield
Park Branch, said point being on the Northeasterly right-of-way line near
center of a curve having an intersection angle of 109 degrees 33 minutes degree
of curve 7 degrees 45 minutes, radius 739.5 feet, tangent 1047.0 feet;
thence Northwesterly along curve to the right, a distance of 766.23 feet to the
end of curve (point of tangent);
thence North 8 degrees 17 minutes West a distance of 59.2 feet to a point 25.0
feet East at right angle from the center line of the Main Track, being the
North end of the East leg of the Southern Pacific Railroad Company's Wye Track
on the Litchfield Park Branch;
thence North 1 degree 55 minutes West a distance of 3003.48 feet to a point
25.0 feet East at right angle from center line of the Main Track, said point
being the beginning of a curve to the right, having an intersection angle of 2
degrees 04 minutes, degree of curve 0 degrees 30 minutes 4 seconds, radius
11434.15 feet, tangent 206.27 feet, length of curve 412.44 feet;
thence continuing on the curve a distance of 206.22 feet to a point on the North
line of Section 16;
thence South 89 degrees 48 minutes East a distance of 1217.22 feet to the
Northeast corner of Section 16, the Place of Beginning;
EXCEPT any portion falling within Railroad right-of-way; and also
EXCEPT in accordance with Executive Order 9908, approved on December 5, 1947 (12
F.R. 8223), all uranium, thorium and all other materials determined pursuant to
Section 5 (b) (1) of the Atomic Energy Act of 1946 (60 Stat. 761) to be
peculiarly essential to the production of fissionable material, as reserved to
the United States of America by instrument recorded April 19, 1950 in Docket
537, page 255, records of Maricopa County, Arizona.
PARCEL NO. 2:
BEGINNING at the East quarter corner of Section 16, Township 1 North
<PAGE> 1
EXHIBIT 21
National Security Containers, Inc., an Arizona Corporation.
Sun Built Homes, Inc., an Arizona corporation.
AHCMS, Inc., an Arizona corporation, f/k/a Action Healthcare
Management Services, Inc.
CAVCO Industries of New Mexico, Inc., a New Mexico corporation
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 13,298,107
<SECURITIES> 0
<RECEIVABLES> 4,486,295
<ALLOWANCES> 1,301,000
<INVENTORY> 10,878,072
<CURRENT-ASSETS> 29,007,479
<PP&E> 15,241,264
<DEPRECIATION> 5,246,987
<TOTAL-ASSETS> 65,445,890
<CURRENT-LIABILITIES> 19,625,495
<BONDS> 15,479,607
0
0
<COMMON> 169,399
<OTHER-SE> 28,501,257
<TOTAL-LIABILITY-AND-EQUITY> 65,445,890
<SALES> 125,558,402
<TOTAL-REVENUES> 130,105,136
<CGS> 101,486,860
<TOTAL-COSTS> 102,801,345
<OTHER-EXPENSES> 15,197,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,590,054
<INCOME-PRETAX> 11,557,758
<INCOME-TAX> 4,624,800
<INCOME-CONTINUING> 6,932,958
<DISCONTINUED> (695,497)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,237,461
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.84
</TABLE>
