UNITED STATES
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 March 31, 1995 Commission File Number 1-8533
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2632319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Sylvan Way, Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 898-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $.01 par value American Stock Exchange
Class B Common Stock, $.01 par value American Stock Exchange
8 1/2% Convertible Subordinated American Stock Exchange
Debentures due August 1, 1998
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of shares of Class A Common Stock and Class B
Common Stock held by non-affiliates, based on the closing prices for such stock
on the American Stock Exchange on June 20, 1995, was approximately $27,000,000.
The number of shares of Class A Common Stock and Class B Common Stock
outstanding as of June 20, 1995 was 3,307,324 and 2,166,134, respectively
(exclusive of 432,639 shares of Class A Common Stock and 21,619 shares of Class
B Common Stock held in the treasury).
DOCUMENTS INCORPORATED BY REFERENCE
1. Diagnostic/Retrieval Systems, Inc. 1995 Annual Report (for the fiscal year
ended March 31, 1995), incorporated in Part II.
2. Definitive Proxy Statement, dated July 7, 1995, for the 1995 Annual Meeting
of Stockholders, incorporated in Part III.
-1-
<PAGE>
PART I
Item 1. Business
General
Diagnostic/Retrieval Systems, Inc. (the "Company" or "DRS") was
incorporated in Delaware in 1968. The operating units of the Company conduct
their business in both military and commercial markets; however, revenues are
derived principally from contracts or subcontracts with domestic and foreign
government agencies of which a significant portion is attributed to U.S. Navy
("Navy") procurements. The Company's principal products and services fall within
five broad categories: signal processors and display systems, trainer and
simulation systems, data storage and playback systems, optics and manufacturing
and technical services. Products within these categories include advanced
integrated display workstations, sonar trainer systems, simulators, data
recording playback systems and aircraft boresight systems. Manufacturing and
technical services are provided in both military and commercial environments and
encompass a wide range of activities that include field service support for the
Navy fleet, refurbishment of video recording products and the manufacture of
complex cable and harness assemblies and consumable magnetic head products.
The Company's growth over the years has been enhanced through the
technological development of its products and services, and, since 1984, by the
acquisition of several companies. In May 1984, DRS made its first acquisition
with the purchase of Precision Echo, Inc. ("Precision Echo"), a company located
in Santa Clara, California, engaged in the design and manufacture of magnetic
recording devices, including those used in antisubmarine warfare. In August
1988, the Company acquired Photronics Corp. ("Photronics"), located in
Hauppauge, New York, a company principally engaged in the design and manufacture
of optical components, assemblies and optical systems used in the targeting and
fire-control instrumentation of a variety of advanced military weapons. During
fiscal 1994, the Company added three new operations. In October 1993, the
Company acquired Technology Applications & Service Company ("TAS"), located in
Gaithersburg, Maryland. TAS applies state-of-the-art technology to produce
inexpensive displays and computer peripheral emulators that can replace more
expensive militarized display consoles and computer peripherals used by the
military. TAS also produces simulators, stimulators and training products used
primarily for testing and training at military land-based sites. The acquisition
of TAS provides an enhancement to the Company's display and trainer systems
product lines as well as broadens the Company's scope of technical services. In
December 1993, through its subsidiary DRS Systems Management Corporation, the
Company formed a partnership called Laurel Technologies ("Laurel") in which it
has an 80% controlling interest. The partnership operates from a manufacturing
facility in Johnstown, Pennsylvania and provides manufacturing services to a
variety of customers including the Company's other operating units. Also in
December 1993, DRS acquired certain assets of CMC Technology ("CMC"), located in
Santa Clara, California, providing the Company with a customer base in the
commercial video recording systems industry and an opportunity to diversify from
its traditional military and industrial markets. The Company's commercial
business base was further expanded in November 1994, with the acquisition of the
net assets of Ahead Technology Corporation ("Ahead") located in Los Gatos,
California. Ahead designs and manufactures a variety of consumable magnetic head
products used in the production of computer disk drives.
Products
Signal Processors and Display Systems
The Company's signal processor and display business has its roots in the
area of underwater surveillance with products which were designed initially for
the Navy's antisubmarine warfare ("ASW") program. Detection of subsurface
targets is an extremely difficult technical task due to a variety of factors,
which include wide variations in salinity, temperature, the generally unknown
contour of the subsurface floor, and, in the case of submarines, their ability
to operate quietly and take evasive actions to avoid detection.
In 1972, the Company pioneered passive sonar detection with its AN/SQS-54
Spectrum Analyzer Set. This system was deployed on Navy surface combatants and
was utilized to detect submarines. The Company then developed the AN/SQR-17, the
AN/SQR-17A Sonar Signal Processor systems and the signal processor and
-2-
<PAGE>
display generator of the AN/SQR-18A Tactical Towed Array Sonar System, which
totally integrated submarine detection, classification, display and recording
capabilities by processing information from the most advanced
helicopter-deployed and ship-launched sonobuoys, as well as passive sonar data
from hull-mounted and towed array sonars. These systems remain a vital part of
the Navy's core, reserve and international program capabilities. Using this
technology, the Company produced AN/SQR-17A(V)3 processors for Mobile In-shore
Undersea Warfare ("MIUW") systems. The current MIUW systems are electronically
equipped vans, which utilize standard issue deployable sonobuoys or anchored
passive sonobuoys to conduct underwater surveillance for harbor defense, coastal
defense and amphibious-operation surveillance. MIUW also is used to enhance drug
interdiction and underwater sonar systems. The system includes radars, radar
intercept systems, thermal and visual imaging systems and underwater sonar
systems. The Company also provides AN/SQR-17A(V)3 system upgrade units for sonar
processing and display for the next generation MIUW system, the MIUW-SU (system
upgrade). The AN/SQR-17A(V)3 upgrade system, the seventh generation in the
product line, provides improved underwater surveillance capabilities in
detection, classification, localization and neutralization of military and
paramilitary threats. This is an integrated system which, along with sonobuoys,
utilizes retrievable, bottom-mounted acoustic arrays and omni-hydrophone barrier
strings as the primary underwater sensors. The Company, through a subcontract
with a sensor manufacturer, is responsible for designing and delivery of the
underwater sensor for this program. The Company currently is planning delivery
of an AN/SQR-17A(V)3-SU for the new MIUW-SU vans in August 1995 and expects to
produce an additional 22 systems.
Backed by years of experience in display technology, DRS provides
high-resolution display processing systems. Data are presented in enhanced
formats, incorporating alphanumerics and graphics with human-factor
considerations to aid military personnel in target analysis and tactical
coordination. The Company, under contract with the Navy, has developed AN/UYQ-65
Data Processing and Display Sets. These systems are high-resolution,
dual-monitor, color raster display workstations. When deployed on Navy ships,
they will support both tactical graphics and acoustic sensor display formats and
have been designed to replace the tactical and acoustic sensor displays in the
AN/SQQ-89 Combat System. The AN/UYQ-65 is a Commercial-Off-The-Shelf
("COTS")-based workstation that is compliant with the stringent environmental
requirements specified for sheltered shipboard systems used on U.S. Navy vessels
such as the DDG-51 Aegis ships. With the delivery and acceptance of three
engineering development models in April 1995, the Company has transitioned to
the production phase of the program. It is expected that up to 148 production
units may be manufactured under this contract.
The Company, through its teammate, the Government Systems Group of Unisys
Corporation, now called Loral Corporation Defense Systems-Eagan, was awarded a
contract to provide a next-generation tactical workstation-the AN/UYQ-70
Advanced Display System ("ADS"). The Company has developed significant portions
of hardware and software for these workstations utilizing commercial and Navy
standards and has delivered the first prototypes. The open-system architecture
design of both the ADS and the AN/UYQ-65 systems provide built-in growth
capabilities for future upgrades and incorporate the latest in commercial
processing, graphics, networking and data storage technologies.
With the acquisition of TAS, DRS expanded into the Military Display
Emulator ("MDE") market. TAS applies commercial technology to design, develop
and produce MDEs, which are low-cost, microprocessor-based information
processing and display workstations that emulate existing military display
consoles and computer peripherals. The Company produces a product line that
provides plug-compatible emulation of Navy display equipment at a fraction of
the military equipment cost. The MDE product line includes commercial grade
equivalents of fully militarized tactical and acoustic display equipment, video
signal simulator and communication systems. Many fully militarized units have
been emulated with MDE products. Applications for emulation products include
software development, software maintenance, system test and integration and
operator training. Emulators support cost-effective replacement of land-based
military display equipment without sacrificing operational requirements. Cost
savings on these systems are typically 75% of their military equivalents.
-3-
<PAGE>
Under contract with the Navy, the Company has produced display emulators
and central data buffers for the Navy's Aegis program. The Company received a
multiple year contract to produce complete units and/or components of display
emulators for various training facilities.
Using the MDE concept, the Company, under contract with the Navy, was
engaged to demonstrate the feasibility of using MDE equipment in a shipboard
environment. The study included a determination of the applicability of
replacing fully militarized equipment with ruggedized COTS equipment, as well as
the design, development and production of displays for shipboard applications.
Three units were delivered in February 1994 and delivery of the remaining eight
units and final software development were completed during fiscal 1995.
Revenues during fiscal 1995, 1994 and 1993 for the Company's signal
processors and display systems totalled $20,300,000, $22,800,000 and
$17,300,000, respectively.
Trainers and Simulation Systems
For many years, DRS has emphasized the need for "on-board" training to
maintain operator proficiency. The Company's ASW acoustic stimulator systems
were developed to train new military personnel as well as to maintain the highly
perishable skills of veteran sensor operators. Through technological upgrades,
these systems have been adapted for new sensors and a variety of training
requirements.
The Company's AN/SQQ-T1 On-Board Trainer ("OBT") is an acoustic trainer
designed and built for the AN/SQR-17A and AN/SQR-18A systems, and has been used
on Navy FF-1052 frigates. The OBT, a high-fidelity, modular, acoustic
stimulator, is used to sharpen the skills of sonar operators through target
identification, analysis and classification. It generates simulated
high-fidelity acoustic signals closely resembling those of actual targets under
various environmental conditions. As a result of the decommissioning of the
FF-1052 frigates, DRS is currently under contract with the Navy to upgrade the
three existing OBT units and deliver three additional units. These six units
will be portable and will be used at 20 different MIUW van sites around the
United States. The newly configured OBT, designated the AN/SQQ-T1A, will be used
for training in existing MIUW vans. The AN/SQQ-T1A will furnish training for
acoustic sensor operators and radar operators by providing simulated inputs to
the AN/SQR-17A and SPS-64, both part of the MIUW van's sensor signal processing
equipment.
As part of the MIUW-SU program, the Company is providing an embedded
readiness trainer system for the van. This system provides acoustic proficiency
training, Graphical Data Fusion System proficiency training and overall
coordinated team training for the operators and supervisors assigned to operate
the new MIUW-SU surveillance vans.
Under a contract award received during fiscal 1994 from the Oceanic
Division of Westinghouse Electric Company ("Westinghouse"), DRS has developed
and delivered three Sonar Image Display Simulators ("SIDS"). SIDS is a major
subsystem of the AN/AQS-14 Mod 2 Side Looking Sonar ("SLS") Trainer. Using a
COTS-oriented workstation approach, the high-fidelity software-based display
simulator produces realistic, ready-to-display images of typical SLS returns.
The SIDS workstation software generates various background textures, bottom
features and objects of interest along a search plan as specified by a mission
scenario. Integrated as part of the ground-based AN/AQS-14 trainer system, the
sonar image display simulators will be utilized to train operators in
preparation for critical mine hunting missions.
Revenues from the Company's trainers and simulation systems during fiscal
1995, 1994 and 1993 amounted to $8,400,000, $4,700,000 and $2,600,000,
respectively.
-4-
<PAGE>
Data Storage and Playback Systems
The positive feedback of multi-source, time-correlated mission data has
become essential to crew operational effectiveness and training. Using magnetic
tape recording systems with multiple signal acquisition interfaces, the crew can
capture the mission context for verification of target contacts and validation
of tactics employment. Using the mission tape during post-mission analysis and
reconstruction, the crew can improve tactics and target acquisition/recognition.
DRS provides a variety of military and security-related recording products.
A substantial portion of the military recorders has been related to the Navy's
ASW program. The Company's ASW recording products are utilized in ships,
aircraft and helicopters and, in some instances, incorporated with its other ASW
products. These recorders are used to store processed data gathered during ASW
missions. The recorders are more rugged in construction than those used
commercially and are suited for application in environments where vibration,
temperature or contamination are potential problems.
The Company's AN/AQH-4A(V)2 recorders/reproducers are used for ASW
information gathering on board patrol aircraft, such as the Navy's P-3C. These
recorder/reproducer systems record data transmitted from sonobuoys regarding the
location of submerged vessels. DRS also produces digital annotation kits, which
consist of board sets that enhance post-mission analysis when installed in the
AN/AQH-4A(V)2 recorders. The Company is under contract to install digital
annotation kits into U.S. Government-owned recorders.
A variant of the AN/AQH-4A(V)2 recorder/reproducer system records side
looking sonar data on board the MH-53E mine hunting helicopter. The Westinghouse
AN/AQS-14 mine detection system is used to detect mines in critical areas on the
ocean floor, such as ship transit lanes and harbors. Under contract to
Westinghouse, the Company is developing a digital cassette recorder, the
AN/AQH-12, as a follow-on to the current analog recorder. The new digital
recorder, using a low-cost, half-inch tape format to record digitized sensor
data, will replace the existing reel-to-reel machine in the mine hunting mission
and also will be capable of reproducing the data. The basic design will have
many general-purpose instrumentation applications where severe environments are
encountered.
The Company produces the AN/AQH-9 analog mission tape recording systems and
the follow-on AN/AQH-11 digital mission recorders. These two systems were
developed with the weight and volume constraints of ASW helicopters in mind.
Both systems utilize low-cost, VHS style half-inch tape cassettes. The digital
technology used in the AN/AQH-11 has improved throughput capacity up to five
times that of the AN/AQH-9. The AN/AQH-9 system is employed on the Navy's SH-60F
ASW helicopter and the Republic of China Navy's S-70(C)M helicopter. The
AN/AQH-11 system is used on the U.S. Navy's SH-2G helicopter.
The Company produces the AN/GSH-65 mission data playback system to
reconstruct mission tapes from both the AN/AQH-9 and AN/AQH-11 mission
recorders. The AN/GSH-65 has been configured to accept tapes from both airborne
systems in one common ground replay system. The AN/GSH-65 is a transportable and
environmentally protected system for use in severe shipboard environments. The
AN/GSH-65 is now being deployed to operational squadrons and ships.
Under contract with the Naval Air Systems Command, DRS has developed the
AN/USH-42 Mission Recorder/Reproducer System ("MR/RS"). The AN/USH-42 MR/RS is a
military-specification quality, multiple input data recorder using a half-inch,
VHS style high-performance tape cassette. The AN/USH-42 has completed flight
testing on a Navy A-6E aircraft at the Naval Air Test Center at Patuxent River.
The AN/USH-42 can record multiple sensor video channels with full motion frame
rates plus digital data and voice. The AN/USH-42 incorporates many user
enhancements, such as in-flight replay and freeze frame, and contains embedded
digital video scan converters to record radar signals in VHS format.
-5-
<PAGE>
The AN/USH-42 architecture has been selected by the Naval Air Systems
Command to replace wet film recording in the S-3B Viking carrier-based aircraft.
The AN/USH-42 embedded video scan converters will be used to transform the
non-standard video formats in the S-3B weapons system into standard television
format for rapid replay and radar and infrared dissemination. Several
developmental options of the AN/USH-42 architecture are being evaluated for
product improvement upgrades.
For single-channel raster video recording applications, the Company sells
the WRR-812 and WRR-818 8mm video cassette recorders. Both of these recorders
employ the high band, color video format which yields 400-line horizontal
resolution performance. The 8 mm recorders are used where environmental
conditions are severe. Currently, these recorders are being installed onto the
Canadian Light Armored Vehicle, the U.S. Army OH-58D Kiowa Warrier Scout
helicopter and the U.S. Navy's F/A-18 Hornet carrier-based aircraft. Both
recorders feature high-performance recording, a flexible control interface and
low weight for video recording applications in harsh environments.
The 8 mm video recording product line is being expanded to include a triple
deck video recorder carrying the model designation WRR-833. The same
high-performance video recording capability found in the single-channel models
is available in a multiple-deck unit. Additionally, a system multiplexer has
been designed which can digitally merge multiple video, analog and digital data
streams onto one 8 mm tape cassette. With the flexibility of the new multiplex
design, recording problems that previously could only be solved by multiple,
asynchronous recorders can now be handled by a single recording system.
Revenues from the Company's data storage and playback systems comprised
$14,800,000, $15,900,000 and $18,200,000 of total revenues in fiscal 1995, 1994
and 1993, respectively.
Optics
The Company's optical products include boresighting systems and missile
components. Through the generic boresight technology developed by the Company,
named Multiple Platform Boresight Equipment ("MPBE"), DRS produces boresight
systems that are adaptable to multiple military platforms, including fixed-wing
and rotary-wing aircraft, as well as armored vehicles. This equipment features
the Triaxial Measurement System, which is a single beam instrument that
simultaneously measures azimuth, elevation and roll. Through the use of
airframe-specific mounting adapters, the MPBE can be tailored for boresighting
virtually any aircraft's, naval vessel's and ground vehicle's navigation, sensor
and weapons systems. By using an off-the-shelf configuration, these products
have been designed to address the military's emphasis on cost-effective,
expediently produced products that are more readily upgradable to accommodate
future technology and military budget objectives.
The Company has designed and developed boresight support equipment for the
U.S. Army's AH-64A Apache Helicopter--the Captive Boresight Harmonization Kit
("CBHK"). CBHK is a portable, ground-support system that aligns the aircraft's
navigation, targeting and weapons systems with the pilot's optical gear to
assure optimum accuracy in target acquisition.
The Company is currently under contract to produce 33 Rapid Armament
Boresighting Systems ("RABS") for the Marine Corps' AH-1W Cobra helicopter.
Similar in scope to the CBHK, RABS provides the ability to harmonize and align
the Cobra's weapons, targeting and navigation systems to insure increased
accuracy. The Company is also under contract to produce eight units for a
boresighting system for Cobra helicopters used by Taiwan, Republic of China.
-6-
<PAGE>
Since the early 1970s, DRS has manufactured optical components utilized in
the guidance systems of various heat seeking missiles, including the FIM-92
Stinger ("Stinger"), AIM-9 Sidewinder and the RIM-166 RAM missile systems. These
missile optics are used to focus incoming infrared energy onto the missile's
electronic detector, allowing it to accurately track and destroy its target. The
Stinger is a man-portable, infrared homing missile designed to provide air
defense coverage. DRS is the manufacturer of the primary assemblies for this
missile and has produced over thirty thousand mirrors in support of the Stinger
program. The Stinger currently is being produced in the United States and
Germany. The AIM-9 Sidewinder is a short-range air-to-air missile in service in
at least forty nations. DRS has been producing mirror assemblies in support of
the AIM-9 program since 1965.
The Company also has been active in the development of mirror assemblies
for the next generation of missile systems. These advanced new missile systems
include the Brilliant Anti-Tank program, the AIM-9X advanced missile and the
THAAD missile program.
DRS also manufactures optical components and assemblies using specialized
techniques, such as diamond turning and electron beam deposition coating. These
components are utilized on such defense systems as the Avenger sighting system,
the Nite-Hawk targeting system and the TOW/Cobra weapon system.
Revenues for the Company's optics products were $12,600,000, $10,100,000
and $8,800,000 during fiscal 1995, 1994 and 1993, respectively.
Manufacturing and Technical Services
Through a partnership formed during fiscal 1994 with Laurel Technologies,
Inc., the Company has established a manufacturing facility in Johnstown,
Pennsylvania to provide high-quality, cost-effective manufacturing services for
military and industrial products. These services include manufacturing,
integration and testing of military-quality electronic assemblies, complex
cables and harnesses and circuit card assemblies. Laurel provides these services
to aerospace and industrial companies, as well as to other operating units
within the Company.
DRS also provides a variety of technical services for its own products, as
well as those manufactured by other companies. The Company maintains field
service operations at locations near the principal Navy shipyards in Norfolk,
Virginia and San Diego, California, which provide support services to the Navy
and, to a lesser extent, commercial ship repair companies. The scope of
technical services includes equipment installation, field changes, configuration
audit, repair, testing and integrated logistics support and maintenance of
combat system test procedures. The Company also engages in technical service
support to foreign governments.
With the decommissioning of the FF-1052 class frigates, the Navy has
started a program of leasing these ships to foreign navies, including the
Republic of China, Egypt, Turkey and Greece. In support of this leasing program,
DRS has been tasked to provide AN/SQR-17A system grooms and repairs, as well as
training for foreign military personnel in the maintenance of this equipment.
The Company expects to continue to be involved in the Navy's support plan to
provide spare parts and repair services to these foreign navies.
Through its acquisition of certain assets of CMC in fiscal 1994, and the
more recent acquisition of the net assets of Ahead in fiscal 1995, the Company
has taken steps toward diversifying beyond its traditional military and
industrial product base by exploring opportunities in technologically-related
commercial business areas. Through CMC, the Company refurbishes and rebuilds
magnetic video recording rotary-head scanner assemblies for post-production
facilities and television broadcast stations around the world and also provides
upper drum refurbishment services for broadcast-quality video recording
products. Through Ahead, the Company designs and manufactures a variety of
consumable magnetic head products used in the production of computer disk
drives. These include burnishing heads, glide heads and speciality test heads.
As a result of these acquisitions, the Company's customer base has been expanded
to include customers in the commercial video recording systems industry and
several prominent manufacturers of computer disk drives.
-7-
<PAGE>
Revenues for manufacturing and technical services, as adjusted to eliminate
intercompany transactions, were $13,800,000, $4,300,000 and $900,000 in fiscal
1995, 1994 and 1993, respectively.
Customers
A significant portion of the Company's products are sold to agencies of the
U.S. Government, primarily the Department of Defense, to foreign government
agencies or to prime contractors or subcontractors thereof. Approximately 84%,
94% and 83% of total consolidated revenues for fiscal 1995, 1994 and 1993,
respectively, were derived directly or indirectly from defense contracts for end
use by the U.S. Government and its agencies.
For information concerning sales to foreign governments, see "Export Sales"
below.
Backlog
The following table sets forth the Company's backlog by major product group
(including enhancements, modifications and related logistics support) at the
dates indicated:
March 31, March 31, March 31,
1995 1994 1993
--------- --------- ---------
Government Products:
U.S. Government ....... $115,200,000 $123,700,000 $123,900,000
Foreign Government .... 8,600,000 5,800,000 1,000,000
------------ ------------ ------------
123,800,000 129,500,000 124,900,000
Commercial Products ... 2,200,000 5,100,000 1,200,000
------------ ------------ ------------
$126,000,000 $134,600,000 $126,100,000
============ ============ ============
"Backlog" refers to the aggregate revenues remaining to be earned at the
specified date under contracts held by the Company, including, for U.S.
Government contracts, the extent of the funded amounts thereunder which have
been appropriated by Congress and allotted to the contract by the procuring
Government agency. Fluctuations in backlog amounts relate principally to the
timing and amount of Government contract awards.
Approximately 54% of the backlog at March 31, 1995 is expected to result in
revenues during the fiscal year ending March 31, 1996.
-8-
<PAGE>
Research and Development
The Company's technological expertise has been an important factor in its
growth. A portion of its research and development activities has taken place in
connection with customer-sponsored research and development contracts. All such
customer-sponsored activities are the result of contracts directly or indirectly
with the U.S. Government. The Company also invests in Company-sponsored research
and development.
Revenues recorded by the Company for customer-sponsored research and
development and expenditures for Company-sponsored research and development are
as follows during the fiscal years indicated:
Revenues Expenditures
-------- ------------
Fiscal Year Ended:
March 31, 1995 ................. $18,800,000 $800,000
March 31, 1994 ................. $27,500,000 $500,000
March 31, 1993 ................. $19,200,000 $500,000
The military electronics industry is subject to rapid technological changes
and the Company's future success will depend in large part upon its ability to
improve existing product lines and to develop new products and technologies in
the same or related fields.
Contracts
The Company's contracts are normally for production, service or
development. Production and service contracts are typically of the fixed-price
variety with development contracts currently of the cost-type variety. Because
of their inherent uncertainties and consequent cost overruns, development
contracts historically have been less profitable than production contracts.
Fixed-price contracts may provide for a firm-fixed price or they may be
fixed-price-incentive contracts. Under the firm-fixed-price contracts, the
Company agrees to perform for an agreed-upon price and, accordingly, derives
benefits from cost savings, but bears the entire risk of cost overruns. Under
the fixed-price-incentive contracts, if actual costs incurred in the performance
of the contracts are less than estimated costs for the contracts, the savings
are apportioned between the customer and the Company. However, if actual costs
under such a contract exceed estimated costs, excess costs are apportioned
between the customer and the Company up to a ceiling. The Company bears all
costs that exceed the ceiling.
Cost-type contracts typically provide for reimbursement of allowable costs
incurred plus a fee (profit). Unlike fixed-price contracts in which the Company
is committed to deliver without regard to performance cost, cost-type contracts
normally obligate the Company to use its best efforts to accomplish the scope of
work within a specified time and a stated contract dollar limitation. In
addition, Government procurement regulations mandate lower profits for cost-type
contracts because of the Company's reduced risk. Under cost-plus-incentive-fee
contracts, the incentive may be based on cost or performance. When the incentive
is based on cost, the contract specifies that the Company is reimbursed for
allowable incurred costs plus a fee adjusted by a formula based on the ratio of
total allowable costs to target cost. Target cost, target fee, minimum and
maximum fee and adjustment formula are agreed upon when the contract is
negotiated. In the case of performance-based incentives, the Company is
reimbursed for allowable incurred costs plus an incentive, contingent upon
meeting or surpassing stated performance targets. The contract provides for
increases in the fee to the extent that such targets are surpassed and for
decreases to the extent that such targets are not met. In some instances,
incentive contracts also may include a combination of both cost and performance
incentives. Under cost-plus-
-9-
<PAGE>
fixed-fee contracts, the Company is reimbursed for costs and receives a fixed
fee, which is negotiated and specified in the contract. Such fees have statutory
limits.
The percentages of revenues during fiscal 1995, 1994 and 1993 attributable
to the Company's contracts by contract type were as follows:
Year Ended March 31,
------------------------
1995 1994 1993
---- ---- ----
Firm-fixed-price ........... 74% 65% 88%
Fixed-price-incentive ...... -- 1% --
Cost-plus-incentive-fee .... 6% 17% 10%
Cost-plus-fixed-fee ........ 20% 17% 2%
The Company negotiates for and generally receives progress payments from
its customers of between 80-100% of allowable costs incurred on the previously
described contracts. Included in its reported revenues are certain amounts which
the Company has not billed to customers. These amounts, approximately
$7,900,000, $5,900,000 and $8,100,000 as of March 31, 1995, 1994 and 1993,
respectively, consist of costs and related profits, if any, in excess of
progress payments for contracts on which sales are recognized on a
percentage-of-completion basis.
Under generally accepted accounting principles, all Government contract
costs, including applicable general and administrative expenses, are charged to
work-in-progress inventory and are written off to costs and expenses as revenues
are recognized. The Federal Acquisition Regulations ("FAR"), incorporated by
reference in Government contracts, provide that Company-sponsored research and
development costs are allowable general and administrative expenses. To the
extent that general and administrative expenses are included in inventory,
research and development costs also are included. Unallowable costs, pursuant to
the FAR, have been excluded from costs accumulated on Government contracts.
General and administrative costs, which include Company-sponsored research and
development costs, aggregating $6,600,000 and $3,800,000 at March 31, 1995 and
1994, respectively, are included in work-in-process inventory.
All domestic defense contracts and subcontracts to which the Company is a
party are subject to audit, various profit and cost controls, and standard
provisions for termination at the convenience of the customer. Multi-year
Government contracts and related orders are subject to cancellation if funds for
contract performance for any subsequent year become unavailable. In addition, if
certain technical or other program requirements are not met in the developmental
phases of the contract, then the follow-on production phase may not be realized.
Upon termination other than for a contractor's default, the contractor normally
is entitled to reimbursement for allowable costs, but not necessarily all costs,
and to an allowance for the proportionate share of fees or earnings for the work
completed. Foreign defense contracts generally contain comparable provisions
relating to termination at the convenience of the foreign government.
Companies engaged primarily in supplying defense-related equipment to the
Government are subject to certain business risks peculiar to the defense
industry. These risks include the ability of the Government to unilaterally
suspend the Company from receiving new contracts, pending resolution of alleged
violations of procurement laws or regulations. In addition, all defense
businesses are subject to risks associated with dependence on Government
appropriations, changes in Government procurement policies, uncertain cost
factors related to technologically scarce skills and exotic components, the
frequent need to bid on programs in advance of design completion (which may
result in unforeseen technological difficulties and/or cost overruns),
substantial time and effort required for relatively unproductive design and
development, design complexity and rapid obsolescence, and the constant
necessity for design improvement.
-10-
<PAGE>
Government expenditures for defense products are likely to be flat or
reduced during the 1990s. These reductions may or may not have an effect on the
Company's programs; however, in the event expenditures for products of the type
manufactured by the Company are reduced and not offset by greater foreign sales,
commercial sales or other new programs or products, there will be a reduction in
the volume of contracts or subcontracts awarded to the Company. Unless offset,
such reductions would have an adverse affect on the Company's earnings.
Marketing
The Company's marketing activities are conducted by its own staff of
marketing personnel and engineers. The Company's domestic marketing approach
begins with the development of information concerning the present and future
requirements of its current and potential customers for defense electronics, as
well as those in the security and commercial communities serviced by the
Company's products. Such information is gathered in the course of contract
performance, research into the enhancement of existing systems and inquiries
into advances being made in hardware and software development, and is then
evaluated and exchanged among marketing, research and engineering groups within
the Company to devise proposals responsive to the perceived needs of customers.
The Company markets its products abroad through independent marketing
representatives.
Competition
The Company's products are sold in markets containing a number of
competitors which are substantially larger than the Company with greater
financial resources. The extent of competition for any single project generally
varies according to the complexity of the product and the dollar volume of the
anticipated award. The Company believes that it competes on the basis of the
performance of its products, its reputation for prompt and responsive contract
performance, and its accumulated technical knowledge and expertise.
Patents
The Company has patents on many of its recording and certain commercial
products. The Company does not believe patent protection to be significant to
its current operations; however, future programs may generate the need for
patent protection.
Manufacturing and Suppliers
The Company's manufacturing process for its products, excluding optical
products, consists primarily of the assembly of purchased components and testing
of the product at various stages in the assembly process. Purchased components
include integrated circuits, circuit boards, sheet metal fabricated into
cabinets, resistors, capacitors, semiconductors and insulated wire and cables.
In addition, many of the Company's products use machined castings and housings,
motors and recording and reproducing heads. Many of the purchased components
have been fabricated to Company designs and specifications. The manufacturing
process for the Company's optics products includes the grinding, polishing and
coating of various optical materials and the machining of metal components.
Although materials and purchased components generally are available from a
number of different suppliers, several suppliers are the Company's sole source
of certain components. If a supplier should cease to deliver such components,
other sources probably would be available; however, added cost and manufacturing
delays might result. The Company has not experienced significant production
delays attributable to supply shortages, but occasionally experiences
procurement problems with respect to certain components, such as semiconductors
and connectors. In addition, certain exotic materials, such as germanium, zinc
sulfide and cobalt, may not always be readily available.
-11-
<PAGE>
The Company believes that quality control and testing are essential for
manufacturing reliable products. The Company's testing and quality control
procedures for products manufactured pursuant to Government contracts follow
military specifications and are designed to reduce the likelihood of product
failure after delivery.
Export Sales
DRS currently sells several of its products and services in the
international marketplace to countries such as Canada, Germany, Australia and
the Republic of China. Foreign sales accounted for approximately 7%, 3% and 17%
of the Company's revenues in fiscal 1995, 1994 and 1993, respectively. Foreign
sales are derived under export licenses granted on a case-by-case basis by the
United States Department of State. Foreign contracts at March 31, 1995 generally
were payable in United States' dollars.
Executive Officers of the Registrant
The names of the executive officers of the Company, their positions and
offices with the Company, and their ages are set forth below:
NAME POSITIONS WITH THE COMPANY AGE
- ---- -------------------------- ---
Leonard Newman Chairman of the Board and Secretary of the Company 71
Mark S. Newman President, Chief Executive Officer and Director of 45
the Company
Nancy R. Pitek Controller and Treasurer of the Company 38
Paul G. Casner, Jr. Vice President of the Company; President of DRS 57
Electronic Systems Group; President of Technology
Applications & Service Company
Stuart F. Platt Vice President and Director of the Company; 61
President of Precision Echo, Inc.
Richard Ross Vice President of the Company; President of 40
Photronics Corp.
Leonard Newman has been a Director of the Company since 1968 and Chairman
of the Board and Secretary of the Company since 1971. From 1971 until May 1994,
Mr. Newman also served as the Company's Chief Executive Officer. Leonard Newman
is the father of Mark S. Newman.
Mark S. Newman has been employed by the Company since 1973, was named Vice
President, Finance, Chief Financial Officer and Treasurer in 1980 and Executive
Vice President in 1987. Mr. Newman became a Director of the Company in 1988. In
May 1994, Mr. Newman became the President and Chief Executive Officer of the
Company. Mark Newman is the son of Leonard Newman.
Nancy R. Pitek joined the Company in 1984 as Manager of Accounting. She
became Assistant Controller in 1985 and Director of Internal Audit in 1988. Ms.
Pitek became Director of Corporate Finance in 1990 and has been the Controller
since 1993. In May 1994, she also was appointed to the position of Treasurer.
Paul G. Casner, Jr. joined the Company in 1993 as President of TAS. In 1994
he also became President of the DRS Electronic Systems Group and a Vice
President of the Company. Mr. Casner has over 30 years of experience in the
defense electronics industry and has held positions in engineering, marketing
and general management. He was the president of TAS prior to its acquisition by
the Company.
-12-
<PAGE>
Stuart F. Platt has been a Director of the Company since 1991 and became
the President of Precision Echo in July 1992. He was named Vice President of the
Company in May 1994. Rear Admiral Platt was a co-founder and director of FPBSM
Industries, Inc., a holding company and management consulting firm for defense,
aerospace and other technology-based companies and the Chairman of Stuart Platt
& Partners, a management consulting firm handling principally defense-related
issues. He also serves as director for Harding Associates, Inc. None of these
companies is a parent, subsidiary or affiliate of the Company. Rear Admiral
Platt held various positions as a military officer in the Department of the
Navy, retiring as Competition Advocate General of the Navy in 1986.
Richard Ross was employed by the Company as Assistant Vice President and
Director, Sales in 1986 and Assistant Vice President, Corporate Development in
1987. In 1988, he became Vice President of the Company, and in 1990, he became
President of Photronics.
Employees
At March 31, 1995, the Company employed 565 employees. None of the
Company's employees are represented by a labor union, and the Company has
experienced no work stoppages.
There is a continuing demand for qualified technical personnel, and the
Company believes that its future growth and success will depend upon its ability
to attract, train and retain such personnel.
Item 2. Properties
During fiscal 1995, the Company leased administrative and engineering
facilities in neighboring buildings at 16 Thornton Road ("Thornton") and 138
Bauer Drive ("Bauer"), Oakland, New Jersey. The Thornton and Bauer facilities
contain approximately 45,000 and 25,000 square feet, respectively. Upon
expiration of the Thornton lease in March 1995, the Company moved administrative
and engineering personnel, excluding the corporate staff, from the Thornton
building to the Bauer building. The Company leases the Bauer building from LDR
Realty Co., a partnership wholly-owned by Leonard Newman and David E. Gross, the
former President and Chief Technical Officer of the Company, under a lease which
expires in fiscal 1999. The Company currently leases approximately 6,000 square
feet of office space for its corporate headquarters in an office building at 5
Sylvan Way, Parsippany, New Jersey under a lease which expires in fiscal 2001.
Precision Echo's engineering and principal operations are located in a
55,000 square foot building at 3105 Patrick Henry Drive, Santa Clara,
California, under a lease which expires in fiscal 1997. The operations of CMC
and Ahead are conducted from leased facilities in Santa Clara, California and
Los Gatos, California, respectively. These leased facilities, containing 71,000
square feet and 12,000 square feet, respectively, are covered by leases, which,
with respect to the CMC facility, is on a month-to-month basis, and for the
Ahead facility, expires in fiscal 1998.
Photronics' principal and manufacturing facilities are located in a 45,000
square foot building at 270 Motor Parkway, Hauppauge, New York. The building,
which is owned by the Company, was built in 1983. See Note 6 of Notes to
Consolidated Financial Statements.
TAS leases 40,000 square feet in a building at 200 Professional Drive,
Gaithersburg, Maryland that houses its executive offices and principal
engineering and manufacturing facilities. It also conducts field service
operations from locations in Virginia Beach and National City, California. These
leased facilities, comprising 15,000 square feet and 6,000 square feet,
respectively, are covered by leases, which, with respect to the Virginia
location, expire in fiscal 1997, and for the California location, is on a
month-to-month basis.
-13-
<PAGE>
Laurel's manufacturing facilities and administrative offices are located in
a 29,000 square-foot building at 423 Walters Avenue in Johnstown, Pennsylvania.
The lease for this facility expires in fiscal 1999.
The Company also leases approximately 2,000 square feet of office space in
Arlington, Virginia under a lease which expires in fiscal 1998.
Item 3. Legal Proceedings
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In management's opinion, the Company has
adequate legal defenses for each of the actions and claims and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this item with respect to the market prices for
the Company's common equity securities is incorporated herein by reference to
page 31 of the Diagnostic/Retrieval Systems, Inc. 1995 Annual Report (for the
fiscal year ended March 31, 1995).
The Company has not paid any cash dividends since 1976. The Company intends
to retain future earnings for use in its business and does not expect to declare
cash dividends in the foreseeable future. As of June 20, 1995, the Class A
Common Stock and Class B Common Stock of the Company was held by 325 and 219
stockholders of record, respectively.
In July 1994, pursuant to a Stock Purchase Agreement (the "Stock Purchase
Agreement") between the Company and David E. Gross, its former President and
Chief Technical Officer, the Company purchased 659,220 shares of its Class A
Common Stock and 45,179 shares of its Class B Common Stock owned by Mr. Gross,
at a price of $4.125 and $4.00 per share, respectively, totaling approximately
$2.9 million in cash (the "Buy-back"). On October 18, 1994, the Company filed a
Registration Statement on Form S-2, and on November 10, 1994, the Company filed
Amendment No. 1 to such Registration Statement (the "Registration Statement")
with the Securities and Exchange Commission for the purpose of selling shares of
its common stock purchased in the Buy-back. Pursuant to the Registration
Statement, the Company sold 650,000 shares of its Class A Common Stock and
45,000 shares of its Class B Common Stock at prices of $4.125 and $4.00 per
share, respectively, totaling approximately $2.9 million.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference
to page 13 of the Diagnostic/Retrieval Systems, Inc. 1995 Annual Report (for the
fiscal year ended March 31, 1995).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by reference
to pages 14 through 17 of the Diagnostic/Retrieval Systems, Inc. 1995 Annual
Report (for the fiscal year ended March 31, 1995).
-14-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
to pages 18 through 31 of the Diagnostic/Retrieval Systems, Inc. 1995 Annual
Report (for fiscal year ended March 31, 1995). See Part IV Item 14 herein for
additional information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required by this Part is incorporated herein by reference
to the Definitive Proxy Statement of the Company, dated July 7, 1995, for the
1995 Annual Meeting of Stockholders. Reference also is made to the information
under Executive Officers of the Registrant in Part I of this report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following financial statements of Diagnostic/Retrieval Systems,
Inc. and subsidiaries have been incorporated herein by reference to
the Diagnostic/Retrieval Systems, Inc. 1995 Annual Report (for the
fiscal year ended March 31, 1995), pursuant to Item 8 of this report:
1995 Annual
Report Page(s)
--------------
Independent Auditors' Report ....................... 31
Consolidated Balance Sheets--
March 31, 1995 and 1994 ............................ 18
Consolidated Statements of Earnings--
Years ended March 31, 1995, 1994 and 1993 .......... 19
Consolidated Statements of Stockholders' Equity--
Years ended March 31, 1995, 1994 and 1993 .......... 19
Consolidated Statements of Cash Flows--
Years ended March 31, 1995, 1994 and 1993 .......... 20
Notes to Consolidated Financial Statements ......... 21-30
2. Financial Statement Schedules
See Appendix A hereto.
3. Exhibits
Incorporated by reference to the Exhibit Index at the end of this
report.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1995.
-15-
<PAGE>
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.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Dated: June 28, 1995 /s/ MARK S. NEWMAN
-------------------------------------
Mark S. Newman,
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.
Signature Title Date
- --------- ----- ----
/s/ LEONARD NEWMAN Chairman of the Board, June 28, 1995
- ---------------------- Secretary and Director
Leonard Newman
/s/ MARK S. NEWMAN President, Chief Executive June 28, 1995
- ---------------------- Officer and Director
Mark S. Newman
/s/ NANCY R. PITEK Controller and Treasurer June 28, 1995
- ----------------------
Nancy R. Pitek
/s/ STUART F. PLATT Vice President, President of June 28, 1995
- ---------------------- Precision Echo and Director
Stuart F. Platt
/s/ THEODORE COHN Director June 28, 1995
- ----------------------
Theodore Cohn
Director June , 1995
- ----------------------
Donald C. Fraser
/s/ MARK N. KAPLAN Director June 28, 1995
- ----------------------
Mark N. Kaplan
/s/ JACK RACHLEFF Director June 28, 1995
- ----------------------
Jack Rachleff
-16-
<PAGE>
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.
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
Dated: June , 1995
-------------------------------------
Mark S. Newman,
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.
Signature Title Date
- --------- ----- ----
Chairman of the Board, June , 1995
- ---------------------- Secretary and Director
Leonard Newman
President, Chief Executive June , 1995
- ---------------------- Officer and Director
Mark S. Newman
Controller and Treasurer June , 1995
- ----------------------
Nancy R. Pitek
Vice President, President of June , 1995
- ---------------------- Precision Echo and Director
Stuart F. Platt
Director June , 1995
- ----------------------
Theodore Cohn
/s/ DONALD C. FRASER Director June 28, 1995
- ----------------------
Donald C. Fraser
Director June , 1995
- ----------------------
Mark N. Kaplan
Director June , 1995
- ----------------------
Jack Rachleff
-16-
<PAGE>
Appendix A
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Independent Auditors' Report
Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other financial statement schedules have been omitted because they are
not required, not applicable, or the required information is shown in the
consolidated financial statements or notes thereto.
-17-
<PAGE>
Independent Auditors' Report on Consolidated
Financial Statement Schedule
The Board of Directors and Stockholders
Diagnostic/Retrieval Systems, Inc.:
Under date of May 18, 1995, we reported on the consolidated balance sheets
of Diagnostic/Retrieval Systems, Inc. and subsidiaries as of March 31, 1995 and
1994, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended March 31,
1995 as contained in the 1995 Annual Report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
Annual Report on Form 10-K for the year 1995. In connection with our audits of
the aforementioned consolidated financial statements we also have audited the
related consolidated financial statement schedule as listed in the accompanying
index. The consolidated financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
May 18, 1995
-18-
<PAGE>
<TABLE>
<CAPTION>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Schedule II. Valuation and Qualifying Accounts
Years Ended March 31, 1995, 1994 and 1993
Col. A Col. B Col. C Col. D Col. E
- ------ ------ ------ ------ ------
Description Balance at Additions (a) Deductions (b) Balance at
- ----------- Beginning of ---------------------- ----------------------- End of
Period (1) (2) (1) (2) Period
------------ Charged to Charged to Credited to Credited to ----------
Costs and Other Costs and Other
Expenses Accounts- Expenses Accounts-
Describe Describe
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Inventory Reserve
Year ended March 31, 1995 $2,409,000 $ 439,000 $ -- $ 83,000(d) $1,365,000(c) $1,400,000
Year ended March 31, 1994 $2,620,000 $ 674,000 $ -- $ 885,000(e) $ -- $2,409,000
Year ended March 31, 1993 $8,200,000 $2,277,000 $ 33,000(c) $7,648,000(d) $ 242,000(c) $2,620,000
Losses & Future Costs
Accrued on Uncompleted
Contracts
Year ended March 31, 1995 $3,214,000 $2,168,000 $ -- $ 291,000 $ 536,000(c) $4,555,000
Year ended March 31, 1994 $3,722,000 $1,735,000 $254,000(g) $2,497,000(f) $ -- $3,214,000
Year ended March 31, 1993 $3,835,000 $2,665,000 $242,000(c) $2,987,000 $ 33,000(c) $3,722,000
</TABLE>
(a) Represents, on a full-year basis, net credits to reserve accounts.
(b) Represents, on a full-year basis, net charges to reserve accounts.
(c) Represents amounts reclassified.
(d) Represents amounts credited to costs and expenses associated with the
corresponding write-off of related inventory costs.
(e) Includes $801,000 representing amounts credited to costs and expenses
associated with the corresponding write-off of related inventory costs.
(f) Includes $2,302,000 representing amounts credited to costs and expenses
associated with the corresponding write-off of related inventory costs.
(g) Includes an increase to reserves of $111,000 as a result of business
combinations and a charge of $143,000 to revenues.
-19-
<PAGE>
<TABLE>
<CAPTION>
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Schedule II. Valuation and Qualifying Accounts (Cont'd.)
Years Ended March 31, 1995, 1994 and 1993
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Description Balance at Additions (a) Deductions (b) Balance at
----------- Beginning of ---------------------- ----------------------- End of
Period (1) (2) (1) (2) Period
------------ Charged to Charged to Credited to Credited to ----------
Costs and Other Costs and Other
Expenses Accounts- Expenses Accounts-
Describe Describe
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Other
Year ended March 31, 1995 $290,000 $ -- $ -- $ -- $ -- $290,000
-------- ----- ----- ----- ----- --------
Year ended March 31, 1994 $290,000 $ -- $ -- $ -- $ -- $290,000
-------- ----- ----- ----- ----- --------
Year ended March 31, 1993 $290,000 $ -- $ -- $ -- $ -- $290,000
-------- ----- ----- ----- ----- --------
</TABLE>
-20-
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk (*), are
filed herewith. Certain of the following exhibits, designated with a P, are
being filed in paper, pursuant to a hardship exemption Rule 202 of Regulation
S-T. The exhibits not so designated have been previously filed with
the Commission and are incorporated herein by reference to the documents
indicated in brackets following the descriptions of such exhibits.
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
3.1 - Restated Certificate of Incorporation of the
Company [Registration Statement No. 2-70062-NY,
Amendment No. 1, Exhibit 2(a)]
3.2 - Certificate of Amendment of the Restated
Certificate of Incorporation of the Company, as
filed July 7, 1983 [Registration Statement on
Form 8-A of the Company, dated July 13, 1983,
Exhibit 2.2]
3.3 - Composite copy of the Restated Certificate of
Incorporation of the Company, as amended
[Registration Statement No. 2-85238,
Exhibit 3.3]
*3.4 - By-laws of the Company, as amended to November 7, 1994
*3.5 - Certificate of Amendment of the Certificate of
Incorporation of Precision Echo Acquisition
Corp., as filed March 10, 1995
4.1 - Indenture, dated as of August 1, 1983, between
the Company and Bankers Trust Company, as Trustee
[Form 10-Q, quarter ended September 30, 1983, File
No. 1-8533, Exhibit 4.2]
4.2 - Indenture of Trust, dated December 1, 1991, among
Suffolk County Industrial Development Agency,
Manufacturers and Traders Trust Company, as Trustee
and certain bondholders [Form 10-K, fiscal year
ended March 31, 1992, File No. 1-8533, Exhibit 4.2]
4.3 - Reimbursement Agreement, dated December 1, 1991,
among Photronics Corp., the Company and Morgan
Guaranty Trust Company of New York [Form 10-K,
fiscal year ended March 31, 1992, File No. 1-8533,
Exhibit 4.3]
10.1 - Stock Purchase Agreement, dated as of August 6,
1993, among TAS Acquisition Corp., Technology
Applications and Service Company, Paul G. Casner,
Jr. and Terrence L. DeRosa [Form 10-Q, quarter
ended December 31, 1993, File No. 1-8533, Exhibit
6(a)(1)]
-21-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
10.2 - Waiver Letter, dated as of September 30, 1993,
among TAS Acquisition Corp., Technology
Applications and Service Company, Paul G. Casner, Jr.
and Terrence L. DeRosa [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533, Exhibit 6(a)(2)]
10.3 - Joint Venture Agreement, dated as of November 3, 1993,
by and between DRS Systems Management Corporation and
Laurel Technologies, Inc. [Form 10-Q, quarter ended
December 31, 1993, File No. 1-8533, Exhibit 6(a)(3)]
10.4 - Waiver Letter, dated as of December 13, 1993, by and
between DRS Systems Management Corporation and Laurel
Technologies, Inc. [Form 10-Q, quarter ended December
31, 1993, File No. 1-8533, Exhibit 6(a)(4)]
10.5 - Partnership Agreement, dated December 13, 1993, by and
between DRS Systems Management Corporation and Laurel
Technologies, Inc. [Form 10-Q, quarter ended December
31, 1993, File No. 1-8533, Exhibit 6(a)(5)]
10.6 - Lease, dated as of June 1, 1983, between LDR Realty Co.
and the Company [Form 10-K, fiscal year ended March 31,
1984, File No. 1-8533, Exhibit 10.7]
10.7 - Renegotiated Lease, dated June 1, 1988, between LDR
Realty Co. and the Company [Form 10-K, fiscal year ended
March 31, 1989, File No. 1-8533, Exhibit 10.8]
10.8 - Lease, dated July 20, 1988, between Precision Echo,
Inc. and Bay 511 Corporation [Form 10-K, fiscal year
ended March 31, 1991, File No. 1-8533, Exhibit 10.9]
10.9 - Amendment to Lease, dated July 1, 1993, between
Precision Echo, Inc. and Bay 511 Corporation [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.12]
10.10 - Lease Modification Agreement, dated February 22, 1994,
between Technology Applications and Service Company
and Atlantic Real Estate Partners II [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.13]
*10.11 - Amendment to Lease Modification, dated June 1, 1994,
between Technology Applications and Service Company and
Atlantic Estate Partners II
-22-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
10.12 - Triple Net Lease, dated October 22, 1991, between
Technology Applications and Service Company and
Marvin S. Friedberg [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.14]
10.13 - Lease, dated May 21, 1991, between Technology
Applications and Service Company and Collins
Development Company [Form 10-K, fiscal year ended
March 31, 1994, File No. 1-8533, Exhibit 10.16]
10.14 - Lease, dated November 10, 1993, between DRS
Systems Management Corp. and Skateland Roller
Rink, Inc. [Form 10-K, fiscal year ended March 31,
1994, File No. 1-8533, Exhibit 10.17]
*10.15 - Lease, dated March 23, 1992, between Ahead
Technology Corporation and Vasona Business Park
P10.16 - Amendment to Lease, dated May 21, 1992, between
Ahead Technology Corporation and Vasona Business Park 1
P10.17 - Revision to Lease Modification, dated August 25, 1992,
between Ahead Technology Corporation and Vasona
Business Park ........................................ 3
*10.18 - Lease, dated January 13, 1995, between the Company and
Sammis New Jersey Associates
*10.19 - Memorandum of Understanding, dated March 23, 1995,
between Laurel Technologies and West Virginia Air
Center
10.20 - 1991 Stock Option Plan of the Company [Registration
Statement No. 33-42886, Exhibit 28.1]
10.21 - Contract No. N00024-92-C-6102, dated September 28,
1992, between the Company and the Navy [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.45]
P10.22 - Modification No. P00005, dated August 24, 1994, to
Contract No. N00024-92-C-6102 ........................ 5
P10.23 - Modification No. P00006, dated September 7, 1994, to
Contract No. N00024-92-C-6102 ........................ 8
10.24 - Contract No. N00024-92-C-6308, dated April 1, 1992,
between the Company and the Navy [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533, Exhibit
10.46]
-23-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
10.25 - Modification No. P00001, dated July 30, 1992, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533,
Exhibit 10.47]
10.26 - Modification No. P00002, dated September 25,
1992, to Contract No. N00024-92-C-6308 [Form 10-K,
fiscal year ended March 31, 1993, File No. 1-8533,
Exhibit 10.48]
10.27 - Modification No. P00003, dated October 22, 1992,
to Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533, Exhibit
10.49]
10.28 - Modification No. P00004, dated February 24, 1993,
to Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533, Exhibit
10.50]
10.29 - Modification No. P00005, dated June 11, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533, Exhibit
10.26]
10.30 - Modification No. P00006, dated March 26, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1993, File No. 1-8533, Exhibit
10.51]
10.31 - Modification No. P00007, dated May 3, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533, Exhibit
10.28]
10.32 - Modification No. PZ0008, dated June 11, 1993, to
Contract No. N00024-92-C-6308 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533, Exhibit
10.29]
10.33 - Contract No. N39998-94-C-2228, dated November 30,
1993, between the Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.30]
10.34 - Order No. 87KA-SG-51484, dated December 10, 1993,
under Contract No. N00024-93-G-6336, between the
Company and Westinghouse Electric Corporation
Oceanic Division [Form 10-K, fiscal year ended March
31, 1994, File No. 1-8533, Exhibit 10.31]
-24-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
P10.35 - Purchase Order Change Notice Order No.
87KA-SX-51484-P, dated April 21, 1994, under
Contract No. N00024-93-G-6336, between the Company
and Westinghouse Electric Corporation Oceanic
Division............................................. 10
10.36 - Letter Subcontract No. 483901(L), dated February
18, 1994, under Contract No. N00024-94-D-5204,
between the Company and Unisys Government Systems
Group [Form 10-K, fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.32]
P10.37 - Subcontract No. 483901(D), dated June 24, 1994,
under Contract No. N00024-94-D-5204, between the
Company and Unisys Corporation Government Systems
Group................................................ 11
10.38 - Contract No. N00019-89-G-0223-XR05, dated September
30, 1992, between Precision Echo and the Navy [Form
10-K, fiscal year ended March 31, 1993, File No.
1-8533, Exhibit 10.53]
10.39 - Purchase Order Change Notice Order No. 87KA-IX-58687,
dated March 3, 1994, between Precision Echo, Inc. and
Westinghouse Electric Corporation [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533, Exhibit
10.34]
P10.40 - Purchase Order Change Notice Order No. 87KA-IX-58687,
dated April 5, 1994, between Precision Echo and
Westinghouse Electric Corporation.................... 308
P10.41 - Purchase Order Change Notice Order No. 87KA-IX-58687,
dated August 16, 1994, between Precision Echo and
Westinghouse Electric Corporation.................... 309
P10.42 - Purchase Order Change Notice Order No. 87KA-IX-58687,
dated September 13, 1994, between Precision Echo and
Westinghouse Electric Corporation.................... 310
P10.43 - Purchase Order Change Notice Order No. 87KA-IX-58687,
dated February 2, 1995, between Precision Echo and
Westinghouse Electric Corporation.................... 311
P10.44 - Purchase Order Change Notice Order No. 87KA-IX-58687,
dated February 24, 1995, between Precision Echo and
Westinghouse Electric Corporation..................... 312
10.45 - Contract No. N00019-90-G-0051, dated March 1, 1990,
between Precision Echo, Inc. and the Navy [Form 10-K,
fiscal year ended March 31, 1994, File No. 1-8533,
Exhibit 10.35]
-25-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
10.46 - Amendment 1A, dated February 26, 1992, to
Contract No. N00019-90-G-0051 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.36]
10.47 - Amendment 1B, dated April 23, 1993, to
Contract No. N00019-90-G-0051 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.37]
10.48 - Contract No. N00019-93-C-0041, dated January
29, 1993, between Photronics Corp. and the Navy
[Form 10-K, fiscal year ended March 31, 1993,
File No. 1-8533, Exhibit 10.54]
10.49 - Modification No. P00001, dated March 29, 1993,
to Contract No. N00019-93-C-0041 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.39]
10.50 - Modification No. PZ0002, dated November 12,
1993, to Contract No. N00019-93-C-0041 [Form
10-K, fiscal year ended March 31, 1994, File
No. 1-8533, Exhibit 10.40]
10.51 - Modification No. P00003, dated February 1, 1994,
to Contract No. N00019-93-C-0041 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.41]
10.52 - Contract No. N00019-93-C-0202, dated August 30,
1993, between Photronics Corp. and the Navy
[Form 10-K, fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.42]
10.53 - Modification No. P00001, dated March 30, 1994,
to Contract No. N00019-93-C-0202 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.43]
10.54 - Modification No. P00002, dated April 29, 1994,
to Contract No. N00019-93-C-0202 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.44]
P10.55 - Modification No. P00003, dated August 9, 1994,
to Contract No. N00019-93-C-0202................... 313
P10.56 - Modification No. P00004, dated March 30, 1994,
to Contract No. N00019-93-C-0202................... 320
10.57 - Contract No. DAAJ09-93-C-0684, dated September
28, 1993, between Photronics Corp. and the Army
[Form 10-K, fiscal year ended March 31, 1994,
File No. 1-8533, Exhibit 10.45]
-26-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- --------------
10.58 - Modification No. P00001, dated December 28,
1993, to Contract DAAJ09-93-C-0684 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.46]
10.59 - Modification No. P00002, dated March 21, 1994,
to Contract No. DAAJ09-93-C-0684[Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.47]
10.60 - Modification No. P00003, dated March 23, 1994,
to Contract No. DAAJ09-93-C-0684 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.48]
10.61 - Purchase Order No. 2228, dated September 29,
1993, between Photronics Corporation and
International Precision Products N.V. [Form
10-K, fiscal year ended March 31, 1994, File
No. 1-8533, Exhibit 10.49]
10.62 - Amendment No. 1, dated December 30, 1993, to
Purchase Order No. 2228 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.50]
10.63 - Amendment No. 2, dated March 17, 1994, to
Purchase Order No. 2228 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.51]
P10.64 - Amendment No. 3, dated June 6, 1994, to
Purchase Order No. 2228........................... 323
10.65 - Contract No. N00024-93-C-5204, dated November
18, 1992, between Technology Applications and
Service Company and the Navy [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.53]
10.66 - Modification No. P00001, dated May 6, 1993, to
Contract No. N00024-93-C-5204 [Form 10-K, fiscal
year ended March 31, 1994, File No. 1-8533,
Exhibit 10.54]
10.67 - Modification No. P00002, dated August 24, 1993,
to Contract No. N00024-93-C-5204 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.55]
10.68 - Modification No. PZ0003, dated September 30,
1993, to Contract No. N00024-93-C-5204 [Form
10-K, fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.56]
-27-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- ---------------
10.69 - Contract No. N00174-94-D-0006, dated February
17, 1994, between Technology Applications &
Service Company and the Navy [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.57]
10.70 - Modification No. P00001, dated March 7, 1994,
to Contract No. N00174-94-D-0006 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.58]
10.71 - Modification No. P00003, dated May 19, 1994,
to Contract No. N00174-94-D-0006 [Form 10-K,
fiscal year ended March 31, 1994, File No.
1-8533, Exhibit 10.59]
10.72 - Purchase Order No. N538010, dated March 28,
1994, between Laurel Technologies, Inc. and
Short Brothers PLC [Form 10-K, fiscal year
ended March 31, 1994, File No. 1-8533, Exhibit
10.60]
P10.73 - Purchase Order No. 2285, dated June 6, 1994,
between Photronics Corporation and
International Precision Products N.V. .......... 324
P10.74 - Amendment No. 1, dated December 1, 1994, to
Purchase Order No. 2285......................... 325
P10.75 - Purchase Order No. 2286, dated June 6, 1994,
between Photronics Corporation and
International Precision Products N.V. .......... 326
P10.76 - Purchase Order No. CN74325, dated December
14, 1994, between Precision Echo and Lockheed
Aeronautical Systems Company.................... 327
P10.77 - Contract No. N39998-94-C-2239, dated July 26,
1993, between the Company and the Navy.......... 331
P10.78 - Contract No. N00019-95-C-0057, dated December
16, 1994, between Precision Echo, Inc. and
Naval Air Systems Command....................... 369
10.79 - Employment, Non-Competition and Termination
Agreement, dated July 20, 1994, between
Diagnostic/Retrieval Systems, Inc. and David E.
Gross [Form 10-Q, quarter ended June 30, 1994,
File No. 1-8533, Exhibit 1]
10.80 - Stock Purchase Agreement, dated as of July 20,
1994, between Diagnostic/Retrieval Systems, Inc.
and David E. Gross [Form 10-Q, quarter ended
June 30, 1994, File No. 1-8533, Exhibit 2]
-28-
<PAGE>
Page No.
Exhibit No. Description of Paper Filing
- ----------- ----------- --------------
10.81 - Asset Purchase Agreement, dated October 28,
1994, Acquisition by PE Acquisition Corp.,
a subsidiary of Precision Echo, Inc. Of All
Of The Assets of Ahead Technology Corporation
[Form 10-Q, quarter ended December 31, 1994,
File No. 1-8533, Exhibit 1]
* 11 - Computation of earnings per share
* 13 - Portions of Diagnostic/Retrieval Systems, Inc.'s
1995 Annual Report to Stockholders
* 21 - List of subsidiaries of the Company
* 23 - Consent of KPMG Peat Marwick LLP
* 27 - Financial Data Schedule
-29-
AMENDED AND RESTATED
BY-LAWS
OF
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
(a Delaware corporation)
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Annual meetings and special meetings of the
stockholders shall be held at such time and place, either within or without the
State of Delaware, as shall be fixed from time to time by the Board of
Directors. Whenever the directors shall fail to
<PAGE>
fix such place, the meeting shall be held at the registered office of the
Corporation in the State of Delaware.
Section 2. Annual Meetings. The annual meeting shall be held on the date
and at the time fixed, from time to time, by the Board of Directors, provided,
each successive annual meeting shall be held on a date within thirteen months
after the date of the preceding annual meeting. Annual meetings may be called by
the Board of Directors or by any officer instructed by the Board of Directors to
call the meeting.
Section 3. Special Meetings. Special meetings shall be held on the dates
and at the time fixed by the Board of Directors. Special meetings may be called
by the Board of Directors or by any officer instructed by the Board of Directors
to call the meeting.
Section 4. Notice or Waiver of Notice. Written notice of all meetings shall
be given, stating the place, date and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the Corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other
2
<PAGE>
action which could be taken at a special meeting is to be taken at such annual
meeting) state the purpose or purposes. The notice of a special meeting in all
instances shall state the purpose or purposes for which the meeting is called.
If any action is proposed to be taken which would, if taken, entitle
stockholders to receive payment for their shares of stock, the notice shall
include a statement of that purpose and to that effect. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at his
record address or at such other address which he may have furnished by request
in writing to the Secretary of the Corporation. Notice by mail shall be deemed
to be given when deposited, with postage thereon prepaid, in the United States
mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice of
the adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned
3
<PAGE>
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice by him before or after the time stated therein. Attendance of a
person at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
Section 5. Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting--the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the chairman of the meeting shall appoint
a secretary of the meeting.
4
<PAGE>
Section 6. Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the Corporation generally.
Section 7. Inspectors and Judges. The directors, in advance of any meeting,
shall appoint one or more inspectors of election or judges of the vote, as the
case may be, to act at the meeting or any adjournment thereof. The directors may
designate one or more persons as alternate inspectors or judges to replace any
inspector or judge who fails to act. If no inspector or judge or alternate
inspector or judge is able to act at a
5
<PAGE>
meeting of stockholders, the person presiding at the meeting shall appoint one
or more inspectors or judges to act at the meeting. Each inspector, or judge, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector or judge at such meeting with
strict impartiality and according to the best of his ability. The inspectors or
judges, if any, shall determine the number of shares of stock outstanding and
the voting power of each, the shares of stock represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors or judge or
judges, if any, shall make a report in writing of any challenge, question or
matter determined by him or them and execute a certificate of any fact found by
him or them.
Section 8. Quorum. The holders of a majority of the outstanding shares of
common stock, regardless of
6
<PAGE>
class, of the Corporation issued, outstanding and entitled to vote, present in
person or represented by proxy, shall constitute a quorum at a meeting of
stockholders for the transaction of any business, except that for the purpose of
electing directors of the Corporation, the presence, in person or represented by
proxy, of the holders of a majority of the outstanding shares of the Class A
Common Stock and the presence, in person or represented by proxy, of the holders
of a majority of the outstanding shares of the Class B Common Stock of the
Corporation, issued, outstanding and entitled to vote, shall constitute a quorum
for the election of Class A directors and Class B directors, respectively.
However, the foregoing shall not be deemed to permit a vote upon any transaction
as to which the certificate of incorporation or these By-Laws require approval
by a vote of the holders of more than a majority of the outstanding shares of
common stock, or any class thereof, of the Corporation, or by more than a
majority of the outstanding votes to which the holders of the outstanding shares
of common stock of the Corporation are entitled, unless the holders of such
portion of the outstanding shares of common stock, or of such class of common
stock, of the Corporation, or the holders of shares entitled to such portion
7
<PAGE>
of votes, as the case may be, are present, whether in person or by proxy. The
stockholders present may adjourn the meeting to some future time, without notice
other than announcement at the meeting, despite the absence of a quorum.
Section 9. Voting. Except as provided in the certificate of incorporation
with respect to the election of directors in certain circumstances, each share
of Class A Common Stock shall entitle the holder thereof to one vote with
respect to any matters presented at any meeting of stockholders and each share
of Class B Common Stock shall entitle the holder thereof to one-tenth vote with
respect thereto. In the election of each class of directors, a plurality of the
votes cast with respect to each respective class shall elect. Any other action
shall be authorized by a majority of the votes cast except where the General
Corporation Law prescribes a different percentage of votes and/or a different
exercise of voting power and except as otherwise provided in these By-Laws or
the certificate of incorporation. In the election of directors, voting need not
be by ballot. Voting by ballot shall not be required for any other corporate
action except as otherwise provided by the General Corporation Law.
8
<PAGE>
Section 10. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the certificate of incorporation, any action required or permitted
to be taken at any annual or special meeting of stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing setting forth the action so taken, shall be signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
Section 11. Stockholder List. The officer of the Corporation who has charge
of the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at
9
<PAGE>
least ten days prior to the meeting, either at a place within the city or other
municipality or community where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 12. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 11 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these By-Laws
directed or
10
<PAGE>
required to be exercised or done by the stockholders. The use of the phrase
"whole Board" herein refers to the total number of directors which the
corporation would have if there were no vacancies.
Section 2. Number and Qaulifications of Directors. The number of directors
which shall constitute the whole Board shall be such number, not less than five
nor more than nine, as shall be determined from time to time by a resolution
adopted by the directors then in office or by the remaining director if there be
only one. Until such time as action shall be taken by the Board to determine a
different number, the number of directors which shall constitute the whole Board
shall be five. Directors need not be stockholders of the Corporation, citizens
of the United States, or residents of the State of Delaware.
Section 3. Meetings. Meetings of the Board of Directors of the Corporation
shall be held at such place within or without the State of Delaware as shall be
fixed by the Board of Directors. Meetings of the Board of Directors shall be
held at such time as the Board of Directors shall fix, except that the first
meeting of a newly elected Board shall be held as soon after its election as the
directors may conveniently assemble. No
11
<PAGE>
call shall be required for regular meetings of the Board of Directors for which
the time and place have been fixed. Special meetings of the Board of Directors
may be called by or at the direction of the Chairman of the Board, if any, the
Vice-Chairman of the Board, if any, or the President, or of a majority of the
directors in office.
Section 4. Notice or Waiver of Notice. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. The notice of any meeting need not specify the purpose of the meeting.
Any requirements of furnishing a notice shall be waived by any director who
signs a written waiver of such notice before or after the time stated therein.
Section 5. Quorum. Except as may be otherwise specifically provided by law,
the certificate of incorporation or these By-Laws, a majority of the whole Board
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided, that such majority shall constitute at least one-third of
12
<PAGE>
the whole Board. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as otherwise
provided in the certificate of incorporation or these By-Laws, and except as
otherwise provided by the General Corporation Law, the act of the Board shall be
the act by vote of a majority of the directors present at a meeting, a quorum
being present. The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions of the General Corporation Law, the
certificate of incorporation or these By-Laws which govern a meeting of
directors held to fill vacancies and newly created directorships in the Board.
Section 6. Action in Writing. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the certificate of incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee desig-
13
<PAGE>
nated by the Board of Directors, may participate in a meeting of the Board of
Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
Section 8. Chairman of the Meeting. The President if present and acting,
shall preside at all meetings. Otherwise, any other officer chosen by the Board,
shall preside.
Section 9. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of two or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board, shall
have and may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it. In the absence or
14
<PAGE>
disqualification of any member of any such committee or committees, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Section 10. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer. The
Board of Directors, in its discretion, may also choose a
15
<PAGE>
Chairman of the Board of Directors, a Vice-Chairman thereof and one or more
Vice-Presidents, Assistant Secretaries and Assistant Treasurers, and may elect
or appoint such other officers and agents as are desired. Any number of offices
may be held by the same person, unless otherwise prohibited by law, the
certificate of incorpation or these By-Laws.
Section 2. Election. Unless otherwise provided in the resolution of
election or appointment, each officer shall hold office until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
his successor has been elected and qualified, or until their earlier resignation
or removal. Any officer may resign at any time upon written notice. The Board of
Directors may remove any officer for cause or without cause. Any vacancy
occurring in any office of the Corporation shall be filled by the Board of
Directors.
Section 3. Chairman of the Board of Directors. Except where by law the
signature of the President is required, the Chairman of the Board of Directors
shall possess the power, as from time to time may be authorized by the Board of
Directors or by the President, to sign all contracts, certificates and other
instruments of the
16
<PAGE>
Corporation. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President as may be authorized by the Board of Directors or
President. The Chairman of the Board of Directors shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him by the President, these By-Laws or by the Board of Directors.
Section 4. President. The President shall, subject to the control of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors.
17
<PAGE>
The President shall be the Chief Executive Officer of the Corporation. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
Section 5. Vice-Presidents. At the request of the President or in his
absence or in the event of his inabililty or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice-President or the Vice-Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Each
Vice-President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice-President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
18
<PAGE>
Section 6. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to
19
<PAGE>
attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
Section 7. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation,
20
<PAGE>
in case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
Section 8. Assistant Secretaries. Except as may be otherwise provided in
these By-Laws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice-President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the Secretary.
Section 9. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice-President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perfrom the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the
21
<PAGE>
Treasurer. If required by the Board of Directors, an Assistant Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 10. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
Section 11. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all
22
<PAGE>
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities and at any such meeting shall possess and may exercise any
and all rights and power incident to the ownership of such securities and which,
as the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time
confer like powers upon any other person or persons.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of, the
Corporation (i) by the Chairman or Vice-Chairman of the Board of Directors if
any, or by the President or a Vice-President and (ii) by the Treasurer or any
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate may be
a facsimile. In case
23
<PAGE>
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 3. Notations on Certificates. Whenever the Corporation shall be
authorized to issue more than one class of stock or more than one series of any
class of stock, and whenever the Corporation shall issue any shares of its stock
as partly paid stock, the certificates representing shares of any such class or
series or of any such partly paid stock shall set forth thereon the statements
prescribed by the General Corporation Law. Any restrictions on the transfer or
registration of transfer of any shares of stock of any class or series shall be
noted conspicuously on the certificate representing such shares.
Section 4. Lost Certificates. The Corporation may issue a new certificate
of stock in place of any certificate theretofore issued by it alleged to have
been lost, stolen or destroyed, and the Board of Directors may require the owner
of any lost, stolen or destroyed cer-
24
<PAGE>
tificate, or his legal representative, to give the Corporation a bond sufficient
to indemnify the Corporation against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of any such new certificate.
Section 5. Fractional Share Interests. The Corporation may, but shall not
be required to, issue fractions of a share. In lieu thereof it shall either
arrange for the disposition of fractional interests by those entitled thereto,
pay in cash the fair value of fractions of a share, as determined by the Board
of Directors, to those entitled thereto or issue scrip or fractional warrants in
registered or bearer form over the manual or facsimile signature of an officer
of the Corporation or of its agent, exchangeable as therein provided for full
shares, but such scrip or fractional warrants shall not entitle the holder to
any rights of a stockholder except as therein provided. Such scrip or fractional
warrants may be issued subject to the condition that the same shall become void
if not exchanged for certificates representing full shares of stock before a
specified date, or subject to the condition that the shares of stock for which
such scrip or fractional warrants are exchangeable may be sold by the
Corporation and
25
<PAGE>
the proceeds thereof distributed to the holders of such scrip or fractional
warrants, or subject to any other conditions which the Board of Directors may
determine.
Section 6. Transfers. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
Section 7. Record Date. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to any corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock, or for the
26
<PAGE>
purpose of any other lawful action, the Board of Directors may fix, in advance,
a date as the record date for any such determination of stockholders. Such date
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and shall not be more than sixty days or less
than ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed; the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the first day on which the written consent is expressed; and
the record date for determining stockholders when prior action by the Board of
Directors is necessary shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. When a determination
of stockholders of record entitled to notice of or to vote at any meeting
27
<PAGE>
of stockholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 8. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
Section 9. Meaning of Certain Terms. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent in writing in lieu of a meeting, as the case may be,
the term "share" or "shares" or "share of stock" or "shares of stock" or
"stockholder" or "stockholders" refers to an outstanding share or shares of
stock and to a holder or holders of record of outstanding shares of stock when
the Corporation is authorized to issue only one class of shares of stock, and
28
<PAGE>
said reference is also intended to include any outstanding share or shares of
stock and any holder or holders of record of outstanding shares of stock of any
class upon which or upon whom the certificate of incorporation confers such
rights where there are two or more classes or series of shares of stock or upon
whom the General Corporation Law confers such rights notwithstanding that the
certificate of incorporation may provide for more than one class or series of
shares of stock, one or more of which are limited or denied such rights
thereunder; provided, however, that no such right shall vest in the event of an
increase or decrease in the authorized number of shares of stock of any class or
series which otherwise is denied voting rights under the provisions of the
certificate of incorporation.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
certificate of incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the
29
<PAGE>
records of the Corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram, telex
or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
certificate of incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
30
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
31
<PAGE>
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed,
and shall be subject to change, by the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall be in such form as the
Board of Directors shall prescribe.
ARTICLE VIII
AMENDMENTS
Section 1. Control Over By-Laws. The power to amend, alter and repeal these
By-Laws, and to adopt new By-Laws, shall be vested in the Board of Directors as
well as in the stockholders, except that no amendment shall amend, alter,
change, add to or repeal any of the provisions of Section 2 of Article III of
these By-Laws or this Article VIII of these By-Laws unless such amendment shall
receive such number of affirmative votes equal to not less than 60% of the votes
to which the holders of the outstanding shares of common stock of the
Corporation are entitled.
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PRECISION ECHO ACQUISITION CORP.
As authorized by Sections 242 and 103 of the Delaware General Corporation
Law, the undersigned being the duly authorized officers of the above
corporation, hereby amend the Certificate of Incorporation thereof, as follows:
Article FIRST of the Certificate of Incorporation is hereby amended to read
as follows.
FIRST: The name of the corporation (hereinafter called "this corporation")
is
AHEAD TECHNOLOGY, INC.
The foregoing amendment has been adopted by the unanimous vote of the board
of directors and the affirmative vote of the sole shareholder of the corporation
in accordance with the provisions of Section 242 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, this Certificate of Amendment has been signed this
10th day of March, 1995.
ATTEST:
/s/ MARK S. NEWMAN /s/ STUART F. PLATT
Mark S. Newman Stuart F. Platt
Secretary President
<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
) : ss
COUNTY OF SANTA CLARA )
On this 10th day of March, 1995, before me the subscriber, a Notary Public,
personally appeared Stuart F. Platt, who I am satisfied is the individual named
in and subscribing to the foregoing instrument, and he, being by me duly sworn,
acknowledged, deposed and said that he signed, sealed and delivered the same as
his/her voluntary act and deed, for the uses and purposes therein expressed.
IN WITNESS WHEREOF, I have signed and sealed this acknowledgment the day
and year first above written.
/s/ LINDA S. PENAFLOR
Linda S. Penaflor
Comm. #970193
Notary Public--California
SANTA CLARA COUNTY
My Comm. Expires JUL 26, 1996
MONTGOMERY COUNTY TEACHERS FEDERAL CREDIT UNION
16220 Frederick Road
Suite 300
Gaithersburg, Maryland 20877
June 1, 1994
Technology Applications Diagnostic Retrieval Systems, Inc.
and Service Company c/o Terrance L. DeRosa
c/o Terrance L. DeRosa 200 Professional Drive
200 Professional Drive Gaithersburg, Maryland 20879
Gaithersburg, Maryland 20879
Re: Amendment to Lease Modification
Gentlemen:
This letter agreement sets forth our understandings and agreements
concerning the obligations that were imposed upon the landlord pursuant to
Paragraph 21 of that certain Lease Modification Agreement dated February 22,
1994 (the "Lease Modification") to pay for, complete and install all of those
certain improvements set forth on Exhibit E (the "Improvements") to the Lease
Modification. It is intended by the parties that this letter agreement
constitute an amendment to the Lease Modification.
That portion of the improvement described in items nos. 1, 2, 5 and 7 on
Exhibit E to the Lease Modification is herein called the "Tenant Improvements".
That portion of the Improvements described in items nos. 3, 4 and 6 on Exhibit
E to the Lease Modification is herein called the "Landlord Improvements".
The parties acknowledge and agree that item no. 4 and all of item no. 3
(other than the entrance door monitored card or key access system) have been
fully paid and/or performed (as applicable).
In consideration of the payment made by Atlantic Real Estate Partners II,
L.P. ("Atlantic") to you of even date herewith, the receipt and sufficiency of
which is hereby evidenced by your execution of this Letter Agreement, and the
construction and installation of the balance of the Landlord Improvements
(which the parties acknowledge will be accomplished by Montgomery County
Teachers Federal Credit Union ("MCT") within thirty (30) days from the date
hereof), you hereby agree to (i) fully and finally release MCT and Atlantic from
any obligations imposed upon the landlord to pay for, complete or install the
Improvements and (ii) to cause the Tenant Improvements to be substantially
completed in the manner provided for under Exhibit E to the Lease Modification
by established contractors or subcontractors reasonably acceptable to MCT, and
otherwise to your full satisfaction.
You agree and acknowledge that (i) MCT is the current owner of the Building
and is solely and completely responsible for completion of the balance of the
Landlord Improvements, and (ii) MCT would not agree to the direct payment from
Atlantic to you
<PAGE>
(as opposed to establishing an escrow account) without your agreement to
complete (or cause to be completed) the Tenant Improvements by established
contractors or subcontractors reasonably acceptable to MCT and in the manner
provided for under Exhibit E to the Lease Modification.
If this letter agreement accurately reflects your understanding of the
matters set forth herein, please indicate your acceptance by execution of this
letter agreement below.
All of the other terms and conditions of the Lease Modification are hereby
ratified and confirmed in all respects and shall remain in full force and
effect, except as herein specifically amended or modified.
Sincerely,
MONTGOMERY COUNTY TEACHERS
FEDERAL CREDIT UNION
By: /s/ JOSEPH R. BRESSI
Name: Joseph R. Bressi
Title: President/CEO
By: /s/ ERNEST L. SOLAR
Name: Ernest L. Solar
Title: Chairman of the Board
AGREED TO AND ACCEPTED BY
on this __ day of June, 1994:
Technology Applications and Service Company
By: /s/ TERRENCE L. DeROSA
Name: Terrence L. DeRosa
Title: V.P./General Manager
Diagnostic Retrieval Systems, Inc.
By: /s/ MARK S. NEWMAN
Name: Mark S. Newman
Title: President & CEO
Atlantic Real Estate Partners II, L.P.
By: CIMC Real Estate L.L.C., its general partner
By: /s/ DAVID L. BROWN
Name: David L. Brown
Title: President
-2-
LEASE
THIS LEASE is made on this 23rd day of March, 1992, by and between VASONA
BUSINESS PARK, (hereinafter called "Lessor") and AHEAD TECHNOLOGY CORPORATION,
(hereinafter called "Lessee").
IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES AGREE
AS FOLLOWS:
1. Premises. Lessor leases to Lessee and Lessee leases from Lessor, upon
the terms and conditions herein set forth, those certain premises ("Premises")
situated in the City of Los Gatos, County of Santa Clara, State of California,
as outlined in Exhibit "A" attached and described as: Approximately 12,356
square feet of space in a larger 43,230 square foot building commonly known as
103 Cooper Court.
2. Term. The term of this Lease shall be for five (5) years, commencing on
May 1, 1992, and ending on April 30, 1997, unless sooner terminated pursuant to
any provisions hereof.
3. Rent. Lessee shall pay to Lessor rent for the Premises of Nine Thousand
Eight Hundred Eighty-Five and no/100ths ($9,885.00) Dollars per month in lawful
money of the United States of America, subject to adjustment or offset, prior
notice or demand, at such place as may be designated from time to time by Lessor
as follows: Nine Thousand Eight Hundred Eighty-Five and no/100ths ($9,885.00)
Dollars shall be paid upon execution of the Lease, which sum represents the
amount of the first month's rent. A deposit of Eleven Thousand Seven Hundred
Thirty-Eight and no/100ths ($11,738.00) Dollars as a Security Deposit shall be
made by Lessee and held by the Lessor pursuant to Paragraph 5 of this Lease, and
shall also be paid upon execution of the Lease. If Lessee is not in default of
any provisions of this Lease, this sum, without interest thereon, shall be
applied toward the rent due for the last month of the term of this Lease or the
extended term, pursuant to any extension of the initial term in accordance with
the provisions of this Lease. Nine Thousand Eight Hundred Eighty-five and
no/100ths ($9,885.00) Dollars shall be paid on June 1, 1992, and in advance on
the first (1St) day of the month until April 30, 1994. Ten Thousand Five Hundred
Three and no/100ths ($10,503.00) Dollars shall be paid on May 1, 1994, and in
advance on the first (1st) day of each month until April 30, 1995. Eleven
Thousand One Hundred Twenty and no/100ths ($11,120.00) Dollars shall be paid on
May 1, 1995, and in advance on the first (1st) day of each month until April 30,
1996.
<PAGE>
Eleven Thousand Seven Hundred Thirty-Eight and no/100ths ($11,738.00)
Dollars shall be paid on May 1, 1996, and in advance of the first (1st) day of
each month until April 30, 1997.
Rent for any period during the term hereof which is for less than one (1)
full month shall be a pro-rata portion of the monthly rent payment. Lessee
acknowledges that late payment by Lessee to Lessor of rent or any other payment
due Lessor will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of such costs being extremely difficult and impracticable to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Lessor by the terms of any encumbrances and
note secured by any encumbrance covering the Premises. Therefore, if any
installment of rent or other payment due from Lessee is not received by Lessor
within five (5) days following the date it is due and payable, Lessee shall pay
to Lessor an additional sum of five (5%) percent of the overdue amount as a late
charge, except for the first failure to make a payment of rent or other amount
when due in each lease year of the Lease. Further, in only this event, said late
charge will not be imposed until such failure to pay has not occurred within
three (3) business days after Lessor has delivered written notice to Lessee that
such payment is due. The parties agree that this late charge represents a fair
and reasonable estimate of the costs that Lessor will incur by reason of late
payment by Lessee.
If for any reason whatsoever, Lessor cannot deliver possession of the
Premises on the commencement date set forth in Paragraph 2 above, this Lease
shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss
or damage resulting therefrom; but in such event, Lessee shall not be obligated
to pay rent until possession of the Premises is tendered to Lessee and the
commencement and termination dates of this Lease shall be revised to conform to
the date of Lessor's delivery of possession. In the event that Lessor shall
permit Lessee to occupy the Premises prior to the commencement date of this
term, such occupancy shall be subject to all of the provisions of this Lease,
including the obligation to pay rent at the same monthly rate as that prescribed
for the first month of the lease term. If Lessor is unable to deliver possession
of the Premises to Lessee by June 1, 1992, Lessee may terminate this Lease upon
thirty (30) days written notice.
All taxes, insurance premiums, Outside Area Charges, late charges, costs
and expenses which Lessee is required to pay hereunder, together with all
interest and penalties that may accrue thereon in the event of Lessee's failure
to pay such amounts, and all reasonable damages, costs and attorney's fees and
expenses which Lessor may incur by reason of any default of Lessee or failure on
Lessee's part to comply with the terms of this Lease, shall be deemed to be
additional rent ("Additional Rent") and, in the event of non-payment by Lessee,
Lessor shall have all of the rights and remedies with respect thereto as Lessor
has for the non-payment of the monthly installment of rent.
4. Option to Extend Term.
A. Lessee shall have the option to extend the term on all the provisions
-2-
<PAGE>
contained in this Lease for one (1) five (5)-year period ("extending term(s)")
at an adjusted rental calculated as provided in Subparagraph B below on the
condition that:
(1) Lessee has given to Lessor written notice of exercise six (6)
months prior to the expiration of the initial term or extended term as the
case may be.
(2) Lessee is not in default, nor has been in default during the last
six (6) months prior to exercise, and had not been in default in the
performance of any of the terms and conditions of the Lease on the date of
giving the option Notice, and Lessee is not in default on the date the
extended term is to commence.
B. Monthly rent for the extended term shall be set at ninety-five (95%)
percent of the then current market rent.
Current Market Value. For purposes of this Lease, the term "Current Market
Value" shall mean the going market rental as of the date of commencement of each
Renewal Term, for equivalent space of similar age and construction, with
improvements and equipment in similar condition and for a Lessee proposing to
sign a five (5) year Lease and having financial qualifications similar to
Lessee, it being understood that in determining "Current Market Value" the
parties shall negotiate in good faith in order to reach agreement; and in the
event the parties are unable to reach agreement, and Lessee desires to proceed,
the matter shall be referred to arbitration by three (3) M.A.I. appraisers,
experienced in the evaluation of similar rental properties in the County of
Santa Clara, State of California. Lessor and Lessee shall each appoint one (1)
such arbitrator within thirty (30) days of written request for arbitration from
the other, and the two (2) arbitrators so selected shall select a third
arbitrator within fifteen (15) days after the selection of the second
arbitrator. The determination of the three (3) arbitrators shall be made by the
vote of two (2) or more of the three arbitrators within thirty (30) days from
the date of the appointment of the third arbitrator and shall be final for all
purposes. The cost of arbitration shall be shared equally.
C. In no event shall the monthly rent for any extended term be less than
the monthly rent paid immediately prior in such extended term.
5. Security Deposit. Lessor acknowledges that Lessee has deposited with
Lessor a Security Deposit in the sum of Eleven Thousand Seven Hundred
Thirty-Eight and no/100ths ($11,738.00) Dollars to secure the full and faithful
performance by Lessee of each term, covenant, and condition of this Lease. If
Lessee shall at any time fail to make any payment or fail to keep or perform any
term, covenant, or condition on its part to be made or performed or kept under
this Lease, Lessor may, but shall not be obligated to and without waiving or
releasing Lessee from any obligation under this Lease, use, apply, or retain the
whole or any part of said Security Deposit (a) to the extent of any sum due to
Lessor; or (b) to make any required payment on Lessee's behalf; or (c) to
compensate Lessor for any loss, damage,
-3-
<PAGE>
attorneys' fees or expense sustained by Lessor due to Lessee's default. In such
event, Lessee shall within five (5) days of written demand by Lessor, remit to
Lessor sufficient funds to restore the Security Deposit to its original sum. No
interest shall accrue on the Security Deposit. Should Lessee comply with all the
terms, covenants and conditions of this Lease and at the end of the term of this
Lease leave the Premises in the condition required by this Lease, then said
Security Deposit or any balance thereof, less any sums owing to Lessor, shall be
returned to Lessee within fifteen (15) days after the termination of this Lease
and vacancy of the Premises by Lessee. Lessor can maintain the Security Deposit
separate and apart from Lessor's general funds, or can commingle the Security
Deposit with Lessor's general and other funds.
6. Use of the Premises. The Premises shall be used exclusively for the
purpose of office, research and development, manufacturing, storage of
electrical products and other related legal uses.
Lessee shall not use, or permit the Premises, or any part thereof, to be
used, for any purpose or purposes other than the purpose for which the Premises
are hereby leased; and no use shall be made or permitted to be made of the
Premises, nor acts done, which will increase the existing rate of insurance upon
the building in which the Premises are located, or cause a cancellation of any
insurance policy covering said building, or any part thereof, nor shall Lessee
sell, or permit to be kept, used or sold, in or about the Premises, any article
which may be prohibited by the standard form of fire insurance policies. Lessee
shall not commit, or suffer to be committed, any waste upon the Premises, or any
public or private nuisance, or other act or thing which may disturb the quiet
enjoyment of any other tenant in the building in which the Premises are located;
nor, without limiting the generality of the foregoing, shall Lessee allow the
premises to be used for any improper, unlawful or objectionable purpose.
7. Hazardous Materials.
Lessor hereby represents to Lessee that to the best of Lessor's knowledge,
there is no toxic waste, spillage, or other contaminants, including asbestos,
present in or about the Premises or the building thereon as of the date of
execution of this Lease. Lessee shall not place any harmful liquids in the
drainage system of the Premises or of the building of which the Premises forms a
part. No waste materials or refuse shall be dumped upon or permitted to remain
upon any part of the Premises outside of the building proper except in trash
containers placed inside exterior enclosures designated for the purpose by
Lessor, or inside the building proper where designated by Lessor. No materials,
supplies, equipment, finished or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain on any
portion of the Premises outside of the building.
Should, at any time during the term of this Lease, or for a period of five
(5)
-4-
<PAGE>
years after termination or expiration of this Lease, there be charges or
findings of toxic waste, spillage, or other contaminants found by a governmental
agency to be hazardous and requiring removal or remedial work of the same, and
at is determined that Lessee is the cause, Lessee shall hold Lessor harmless
from all claims, obligations, liabilities and costs, including reasonable
attorney's fees, for the removal, remedial work, or other action required by the
governmental agency so prescribing said action, or any other agency having
jurisdiction. If, at any time during the term of this Lease, Lessor suspects
that toxic waste, spillage, or other contaminants may be present on the
Premises, Lessor may order a soils report, or its equivalent, at Lessor's
expense and Lessee shall pay such costs within fifteen (15) days from the date
of invoice by Lessor, if it is determined that Lessee is the cause of any said
toxic waste, spillage or other contaminant. If any such toxic waste, spillage,
or other contaminants are found upon the Premises, Lessee shall deposit with
Lessor, within fifteen (15) days of notice from Lessor to Lessee to do so, the
amount necessary to remove such substances and remedy the problem, if it is
proven that Lessee is responsible for such toxic waste, spillage or
contaminants.
Lessee shall abide by all laws, ordinances and statutes, as they now exist
or may hereafter be enacted by legislative bodies having jurisdiction thereof,
relating to its use and occupancy of the Premises.
A. Definitions. As used herein, the term "Hazardous Material" shall mean
any substance or material which has been determined by any state, federal or
local governmental authority to be capable of posing a risk of injury to health,
safety or property including all of those materials and substances designated as
hazardous or toxic by the Environmental Protection Agency, the California Water
Quality Control Board, the Department of Labor, the California Department of
Industrial Relations, the Department of Transportation, the Department of
Agriculture, the Consumer Product Safety Commission, the Department of Health
and Human Services, the Food and Drug Agency or any other governmental agency
now or hereafter authorized to regulate materials and substances in the
environment. Without limiting the generality of the foregoing, the term
"Hazardous Material" shall include all of those materials and substances defined
as "Toxic Materials" in Section 66680 through 66685 of Title 22 of the
California Administrative Code, Division 4, Chapter 30, as the same shall be
amended from time to time.
B. Use Restriction. Lessee shall not cause or permit any Hazardous Material
to be used, stored, or disposed of in or about the Premises except in strict
accordance with all laws and ordinances governing Hazardous Materials. The
appearance of any Hazardous Material on or about the Premises which is caused or
permitted by Lessee which is not in strict accordance with all laws and
ordinances governing the use, storage and disposal of hazardous materials shall
be deemed an Event of Default. If the presence of Hazardous
-5-
<PAGE>
Material on or about the Premises which is caused or permitted by Lessee results
in contamination of the Premises or any soil in or about the Premises or
groundwater under the Premises, Lessee, at its expense, shall promptly take all
action necessary to return the Premises to the condition existing prior to the
appearance of such Hazardous Material and shall perform all monitoring, testing,
containment clean-up and other actions required by any applicable governmental
agency.
C. Lessee's Indemnity. Lessee shall defend, hold harmless and indemnify
Lessor and its agents, lenders and employees from or against any and all
liabilities, obligations, damages, penalties, claims, costs (including
compliance and clean-up costs), charges, expenses of attorneys, expert
witnesses, engineers and other consultants which may be imposed upon, incurred
by or asserted against Lessor or the Premises by reason of any contamination of
the Premises or any soil in or about the Premises or any groundwater under the
Premises caused by Lessee's storage, use or disposal of Hazardous Material in or
about the Premises.
D. Representations and Warranties. Lessor represents and warrants that
Lessor has not received nor is aware of any notification from the Department of
Health Services, California Regional Water Quality Control Board, the U.S.
Environmental Protection Agency or such other City, County or State authority
having jurisdiction to require investigation, monitoring or remediation of any
release of Hazardous Material, on, above or beneath the Premises. Lessor further
represents that in the event that such notice or notices are received by Lessor,
Lessor shall promptly deliver copies thereof to Lessee.
Lessor shall indemnity, defend and hold harmless Lessee from and against
any and all liabilities, obligations, and costs (including compliance and
clean-up costs), which may be incurred by Lessee by reason of any contamination
of the Premises caused by Lessor's storage, use or disposal of hazardous
material on or about the Premises or caused by a release of hazardous material
by prior Tenants.
E. Compliance. Lessee shall immediately notify Lessor of any inquiry, test,
investigation, enforcement proceeding by or against Lessee or the Premises
concerning Hazardous Material used, stored or disposed of by Lessee or alleged
to have been used, stored or disposed of by Lessee on or about the Premises. In
the event of such investigation, Lessor shall have the right to appoint a
consultant to conduct an investigation to determine whether Lessee has used,
stored or disposed of Hazardous Material on or about the Premises. If the
consultant determines that Hazardous Materials have been stored, used or
disposed of by Lessee, Lessee, at its expense, shall comply with all
recommendations of the consultant, whose recommendations shall be consistent
with current laws and ordinances governing storage of hazardous materials
including, without limitation, any recommended testing, monitoring and clean-up.
If Lessee is in violation of the laws and
-6-
<PAGE>
ordinances governing the use, storage and disposal of hazardous materials,
Lessee shall be responsible for all costs including any consultant fees.
F. Assignment and Subletting. It shall not be unreasonable for Lessor to
withhold its consent to any proposed assignment or subletting if (i) the
proposed assignee's or sublessee's anticipated use of the Premises involves the
storage, use or disposal of Hazardous Material; (ii) if the proposed assignee or
sublessee has been required by any prior Lessor, lender or governmental
authority to "clean-up" Hazardous Material; (iii) if the proposed assignee or
sublessee is subject to investigation or enforcement order or proceeding by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material.
G. Survival. The provisions contained in this Paragraph 7 shall survive the
expiration or earlier termination of this Lease.
8. Improvements. Lessor will, at its sole expense, make improvements to the
Premises as specified in Exhibit "B" attached hereto and by this reference made
a part hereof. Lessor will make reasonable efforts to complete such improvements
prior to May 1, 1992.
9. Taxes and Assessments.
A. Lessee shall pay before delinquency any and all taxes, assessments,
license fees, public charges levied, assessed or imposed upon or against
Lessee's fixtures, equipment, furnishings, appliances and personal property
installed or located on or within the Premises. Lessee shall cause said
fixtures, equipment, furnishings, furniture, appliances and personal property to
be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay to Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement from Lessor setting forth the taxes
applicable to Lessee's property.
B. All property taxes or assessments levied or assessed or hereafter levied
or assessed, by any governmental authority, against the Premises or any portion
of such taxes or assessments which becomes due or accrued during the term of
this Lease, shall be paid by Lessor. Lessee shall reimburse Lessor for Lessee's
proportionate share of such taxes or assessments within ten (10) days of receipt
of Lessor's invoice demanding such payment. Lessee's liability hereunder shall
be prorated to reflect the commencement and termination dates of this Lease.
10. Insurance.
A. Indemnity. Lessee agrees to indemnify and defend Lessor against and hold
Lessor harmless from any and all demands, claims, causes of action, judgments,
obligations, liabilities, and all reasonable expenses incurred in investigating
or resisting the same
-7-
<PAGE>
(including reasonable attorney's fees) on account of, or arising out of the
Lessee's use or occupancy of the Premises. Except for Lessor's negligence, this
Lease is made on the express condition that Lessor shall not be liable for, or
suffer loss by reason of, injury to person or property, from whatever cause, in
any way connected with the Lessee's use or occupancy of the Premises,
specifically including, without limitation, any liability for injury to the
person or property of Lessee, its agents, officers, employees, licensees and
invitees.
B. Liability Insurance. Lessee shall, at the Lessee's expense, obtain and
keep in force during the term of this Lease, a policy of commercial general
liability insurance insuring Lessor and Lessee, with cross-liability
endorsements, against any liability arising out of the condition, use or
occupancy of the Premises and Lessee's use of all areas appurtenant thereto,
including parking areas. Such insurance shall be in an amount satisfactory to
Lessor of not less than $2,000,000 Combined Single Limit for bodily injury or
death and Property Damage per occurrence and annual policy aggregate. The
insurance shall be with companies approved by Lessor, which approval Lessor
agrees not to unreasonably withhold. Lessee shall deliver to Lessor prior to
possession, a certificate of insurance evidencing the existence of the policy
required hereunder, and such certificate shall certify that the policy (1) names
Lessor as an additional insured, (2) shall not be canceled without thirty (30)
days prior written notice to Lessor, (3) insures performance of the indemnity
set forth in Sub-paragraph (A) above, subject to standard exclusions and (4) the
coverage is primary and any coverage by Lessor is in excess thereto.
C. 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 Premises, in the amount of the full replacement value thereof, providing
protection against those perils included within the classification covering
Direct Risk of physical loss with endorsement covering Special Form perils
insurance, plus a policy of rental income insurance in the amount of 100% of the
twelve (12) months rent (including sums payable as Additional Rent), and, at
Lessor's option, earthquake insurance and flood insurance. Lessee shall have no
interest in nor any right to the proceeds of any insurance procured by Lessor on
the Premises. Lessee shall, within twenty (20) days after receipt of billing,
pay to Lessor as additional rent, the full cost of such insurance procured and
maintained by Lessor. Lessee acknowledges that such insurance procured by Lessor
shall contain a deductible which reduces Lessee's cost for such insurance and,
in the event of loss or damage, Lessee shall be required to pay to Lessor the
amount of such deductible.
D. Release of Lessor. Lessee acknowledges that the insurance to be
maintained by Lessor on the Premises pursuant to Sub-paragraph C above will not
insure any of Lessee's property. Accordingly, Lessee, at Lessee's own expense,
shall maintain in full force and effect on all its fixtures, equipment,
leasehold improvements and personal property in
-8-
<PAGE>
the Premises, a policy covering Direct Risk of physical loss with endorsement
covering Special Form perils insurance to the extent of at least ninety (90%)
percent of their insurable value. Lessee hereby releases Lessor, and its
partners, officers, agents, employees, and servants, from any and all claims,
demands, loss, expense or injury to the Premises or to the furnishings,
fixtures, equipment, inventory or other personal property of Lessee in, about,
or upon the Premises which is caused by perils, events or happenings which are
covered by insurance required by this Lease or which are the subject of
insurance carried by Lessee and in force at the time of such loss. Lessee shall
procure an appropriate clause in, or an endorsement to, all policies required by
this Lease, or any other insurance policy maintained by Lessee with respect to
the Premises or Lessee's occupancy thereof, pursuant to which the insurance
company or companies waive subrogation or consent to a wavier of a right of
recovery against Lessor.
E. Mutual Waiver of Subrogation. Lessee and Lessor hereby mutually waive
their respective rights for recovery against each other for any loss of or
damage to the property of either party, where such loss or damage is insured by
any insurance policy required to be maintained by this Lease or otherwise in
force at the time of such loss or damage. Each party shall obtain any special
endorsements, if required by the insurer, whereby the insurer waives its right
of recovery against the other party hereto. The provisions of this Sub-paragraph
E shall not apply in those instances in which waiver of subrogation would cause
either party's insurance coverage to be voided or otherwise made uncollectable.
11. Utilities. Lessee shall pay for all water, gas, light, heat, power,
electricity, telephone, trash pick-up, sewer charges, and all other services
supplied to or consumed on the Premises, and all taxes and surcharges thereon.
In the event that any of the utility services are not separately metered to the
Premises, the cost of such utility service shall be an Outside Area Charge and
Lessee shall pay its share of such cost to Lessor as provided in Paragraph 13
below. In addition, the cost of any utility services supplied to the Outside
Area shall be an Outside Area Charge and Lessee shall pay its share of such cost
to Lessor as provided in Paragraph 13 below.
12. Repairs and Maintenance.
A. Subject to provisions of Paragraph 17, Lessor shall keep and maintain
the roof, paving, structural elements, landscaping, irrigation, the exterior
walls of the building in which the Premises are located and all common areas in
good order and repair. Lessee shall reimburse Lessor for its proportionable
share of said expense within twenty (20) days of Lessee's receipt of Lessor's
invoice demanding payment. If, however, any repairs or maintenance are required
because of an act or omission of Lessee, or its agents, employees, or authorized
representatives, Lessee shall pay to Lessor upon demand 100% of the costs of
-9-
<PAGE>
such repair or maintenance.
Notwithstanding the foregoing, if the roofing or roof membrane is replaced
during the Lease term, Lessee's obligation to reimburse Lessor for the cost of
such replacement shall be a fraction of the total cost thereof, which fraction
shall have as its numerator the number of months remaining in the Lease term and
shall have as its denominator the lesser of (i) the total number of months in
the useful life of the new roofing or roof membrane or (ii) one-hundred eighty
(180) months; and Lessee shall pay to Lessor an amount equal to its fractional
share of such costs within fifteen (15) days after receipt of billing from
Lessor. This paragraph shall apply to the front of the roof membrane thirty (30)
feet back from the parapet wall because Lessor replaced this section in 1991.
Lessor shall be responsible for the costs of repairing and replacing the back
part of the roof membrane until it is replaced at which time this paragraph
shall apply.
B. Except as expressly provided in Sub-paragraph (A) above, Lessee shall at
its sole cost, keep and maintain the entire Premises and every part thereof,
including, without limitation, the windows, window frames, plate glass, glazing,
truck doors, doors, all door hardware, interior of the Premises, interior walls
and partitions, and the electrical, plumbing, heating and air-conditioning
systems in good and sanitary order, condition and repair. Lessor agrees to
deliver all electrical, plumbing, heating and air-conditioning systems in the
Premises in good working order and repair.
Lessee shall, at all times during the Lease term, have in effect a service
contract for the maintenance of the heating, ventilating and air-conditioning
(HVAC) equipment with a HVAC repair and maintenance contractor approved by
Lessor which provides for periodic inspection and servicing at least once every
three (3) months during the term hereof and shall provide Lessor with a copy of
such contract and all periodic service reports.
Should Lessee fail to maintain the Premises or make repairs required of
Lessee hereunder forthwith upon notice from Lessor, Lessor, in addition to all
other remedies available hereunder or by law, and without waiving any
alternative remedies, may make the same, and in that event, Lessee shall
reimburse Lessor as additional rent for the reasonable cost of such maintenance
or repairs on the next date upon which rent becomes due.
Lessee hereby expressly waives the provisions of Sub-section 1 of Section
1932, and Sections 1941 and 1942 of the Civil Code of California and all rights
to make repairs at the expense of Lessor, as provided in Section 1942 of said
Civil Code.
13. Outside Area. Subject to the terms and conditions of this Lease and
such rules and regulations as Lessor may from time to time prescribe, Lessee and
Lessee's employees, invitees and customers shall, in common with other occupants
of the parcel on which the Premises are located, and their respective employees,
invitees and customers, and others
-10-
<PAGE>
entitled to the use thereof, have the non-exclusive right to use the access
roads, parking areas and facilities provided and designated by Lessor for the
general use and convenience of the occupants of the parcel on which the Premises
are located, which areas and facilities are referred to herein as "Outside
Area". This right shall terminate upon the termination of this Lease. Lessor
reserves the right from time to time to make changes in the shape, size,
location, amount and extent of the Outside Area. Lessor further reserves the
right to promulgate such reasonable rules and regulations relating to the use of
the Outside Area, and any part or parts thereof, as Lessor may deem appropriate
for the best interest of the occupants of the parcel. The rules and regulations
shall be binding upon Lessee upon delivery of a copy of them to Lessee, and
Lessee shall abide by them and cooperate in their observance. Such rules and
regulations may be reasonably amended by Lessor from time to time, with or
without advance notice, and all amendments shall be effective upon delivery of a
copy to Lessee, provided such regulation does not interfere with Lessee's quiet
enjoyment.
Lessee shall have the non-exclusive use of all parking spaces in the
Outside Area as designated from time to time by Lessor. Lessee shall not at any
time park or permit the parking of Lessee's trucks or other vehicles, or the
trucks or other vehicles of others, adjacent to the loading areas so as to
interfere in any way with the use of such areas, nor shall Lessee at any time
park or permit the parking of Lessee's vehicles or trucks, or the vehicles or
trucks of Lessee's suppliers or others, in any portion of the Outside Area not
designated by Lessor for such use by Lessee. Lessee shall not abandon any
inoperative vehicles or equipment on any portion of the Outside Area.
Lessor shall operate, manage, maintain and repair the Outside Area in good
order, condition and repair. The manner in which the Outside Area shall be
maintained and the expenditures for such maintenance shall be at the discretion
of the Lessor. The cost of such repair, maintenance, operation and management,
including without limitation, maintenance and repair of landscaping, irrigation
systems, paving, sidewalks, fences and lighting, shall be an Outside Area Charge
and Lessee shall pay to Lessor its share of such costs as provided in Paragraph
14 below.
14. Outside Area Charges. Lessee shall pay to Lessor, as additional rent,
upon demand but not more often than once each calendar month, an amount equal to
twenty-eight and 6/100ths (28.6%) percent of the Outside Area Charges as defined
in this Lease. Lessee acknowledges and agrees that the Outside Area Charges
shall include an additional three (3%) percent of the actual expenditures in
order to compensate the Lessor for accounting and processing services. The
Outside Area Charges shall be documented by Lessor.
15. Alterations and Additions. Lessee shall not make, or suffer to be made,
any alterations, improvements, or additions in, on or about, or to the Premises
or any part thereof, without the prior written consent of Lessor, which consent
shall not be
-11-
<PAGE>
unreasonably withheld, and without a valid building permit issued by the
appropriate governmental authority. Provided the low bid is matched, Lessor
retains, at his sole option, the right to perform all repairs, alterations,
improvements or additions in, or about, or to said Premises or any part thereof
which exceed $2,000.00 per alteration. As a condition to giving such consent,
Lessor may require that Lessee agree to remove any such alterations,
improvements or additions at the termination of this Lease, and to restore the
Premises to their prior condition. Lessor shall advise Lessee at the time
improvements are made and approved whether or not Lessor is to request that
those particular improvements are to be removed at the end of the Lease term.
Any alteration, addition, or improvement to the Premises, except movable
furniture and trade fixtures not affixed to the Premises, shall become the
property of the Lessor upon installation, and shall remain upon and be
surrendered with the Premises at the termination of this Lease. Lessor can
elect, however, within sixty (60) days before expiration of the term to require
Lessee to remove any alterations, additions or improvements that Lessee has made
to the Premises and not approved by Lessor. If Lessor so elects, Lessee shall
restore the Premises to the condition designated by Lessor in its election,
before the last day of the term, or within thirty (30) days after notice of
election is given, whichever is later. Alterations and additions, which are not
to be deemed as trade fixtures include heating, lighting, electrical systems,
air-conditioning, partitioning, electrical signs, carpeting or any other
installation which has become an intregal part of the Premises. In the event
Lessor consents to Lessee's making any alterations, improvements or additions,
Lessee shall notify Lessor in writing at least fifteen (15) days prior to
commencing work and Lessee shall be responsible for the timely posting of
notices of non-responsibility on Lessor's behalf, providing that Lessor shall be
responsible for executing and recording said notices and for posting, which
shall remain posted until completion of the alterations, additions, or
improvements. Lessee's failure to notify Lessor within the time period provided
in the preceding sentence shall be a breach of this Lease.
If, during the term hereof, any alteration, change or addition of any sort
through all or any portion of the Premises or of the building of which the
Premises form a part, is required by law, regulation, ordinance or order of any
public agency, Lessee, at its sole cost and expense, shall promptly make the
same. In regard to any alteration, change or addition required to the building
and not part of the Premises, Lessee shall be responsible for only a portion of
its determined cost. That portion shall be determined by multiplying the cost of
said improvement by a fraction, the numerator of which is the years remaining on
the Lease and the denominator of which is the useful life, not to exceed ten
(10) years, of the alteration, change or addition.
-12-
<PAGE>
16. Acceptance of the Premises and Covenant to Surrender. By entry and
taking possession of Premises to this Lease, Lessee accepts the Premises as
being in good and sanitary order, condition and repair with all building systems
to be in good working order and accepts Premises in their condition existing as
of date of such entry and Lessee further accepts any tenant improvements to be
constructed by Lessor, if any as being completed in accordance with plans and
specifications for such improvements.
Subject to Paragraphs 18 and 19, Lessee agrees on the last day of the term
hereof, or on sooner termination of this Lease, to surrender the Premises
together with all alterations, additions and improvements which may have been
made in, to or on the Premises by Lessor or Lessee, unto Lessor in good and
sanitary order, condition and repair, excepting for such wear and tear as would
be normal for the period of Lessee's occupancy. Lessee, on or before the end of
term or sooner termination of this Lease, shall remove all personal property and
trade fixtures from the Premises, and all property not so removed shall be
deemed to be abandoned by Lessee. Lessee further agrees that at the end of the
term or sooner termination of this Lease, Lessee, at its sole expense shall have
the carpets steam cleaned, the walls and columns painted, except for normal wear
and tear, the floors waxed, any damaged ceiling tiles replaced, the windows
cleaned, the drapes cleaned and any damaged doors replaced.
If the Premises are not surrendered at the end of the term or sooner
termination of this Lease, Lessee shall indemnify Lessor against loss or
liability resulting from delay by Lessee in so surrendering the Premises,
including, without limitation, any claims made by any succeeding tenant founded
on such delay.
17. Default. In the event of any default under the terms of this Lease by
Lessee, or an abandonment of the Premises by the Lessee, the Lessor has the
option of: (1) removing all persons and property from the Premises and
repossessing the Premises, in which case any of the Lessee's property which
Lessor removes from the Premises may be stored in a public warehouse or
elsewhere at the cost of, and for the account of Lessor or, (2) allowing the
Lessee to remain in full possession and control of the Premises. If the Lessor
chooses to repossess the Premises, the Lease will automatically terminate in
accordance with the provisions of California Civil Code Section 1951.2. In the
event of such termination of the Lease, Lessor may recover from the Lessee: (1)
the worth at the time of award of unpaid rent which had been earned at the time
of termination, including interest at the maximum rate an individual is
permitted by law to charge; (2) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided, including interest at the maximum rate an
individual is permitted by law to charge; (3) the worth at the time of award of
the amount by which the unpaid rent for
-13-
<PAGE>
the balance of the term after the time of award exceeds the amount of such
rental loss that the Lessee proves could be reasonably avoided; and (4) any
other amount necessary to compensate the Lessor for all the detriment
proximately caused by the Lessee's failure to perform his obligations under the
Lease or which, in the ordinary course of things, would be likely to result
therefrom. "The worth at the time of the award", as used in (1) and (2) of this
paragraph is to be computed by allowing interest at the maximum rate an
individual is permitted by law to charge. "The worth at the time of the award",
as referred to in (3) of this paragraph is to be computed by discounting the
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one (1%) percent.
If Lessor chooses not to repossess the Premises, but allows the Lessee to
remain in full possession and control of the Premises, then in accordance with
provisions of California Civil Code Section 1951.4, the Lessor may treat the
Lease as being in full force and effect, and may collect from the Lessee all
rents as they become due through the termination date of the Lease, as specified
in the Lease. For the purpose of this paragraph, the following do not constitute
a termination of Lessee's right to possession:
a) Acts of maintenance or preservation, or efforts to relet the property.
b) The appointment of a receiver on the initiative of the Lessor to protect
his interest under this Lease.
Lessee shall be liable immediately to Lessor for all costs Lessor incurs in
reletting the Premises, including, without limitation, brokers' commissions, and
like costs. Reletting can be for a period shorter or longer than the remaining
term of this Lease. Lessee shall pay to Lessor the rent due under this Lease on
the dates the rent is due, less the rent the Lessor receives from any reletting.
No act by Lessor allowed by this Section shall terminate this Lease unless
Lessor notifies Lessee that Lessor elects to terminate this Lease. After
Lessee's default, and for as long as Lessor does not terminate Lessee's right to
possession of the Premises, if Lessee obtains Lessors consent, Lessee shall have
the right to assign or sublet its interest in this Lease, but Lessee shall not
be released from liability. Lessor's consent to proposed assignment or
subletting shall not be unreasonably withheld.
If Lessor elects to relet the Premises as provided in this Paragraph, rent
that Lessor receives from reletting shall be applied to the payment of
First, any indebtedness from Lessee to Lessor other than rent due from
Lessee.
Second, all costs, including for maintenance, reasonably incurred by
Lessor in reletting;
-14-
<PAGE>
Third, rent due and unpaid under this Lease. After deducting payment
referred to in this Paragraph, any sum remaining from rent Lessor receives
from reletting shall be applied in payment of future rent as rent becomes
due under this Lease. If on the date rent is due under this Lease, the rent
received from reletting is less than the rent due on that date, Lessee
shall pay to Lessor, in addition to remaining rent due, all costs,
including for maintenance, Lessor incurred in reletting that remain after
applying rent received from the reletting, as provided in this paragraph.
Lessor at any time after Lessee commits a default can cure the default at
Lessee's cost. If Lessor at any time, by reason of Lessee's default, pays any
sum or does any act that requires the payment of any sum, the reasonable sum
paid by Lessor shall be due immediately from Lessee to Lessor at the time the
sum is paid, and if paid at a later date shall bear interest at the maximum rate
an individual is permitted by law to charge from the date the sum is paid by
Lessor until Lessor is reimbursed by Lessee. The sum, together with interest on
it, shall be additional rent.
Rent not paid within five (5) days after becoming due shall bear interest
at the maximum rate an individual is permitted by law to charge from the date
due until paid.
18. Damage or Destruction.
(a) Uninsured Minor Casualty. In the event that any portion of the Premises
are destroyed or damaged by an uninsured peril, Lessor or Lessee may, upon
written notice to the other, given within thirty (30) days after the occurrence
of such damage or destruction, elect to terminate this Lease; provided, however,
that either party may, within thirty (30) days after receipt of such notice,
elect to make any required repairs and/or restoration at such party's sole cost
and expense, in which event this Lease shall remain in full force and effect,
and the party having made such election to restore or repair shall thereafter
diligently proceed with such repairs and/or restoration.
(b) Insured Major Casualty. In the event the Premises are damaged or
destroyed from any insured peril to the extent of thirty-three (33%) percent or
more of the then replacement cost of the Premises Lessor may, upon written
notice to Lessee, given within thirty (30) days after the occurrence of such
damage or destruction, elect to terminate this Lease. If Lessor does not give
such notice in writing within such period, Lessor shall be deemed to have
elected to rebuild or restore the Premises, in which event Lessor shall, at its
expense, promptly rebuild or restore the Premises to their condition prior to
the damage or destruction and Lessee shall pay to Lessor upon commencement of
reconstruction the amount of any deductible from the insurance policy.
(c) Insured Minor Casualty. In the event the Premises are damaged or
-15-
<PAGE>
destroyed from any insured peril to the extent of less than thirty-three (33%)
percent of the then replacement cost of the Premises, Lessor shall, at Lessor's
expense, promptly rebuild or restore the Premises to their condition prior to
the damage or destruction and Lessee shall pay to Lessor upon commencement of
reconstruction the amount of any deductible from the insurance policy.
In the event that, pursuant to the foregoing provisions, Lessor is to
rebuild or restore the Premises, Lessor shall, within thirty (30) days after the
occurrence of such damage or destruction, provide Lessee with written notice of
the time required for such repair or restoration. If such period is longer than
one hundred eighty (180) days from the issuance of a building permit, which
insurance shall not exceed ninety (90) days from Lessor's notice of intent to
rebuild, Lessee may, within thirty (30) days of receipt of Lessor's notice,
elect to terminate the Lease by giving written notice to Lessor of such
election, whereupon the Lease shall immediately terminate. The period of time
for Lessor to complete the repair or restoration shall be extended for delays
caused by the fault or neglect of Lessee or because of acts of God, acts of
stormy weather, inability to obtain materials, supplies or fuels, acts of
contractors or subcontractors, or delay of contractors or subcontractors due to
such causes or other contingencies beyond the control of Lessor. Lessor's
obligation to repair or restore the Premises shall not include restoration of
Lessee's trade fixtures, equipment, merchandise, or any improvements,
alterations or additions made by Lessee to the Premises.
Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect; provided, however, that during any
period of repairs or restoration, rent and all other amounts to be paid by
Lessee on account of the Premises and this Lease shall be abated in proportion
to the area of the Premises rendered not reasonably suitable for the conduct of
Lessee's business thereon. Lessee hereby expressly waives the provisions of
Section 1932, Subdivision 2 and Section 1933, Subdivision 4 of the California
Civil Code.
19. Condemnation. If any part of the Premises shall be taken for any public
or quasi-public use, under any statute or by right of eminent domain, or private
purchase in lieu thereof, and a part thereof remains, which is susceptible of
occupation and use hereunder, this Lease, shall, as to the part so taken,
terminate as of the date title shall vest in the condemner or purchase, and the
rent payable hereunder shall be adjusted so that the Lessee shall be required to
pay for the remainder of the term only such portion of such rent as the value of
the part remaining after such taking bears to the value of the entire Premises
prior to such taking. Lessor and Lessee shall have the option to terminate
this Lease in the event that such taking causes a reduction in rent payable
hereunder by fifty (50%) percent or more or substantially impairs Lessee's day
to day operations. If all of the Premises or
-16-
<PAGE>
such part thereof be taken so that there does not remain a portion susceptible
for occupation and use hereunder, as reasonably necessary for Lessee's conduct
of its business as contemplated in this Lease, this Lease shall thereupon
terminate. If a part or all of the Premises be taken, all compensation awarded
upon such taking shall go to the Lessor, and the Lessee shall have no claim
thereto and the Lessee hereby irrevocably assigns and transfers to the Lessor
any right to compensation or damages to which the Lessee may become entitled
during the term hereof by reason of the purchase or condemnation of all or a
part of the Premises, except as provided in the following paragraph.
If this Lease is terminated by either Lessor or Lessee pursuant to this
Paragraph 19, Lessor shall receive (and Lessee shall assign to Lessor upon
demand from Lessor) any and all income, rent, award or interest thereon which
may be paid or owed in connection with the exercise of such power of eminent
domain or conveyance in lieu thereof and Lessee shall have no claim against
Lessor except that Lessee shall have the right to recover its share of any award
or consideration for (a) moving expenses; (b) loss or damage to Lessee's trade
fixtures, furnishings, equipment and other personal property; and (c) business
goodwill.
20. Free from Liens. Lessee shall (1) pay for all labor and services
performed and for materials used by or furnished to Lessee, or any contractor
employed by Lessee with respect to the Premises, and (2) indemnify, defend and
hold Lessor and the Premises harmless and free from any liens, claims, demands,
encumbrances or judgments created or suffered by reason of any labor or services
performed for materials used by or furnished to Lessee or any contractor
employed by Lessee with respect to the Premises and (3) give notice to Lessor in
writing five (5) days prior to employing any laborer or contractor to perform
services related, or receiving materials for use upon the Premises, and (4)
shall post, on behalf of Lessor, a notice of non-responsibility in accordance
with the statutory requirements of California Civil Code Section 3094, or any
amendment thereof, provided that Lessor shall be responsible for executing and
recording such notices. In the event an improvement bond with a public agency in
connection with the above is required to be posted, Lessee agrees to include
Lessor as an additional obligee.
21. Compliance with Laws. Subject to the provisions of Paragraph 14 above,
Lessee shall, at its own cost, comply with and observe all requirements of all
municipal, county, state and federal authority now in force, or which may
hereafter be in force, pertaining to the use and occupancy of the Premises.
22. Subordination. Lessee agrees that this Lease shall, at the option of
Lessor, be subjected and subordinated to any mortgage, deed of trust, or other
instrument of security, which has been or shall be placed and this subordination
is hereby made effective without any further act of Lessee or Lessor. The Lessee
shall, at any time hereinafter, on demand,
-17-
<PAGE>
execute any instruments, releases or other documents that may be required by any
mortgage, mortgagor, or trustor or beneficiary under any deed of trust or other
instrument of security. If Lessee fails to execute and deliver any such
documents or instruments, Lessee irrevocably constitutes and appoints Lessor as
Lessee's special attorney-in-fact to execute and deliver any such documents or
instruments.
However, the provisions of this Paragraph 21 shall not be effective with
respect to the interest of any successor to Lessor unless and until such
successor shall have delivered to Lessee a written non-disturbance agreement for
the benefit of Lessee, to the effect that this Lease shall not be terminated in
the event of any default under any ground lease or underlying lease or any
foreclosure or sale pursuant to the terms of any mortgage or deed of trust, so
long as Lessee is not in default (after the expiration of all applicable cure
periods) under the terms of this Lease, and Lessee agrees to attorn to and
become the Lessee of Lessor's successor. In addition, Lessor shall use its best
efforts to obtain such a written non-disturbance agreement from all existing
lienholders having an interest in the Premises. So long as Lessee pays all
rentals required hereunder and observes and performs 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
Lease term, subject to all the provisions of this Lease.
23. Abandonment. Lessee shall not vacate nor abandon the Premises at any
time during the term. If Lessee shall abandon, vacate or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned at the option of Lessor, except such property as may be mortgaged to
Lessor; provided, however, that Lessee shall not be deemed to have abandoned or
vacated the Premises so long as Lessee continues to pay all rents as and when
due and otherwise pursuant to terms and conditions of the Lease.
24. Assignment and Subletting. Lessee's interest in this Lease is not
assignable by operation of law or otherwise nor shall Lessee have the right to
sublet the Premises, transfer any interest of Lessee's therein or permit any use
of the Premises by another party, without prior written consent of Lessor to
such assignment, subletting or transfer of use, which consent shall not be
unreasonably withheld.
If Lessee is a partnership, a withdrawal or change, voluntary, involuntary
or by operation of law of any partner(s) owning fifty (50%) percent or more of
the partnership, or the dissolution of the partnership, shall be deemed a
voluntary assignment.
If Lessee consists of more than one person, a purported assignment,
voluntary, involuntary or by operation of law, from one person to the other or
from a majority of persons to the others, shall be deemed a voluntary
assignment.
If Lessee is a corporation, any dissolution, merger, consolidation, or
other
-18-
<PAGE>
reorganization of Lessee, or the sale or other transfer of a controlling
percentage of capital stock of Lessee, or sale of at least fifty-one (51%)
percent of the value of assets of Lessee, shall be deemed a voluntary
assignment. The phrase, "controlling percentage" means ownership of and right to
vote, stock possessing at least fifty-one (51%) percent of the total combined
voting power of all classes of Lessee's capital stock issued, outstanding, and
entitled to vote for election of directors. This Paragraph shall not apply to
corporations the stock of which is traded through an exchange or over the
counter.
Lessor's prior consent shall not be required for any assignment, sublease
or other transfer of Lessee's interest in the Premises or this to any
corporation with which Lessee may merge or consolidate or become affiliated as a
parent, subsidiary, holding company or otherwise, or to an entity in which
Lessee has a controlling interest, provided that any such transfer shall not
result in Lessee's being released or discharged from any liability under this
Lease and such assignee, sublessee or transferee shall, prior to taking
possession of the Premises, deliver to Lessor written notice of the transfer and
its terms, covenants, conditions and provisions of the Lease, including without
limitation the provisions regarding the use of the Premises.
In the event of any such subletting or transfer which is consented to, or
not consented to, by Lessor, a sublessee agrees to pay monies or other
consideration whether by increased rent or otherwise, in excess of or in
addition to those provided for herein, then all such excess or additional monies
or other consideration shall be paid solely to Lessor, except for deductions for
real estate broker commissions and/or costs of reletting, and this shall be one
of the conditions to obtaining Lessor's consent. This paragraph does not apply
for any monies given Lessee for the value of the Lease if the company is sold.
Lessee immediately and irrevocably assigns to Lessor, as security for
Lessee's obligations under this Lease, all rent from any subletting of all or
part of the Premises as permitted by this Lease, and Lessor, as assignee and as
attorney-in-fact for Lessee, or a receiver for Lessee appointed on Lessor's
application, may collect such rent and apply it toward Lessee's obligations
under this Lease; except that until the occurrence of an act of default by the
Lessee, Lessee shall have the right to collect such rent.
A consent to or assignment, subletting, occupation or use by another party
shall not be deemed to be a consent to any subsequent assignment, subletting,
occupation or use by another party. Any assignment or subletting without such
consent shall be void and shall at the option of Lessor, terminate this Lease.
Lessor's waiver or consent to any assignment or subletting hereunder shall not
relieve Lessee from any obligation under this Lease unless the consent shall so
provide. If Lessee requests Lessor to consent to a proposed assignment or
subletting, Lessee shall pay to Lessor, whether or not consent is ultimately
given, Lessor's reasonable attorney's fees incurred in conjunction with each
such request.
-19-
<PAGE>
25. Parking Charges. Lessee agrees to pay upon demand, based on its percent
of occupancy of the entire building, its pro rata share of any parking charge,
surcharges, or any other cost hereafter levied or assessed by local, state or
federal governmental agencies in connection with the use of parking facilities
serving the Premises Including without limitation, parking surcharges imposed by
or under authority of the Federal Environmental Protection Agency.
26. Insolvency or Bankruptcy. Either (a) the appointment of a receiver to
take possession of all or substantially all of the assets of Lessee, or (b) a
general assignment by Lessee for the benefit of creditors or (c) any action
taken or suffered by Lessee under any insolvency or bankruptcy act shall
constitute a breach of this Lease. Upon the happening of any such event, this
Lease shall terminate ten (10) days after written notice of termination from
Lessor to Lessee. This section is to be applied consistent with applicable state
and federal law in effect at the time such event occurs.
Any action referred to above which is suffered involuntarily by Lessee
shall not constitute an unauthorized assignment or transfer or a breach of this
Lease by Lessee if Lessee shall successfully dismiss any action or proceeding in
connection therewith within ninety (90) days of the filing thereof. In such
event, Lessor shall not be entitled to exercise its remedies described in said
Section until the expiration of such ninety (90)-day period, provided that
Lessee shall diligently pursue such dismissal.
27. Lessor Loan or Sale. Lessee agrees promptly following request by Lessor
to (a) execute and deliver to Lessor any documents including estoppel
certificates presented to Lessee by Lessor, (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, is in full
force and effect and the date to which the rent and other charges are paid In
advance, and (ii) acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of Lessor hereunder, and (iii) evidencing the
status of the Lease as may be required by either a lender making a loan to
Lessor, to be secured by deed of trust or mortgage covering the Premises, or a
purchaser of the Premises from Lessor and (b) if requested by any bona fide
lender of Lessor or purchaser of the Premises, to deliver to Lessor current
financial statements of Lessee, including a balance sheet and profit and loss
statement for the current fiscal year and the two (2) immediately prior fiscal
years, all prepared in accordance with generally accepted accounting principles
consistently applied. Lessee's failure to deliver an estoppel certificate within
ten (10) days following such request shall be conclusive upon Lessee that this
Lease is in full force and effect and has not been modified except as may be
represented by Lessor. If Lessee fails to deliver the estoppel certificate
within ten (10) days, Lessee irrevocably constitutes and appoints Lessor as its
special attorney-in-fact to execute and deliver the certificate to any third
party.
-20-
<PAGE>
28. Surrender of Lease. The voluntary or other surrender of this Lease by
Lessee shall not work a merger nor relieve Lessee of any of Lessee's obligations
under this Lease, and shall, at the option of Lessor, terminate all or any
existing subleases or subtenancies, or may, at the option of Lessor, operate as
an assignment to him of any or all such subleases or subtenancies.
29. Attorneys' Fees. If for any reason, any suit be initiated to enforce
any provisions of this Lease, the prevailing party shall be entitled to legal
costs, expert witness expenses and reasonable attorneys' fees as fixed by the
court.
30. Notices. All notices to be given to Lessee may be given in writing
personally or by depositing the same in the United States mail, postage prepaid,
and addressed to Lessee at the said Premises. Any notice or document required or
permitted by this Lease to be given Lessor shall be addressed to Lessor at the
address set forth below, or at such other address as it may have theretofore
specified by notice delivered in accordance herewith:
LESSOR: VASONA BUSINESS PARK
c/o Cooper & Co.
3880 South Bascom Avenue, Suite 207
San Jose, California 95124
LESSEE: AHEAD TECHNOLOGY CORPORATION
103 Cooper Court
Los Gatos, California 95030
31. Transfer of Security. If any security be given by Lessee to secure the
faithful performance of all or any of the covenants of this Lease on the part of
Lessee, Lessor may transfer and/or deliver the security, as such, to the
purchaser of the reversion in the event that the reversion be sold, and
thereupon Lessor shall be discharged from any further liability in reference
thereto, upon the assumption by such transferee of Lessor's obligations under
this Lease.
32. Waiver. The waiver by Lessor or Lessee of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
rent hereunder by Lessor shall not be deemed to be a waiver of any preceding
breach by Lessee of any term, covenant or condition of this Lease, other than
the failure of Lessee to pay the particular rental so accepted, regardless of
Lessors knowledge of such preceding breach at the time of acceptance of such
rent.
33. Holding Over. Any holding over after the expiration of the term or any
extension thereof, with the consent of Lessor, shall be construed to be a
tenancy from
-21-
<PAGE>
month-to-month, at a rent of one and one-half times the previous month's rental
rate per month, and shall otherwise be on the terms and conditions herein
specified, so far as applicable.
34. Limitation on Lessor's Liability. If Lessor is in default of this
Lease, and as a consequence Lessee recovers a money judgment against Lessor, the
judgment shall be satisfied only out of the proceeds of sale received on
execution of the judgment and levy against the right, title and interest of
Lessor in the Premises, or in the building, other improvements and land of which
the Premises are part, and out of rent or other income from such real property
receivable by Lessor or out of the consideration received by Lessor from the
sale or other disposition of all or any part of Lessor's right, title and
interest in the Premises or in the building, other improvement and land of which
the Premises are part. Neither Lessor nor any of the partners comprising the
partnership designated as Lessor shall be personally liable for any deficiency.
35. Miscellaneous.
a) Time is of the essence of this Lease, and of each and all of its
provisions.
b) The term "Building" shall mean the building in which the Premises are
situated.
c) If the Building is leased to more than one tenant, then each such
tenant, its agents, officers, employees and invitees, shall have the
non-exclusive right (in conjunction with the use of the part of the
building leased to such tenant) to make reasonable use of and driveways,
sidewalks and parking areas located on the parcel of land on which the
Building is situated, except such parking areas as may from time to time
be leased for exclusive use by other tenant(s).
d) Lessee's such reasonable use of parking areas shall not exceed that
percent of the total parking areas which is equal to the ratio which
floor space of the Premises bears to floor space of the Building.
e) The term "assign" shall include the "transfer".
f) The invalidity or unenforceability of any provision of this Lease shall
not affect the validity or enforceability of the remainder of this
Lease.
g) All parties hereto have equally participated in the preparation of this
Lease.
h) The headings and titles to the paragraphs of this Lease are not a part
of this Lease and shall have no effect upon the construction or
interpretation of any part thereof.
i) Lessor has made no representation(s) whatsoever to Lessee (express or
implied) except as may be expressly stated in writing, signed by
-22-
<PAGE>
all of the parties hereto or their respective successors in interest.
j) This instrument contains all of the agreements and conditions made
between the parties hereto, and may not be modified orally or in any
other manner than by agreement in writing, signed by all of the parties
hereto or their respective successors in interest.
k) It is understood and agreed that the remedies herein given to Lessor
shall be cumulative, and the exercise of any one remedy by Lessor shall
not be to the exclusion of any other remedy.
l) The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of all of the parties hereto; and
all of the parties hereto shall jointly and severally be liable
hereunder.
m) This Lease has been negotiated by the parties hereto and the language
hereof shall not be construed for or against either party.
n) All exhibits to which reference is made are deemed incorporated into
this Lease, whether or not actually attached.
36. Lessor agrees to grant Lessee second right (second only to Caere
Corporation) of refusal on any space that becomes available in the subject
building.
Lessor shall notify Lessee that space is available and Lessee shall have
forty-eight (48) hours to provide Lessor with written commitment to lease space.
The rent shall be at the then current market rent and the terms shall be the
same as contained in this Lease.
37. Lessee agrees to provide to Lessor a letter from Datec, A.G., a
Liechenstein Corp., indicating a rolling guarantee of twelve (12) months' rent.
The twelve (12)-month guarantee period shall commence at the time of any default
and shall continue for a twelve (12)-month period. If the default is cured, the
guarantee period shall start anew at the commencement of any subsequent default
and shall run for twelve (12) months.
IN WITNESS HEREOF, Lessor and Lessee have executed this Lease on the date
first above-written.
LESSOR: VASONA BUSINESS PARK LESSEE: AHEAD TECHNOLOGY
CORPORATION
BY: WILLIAM A. COOPER BY: ARTHUR HONEGGER
BY: HUD STAFFIELD
BY: TERRY ROSE
-23-
KDW DRAFT OF JANUARY 13, 1995
AGREEMENT OF LEASE
between
SAMMIS NEW JERSEY ASSOCIATES,
Landlord
and
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.,
Tenant
<PAGE>
TABLE OF CONTENTS
Page
----
PREAMBLE ................................................................ 1
A. Premises or Demised Premises .................................. 1
B. Term .......................................................... 1
C. Expiration Date ............................................... 1
D. Permitted Use ................................................. 1
E. Fixed Rent .................................................... 1
F. Monthly Fixed Rent ............................................ 1
G. Late Charge ................................................... 2
H. Tenant's Proportionate Share .................................. 2
I. Building's Proportionate Share of Complex Expenses ............ 2
J. Security Deposit .............................................. 2
K. Tenant's S.I.C. Number for Environmental Information
(as per most recent S.I.C. Manual as published by the
United States Office of Management & Budget) .................. 2
L. Designated Broker ............................................. 2
M. Number of Tenant Allocated Parking Spaces ..................... 2
N. Tenant's Construction Allowance ............................... 2
1. Premises, Term and Purpose .................................... 2
2. Rent .......................................................... 4
3. Operating Expenses ............................................ 5
4. Completion of Improvements and Commencement of Rent ........... 14
5. Tenant Covenants As To Condition of Premises, and
Compliance with Laws .......................................... 15
6. Tenant Improvements, Alterations and Installations ............ 16
7. Various Negative Covenants by Tenant .......................... 17
8. Additional Affirmative Covenants of Tenant .................... 18
9. Building Directory and Signage ................................ 18
i
<PAGE>
TABLE OF CONTENTS (Continued)
Page
----
10. Casualty and Insurance ........................................ 18
11. Indemnification ............................................... 21
12. Non-Liability of Landlord ..................................... 21
13. Remedies and Termination Upon Tenant Default .................. 21
14. Remedies Cumulative; Non-Waiver By Landlord ................... 23
15. Services; Electric Energy ..................................... 23
16. Subordination ................................................. 27
17. Landlord's Cure of Tenant's Defaults .......................... 28
18. Notices ....................................................... 28
19. Quiet Enjoyment ............................................... 29
20. Security Deposit .............................................. 29
21. Inspection and Entry by Landlord .............................. 30
22. Brokerage ..................................................... 30
23. Parking ....................................................... 30
24. Landlord's Inability to Perform ............................... 31
25. Condemnation .................................................. 31
26. Assignment and Subletting ..................................... 31
27. Environmental Laws ............................................ 33
28. Parties Bound ................................................. 34
29. Renewal Option ................................................ 35
30. Estoppel Certificates ......................................... 37
31. Miscellaneous ................................................. 37
ii
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit
- -------
A Floor Plan
A-1 Site Plan of Building
A-2 Site Plan of Complex
A-3 Description of Land
A-4 Floor Plan of Temporary Space
B Location of Exclusive Spaces
C Work Letter to Lease
C-1 Design Development Documents
C-2 Construction Specifications
D Rules and Regulations
E HVAC Specifications
F Building Holidays
G Cleaning Services
iii
<PAGE>
THIS LEASE AGREEMENT (this "Lease"), dated January __, 1995, between SAMMIS
NEW JERSEY ASSOCIATES, a California partnership having an office at c/o Gale &
Wentworth, Inc., 100 Campus Drive, Suite 300, Florham Park, New Jersey 07932
("Landlord") and DIAGNOSTIC/RETRIEVAL SYSTEMS, INC., a Delaware corporation
having an office at 16 Thornton Road, Oakland, New Jersey 07436 ("Tenant").
PREAMBLE
BASIC LEASE PROVISIONS AND DEFINITIONS.
In addition to other terms elsewhere defined in this Lease, the following
terms whenever used in this Lease shall have the meanings set forth in this
Preamble, unless such meanings are expressly modified, limited or expanded
elsewhere herein.
A. Premises or Demised Premises: The Demised Premises are outlined in red
on the floor plan annexed hereto and made a part hereof as Exhibit A, consisting
of 5,788 square feet of gross rentable area, together with all fixtures,
equipment, improvements and installations attached thereto in the building
situated on the Land (as defined in Paragraph l(a) of this Lease) located at 5
Sylvan Way in the Township of Parsippany-Troy Hills, County of Morris, and State
of New Jersey, as shown on the site plan attached hereto and made a part hereof
as Exhibit A-1 (hereinafter referred to as the "Building"), the Building being
part of an office complex known as Morris County Financial Center, consisting of
three office buildings, having a total Gross Rentable Area of 438,156 square
feet and other Improvements as defined in Paragraph l(e) of this Lease,
constituting an office park development as shown on Exhibit A-2 (hereinafter
referred to as the "Complex") situated on the Complex Land, as defined in
Paragraph l(a) of this Lease.
B. Term: Five (5) years and six (6) months, commencing on the Commencement
Date and ending on the Expiration Date unless otherwise terminated pursuant to
the terms of this Lease.
C. Expiration Date: Noon on the last day of the calendar month occurring
five (5) years and six (6) months after the Commencement Date.
D. Permitted Use: General business and office (general, administrative and
executive) use.
E. Fixed Rent: One Hundred Forty-Three Thousand Two Hundred Fifty-Three and
00/100 ($143,253.00) Dollars per annum.
F. Monthly Fixed Rent: One-Twelfth of Fixed Rent, being Eleven Thousand
Nine Hundred Thirty-Seven and 75/100 ($11,937.75) Dollars per month.
1
<PAGE>
G. Late Charge: Four percent (4%) of the amount of the payment due.
H. Tenant's Proportionate Share: Three and Eighty-Three hundredths percent
(3.83%) determined by dividing the gross rentable area of the Demised Premises
(which Landlord represents is 5,788 square feet) by (ii) the gross rentable area
of the Building (which Landlord represents is 151,023 square feet). The gross
rentable area of the Demised Premises and the Building were established in
accordance with BOMA Code #ANSI Z 65.1-1980.
I. Building's Proportionate Share of Complex Expenses: Thirty-Four and
Forty-Seven hundredths (34.47%) percent determined by dividing the gross
rentable area of the Building (which Landlord represents is 151,023 square feet)
by the gross rentable area of the Complex (which Landlord represents is 438,156
square feet).
J. Security Deposit: None.
K. Tenant's S.I.C. Number for Environmental Information {as per most recent
S.I.C. Manual as published by the United States Office of Management & Budget):
3812.
L. Designated Broker: Cushman & Wakefield of New Jersey, Inc., One
Meadowlands Plaza, Suite 1100, East Rutherford, New Jersey 07073.
M. Number of Tenant Allocated Parking Spaces: Twenty Three (23) spaces,
consisting of Three (3) exclusive spaces in the Building garage ("Exclusive
Spaces"), which Exclusive Spaces are designated on Exhibit B hereto, and Twenty
(20) non-exclusive outdoor spaces ("Non-Exclusive Spaces").
N. Tenant's Construction Allowance: In accordance with Exhibit C attached
hereto and made a part hereof.
The parties hereby agree to the following terms and conditions:
1. Premises, Term and Purpose.
(a) Landlord does hereby lease to Tenant, and Tenant does hereby lease from
Landlord, the Demised Premises located in the Building, together with the
non-exclusive right to use any pedestrian easements and/or vehicular easements
which may exist from time to time for the benefit of tenants of the Building
over any portion of the Complex Land, together with all other Common Areas, as
defined in Paragraph l(d), for the Term commencing on the "Commencement Date" as
defined in Subparagraph (b) of this Paragraph 1, and ending on the Expiration
Date, or such earlier date upon which the Term may expire or to be terminated
pursuant to the provisions of this Lease or pursuant to Law. Landlord represents
to Tenant that the parcel of land on which the Building is located (hereinafter
called the "Land"), is known and
2
<PAGE>
designated as Lot 4.03, Block 202 on the tax maps of the Township of Parsippany
Troy Hills, and is more particularly described on Exhibit A-3 annexed hereto and
made a part hereof. Landlord represents to Tenant that said lot is a separate
and distinct tax lot, the assessment for which includes only the Land and
Improvements and no other buildings, structures or improvements. Landlord
represents to Tenant that the parcels of land on which the Complex is located
(hereinafter called the "Complex Land") consist of approximately 23.21 acres,
known and designated as Lots 4.01, 4.02 and 4.03 all in Block 202 on the tax
maps of the Township of Parsippany Troy Hills.
(b) For purposes of this Lease the Commencement Date shall be March 17,
1995, subject to the provisions of Paragraph 4(b)).
(c) The Demised Premises shall be used by Tenant for the Permitted
Use and for no other use or purpose. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall always be permitted to use the Demised
Premises for the Permitted Use. The Permitted Use shall not be deemed to include
the following uses which are expressly prohibited: governmental offices,
drive-up facility, educational, training or similar classes for members of the
general public, union offices, medical or similar treatments, barber or beauty
parlor, gaming or political activities, pornographic, employment, recruiting or
placement activities (except executive search), and walk-in retail trade as
related to any business, even if that type of business is otherwise permitted,
and any other use or uses which are of the same or similar nature or character.
Tenant shall not use or occupy the Demised Premises or any part thereof, for any
purpose deemed unlawful, disreputable, or extra-hazardous on account of fire or
other casualty, or for any purposes which shall impair the character of the
Building. Tenant, at its sole cost and expense shall obtain any consents,
licenses, permits or approvals required or obtainable in normal course to
conduct its particular business at the Demised Premises as compared to
certificates of occupancy or the like which shall be obtained by Landlord at
Landlord's sole cost and expense.
(d) The "Common Areas" shall consist of the "Building Common Areas", as
defined herein, and the "Complex Common Areas", as defined herein. (i) The
"Building Common Areas" shall be those parts of the Building and other
improvements designated by Landlord from time to time for the common use of all
tenants of the Building, including among others, facilities, halls, lobbies,
delivery passages, drinking fountains, public toilets, and the like, or similar
improvements operated, owned or maintained, in whole or in part, by Landlord
with respect to the Building. (ii) The "Complex Common Areas" shall be those
parts of the Complex exterior to the Building and other buildings in the
Complex designated by Landlord from time to time for the common use of all
tenants in the Complex, including but not limited to, parking lots, service
buildings, parkways, drives, greenspaces, parks, fountains retention pond, or
other facilities owned, operated or maintained, in whole or in part, by Landlord
or, the owner or operator from time to time of same, for use by all tenants of
the Complex and/or such other owners and operators. The Common Areas shall be
operated and maintained by Landlord
3
<PAGE>
and such other owners or operators for the benefit of all tenants in a first
class manner. The use of the Common Areas, shall be in common with Landlord,
other tenants of the Building and the Complex and other persons entitled to use
the same. Landlord shall not modify the Building Common Areas in any way which
has a material adverse impact on Tenant's access to the Demised Premises,
Tenant's primary entrance to the Demised Premises or Tenant's ability to conduct
its business at the Demised Premises as permitted under this Lease.
(e) For purposes of this Lease the term "Improvements" shall mean and
include all, whether existing now or in the future, buildings, including the
Building, and/or appurtenant structures or improvements of any kind, whether
above, on, or below the land surface, including without limitation,
outbuildings, loading areas, canopies, walls, waterlines, sewer, electrical and
gas distribution facilities, parking facilities, walkways, streets, roads,
rights of way, fences, hedges, exterior plantings, poles, and signs.
2. Rent.
(a) The rent reserved under this Lease for the Term hereof shall be and
consist of (a) the Fixed Rent payable in equal monthly installments in advance,
on the first day of each and every calendar month during the Term (except that
Tenant shall pay the second monthly installment upon signing this Lease, the
monthly installment of Fixed Rent payable for the first month of the Term being
forgiven as a rental concession pursuant to Paragraph 2(d)); plus (b) such
additional rent ("Additional Rent") in an amount equal to Tenant's Proportionate
Share of Expenses (as such terms are defined in Paragraph 3 of this Lease) and
all charges for services and utilities pursuant to Paragraph 15 hereof, and any
other charges as shall become due and payable hereunder, which Additional Rent
shall be payable as hereinafter provided, all to be paid to Landlord at its
office stated above, or such other place as Landlord may designate in writing,
in lawful money of the United States of America; provided, however, that if the
Commencement Date shall occur on a date other than the first calendar day of a
month, the rent for the partial month commencing on the Commencement Date shall
be appropriately pro-rated on the basis of the monthly rent payable during the
first year of the Term. If the Expiration Date occurs on other than the last day
of a calendar month, the rent for such month shall likewise be pro-rated.
(b) Tenant does hereby covenant and agree promptly to pay the Fixed Rent,
Additional Rent and any other charges herein reserved as and when the same shall
become due and payable, without demand therefor (except as otherwise expressly
provided for in this Lease), and without any set-off or deduction whatsoever
(except as otherwise expressly provided for in this Lease or allowed by Law).
All Additional Rent and other charges payable hereunder, which are not due and
payable on a monthly basis during the Term, unless otherwise specified herein,
shall be due and payable within twenty (20) days of delivery by Landlord to
Tenant of notice to pay the same together with a statement showing the manner in
which the amount was calculated.
4
<PAGE>
(c) In the event that any payment of Fixed Rent, Additional Rent or any
other charges shall be paid more than ten (1O) days after the due date for same
provided herein, Tenant shall pay the Late Charge. Notwithstanding the
foregoing, Tenant shall be permitted to make three (3) late payments each Lease
Year without being assessed a Late Charge therefore (it being understood that
each thirty (30) day period or any portion thereof that a late payment remains
outstanding shall constitute a "late payment", so that, for example, if Monthly
Fixed Rent for the month of January is not paid until March 1, the Tenant shall
be deemed to have made two (2) late payments for purposes of this subparagraph).
(d) Notwithstanding anything to the contrary contained in this Paragraph 2,
so long as Tenant is not in default hereunder beyond any applicable notice and
grace period, Tenant shall not be required to pay to Landlord the monthly Fixed
Rent attributable to the first, thirteenth, twenty-fifth, thirty-seventh,
forty-ninth and sixty-first months of the Term; provided, however, that Tenant
shall be required to pay Additional Rent as set forth in this Lease during such
six months. If Landlord, in its sole discretion, agrees to accept an untimely
cure of any default hereunder and Tenant effectuates such cure after losing the
benefit of a monthly rent abatement hereunder, Tenant shall be entitled to
credit the amount of Fixed Rent which would have been abated during the first,
thirteenth, twenty-fifth, thirty-seventh, forty-ninth or sixty-first month, as
applicable, from the Fixed Rent from the first full payment of Monthly Fixed
Rent which is due and payable following the acceptance of such cure by Landlord.
3. Operating Expenses.
(a) For purposes of this Paragraph, the following definitions shall apply:
"Initial Year" shall mean the 1995 calendar year.
"Lease Year" shall mean each calendar year subsequent to the Initial
Year.
"Real Estate Taxes" shall mean the real estate taxes and assessments
for municipal improvements now or hereafter imposed upon the Land, the
Building and other real property included with or located upon the Land.
If, due to a change in the method of taxation or assessment, any franchise,
income, profit or other tax, however designated, shall be substituted by
the applicable taxing authority in whole or in part, for the Real Estate
Taxes now or hereafter imposed on the Land, the Building or other real
property included in the Land to the extent the same is imposed on owners
of real estate in particular and not taxpayers in general, such franchise,
income, profit or other tax shall be deemed to be included in the term
"Real Estate Taxes" (for such purposes the tax in question shall be
calculated as if the Land and Improvements were the sole asset of
Landlord).
5
<PAGE>
Real Estate Taxes shall not include (i) any inheritance, estate,
succession, transfer, gift, franchise, net income, capital stock tax, corporate,
capital levy, stamp or transfer tax or similar or dissimilar tax (except to the
extent that, as provided for above, such tax is substituted for and in lieu of
Real Estate Taxes now or hereafter imposed on the Land or the Improvements) or
(ii) penalties, interest or the like with respect to any Real Estate Taxes
(unless such penalties, interest or the like arise from Tenant's failure to make
timely payment of Tenant's Proportionate Share of Expenses pursuant to Paragraph
3(c)). If any Real Estate Taxes, by law, may at the option of the taxpayer be
paid in installments, then for purposes of calculating Expenses, Landlord shall
be deemed to pay the same in the maximum number of installments permitted by law
and there shall be included hereunder in each Lease Year only those installments
becoming due during such Lease Year.
"Expenses" shall mean (i) Real Estate Taxes, (ii) the total of all the
reasonable and customary costs and expenses paid or incurred by Landlord with
respect to the management, operation, maintenance, and repair of the Building,
the Land and any other improvements located on the Land, and the services
provided tenants therein (excepting (a) electrical energy expenses paid directly
by tenants (including Tenant) to Landlord or to the applicable utility supplying
said service pursuant to Paragraph 15 of this Lease and equivalent provisions of
other leases and (b) the costs of providing a type of utility to a single tenant
which is not provided to all tenants), including, but not limited to, the cost
and expenses incurred for and with respect to: all utilities, including without
limitation, water, electricity, gas, lighting, sewer and waste disposal; air
conditioning, ventilation and heating (subject to the deduction hereinafter
described); lobby maintenance and cleaning; maintenance of elevators; protection
and security; lobby plantings and interior landscape maintenance which are
appropriate for the continued operation of the Building in a first-class manner;
maintenance and painting of non-tenant areas; fire, all risk, boiler and
machinery, sprinkler, apparatus, public liability and property damages, rent and
plate glass insurance; supplies; wages, salaries, disability benefits, pensions,
hospitalization, retirement plans, group insurance, workmen's compensation
insurance, payroll, social security, unemployment and other similar taxes with
respect to employees of Landlord; uniforms and workers clothes for such
employees and the cleaning thereof and other similar employee benefits and
expenses imposed on Landlord pursuant to law or to any collective bargaining
agreement with respect to such employees to the extent and in such proportion
that the services of such employees are dedicated to the operation of the
Building, up to and including the Building manager; the cost for a bookkeeper
and for an accountant and any other professional and consulting fees, including
legal and auditing fees to the extent and in such proportion that the services
of such professionals and consultants are dedicated to the operation of the
Building; association fees or dues; the expenses, including payments to
attorneys and appraisers, incurred by Landlord in connection with any
application or proceeding wherein Landlord obtains or seeks to obtain reduction
or refund of the Real Estate Taxes payable or paid; management fees of the
Building to the extent consistent with market conditions and any other expenses
of any other kind whatsoever reasonably and customarily incurred in managing,
operating, maintaining and repairing the Building, the Land and any other
improvements located
6
<PAGE>
on the Land, and (iii) the Building's Proportionate Share of Complex Expenses,
as hereinafter defined. Expenses shall not include any cost borne by any other
tenant or as to which any other tenant is required to pay the entire cost of the
same, whether or not as additional rent.
"Complex Expenses" shall mean the total of all the reasonable and customary
costs and expenses paid or incurred by Landlord and/or others to the extent such
costs incurred by others are chargeable to Landlord or contributable to by
Landlord with respect to the management, operation, maintenance, and repair of
the Complex Common Area and the services provided tenants therein (excepting
those Expenses described in the immediately preceding subparagraph or otherwise
borne by any other tenant or as to which any other tenant is required to pay the
entire cost of same, whether or not as additional rent) and including, but not
limited to, the reasonable and customary cost and expenses incurred for and with
respect to: all utilities, including but not limited to, exterior lighting,
electricity and waste disposal (excepting those utility expenses described in
the immediately preceding subparagraph or otherwise borne by any other tenant or
as to which any other tenant is required to pay the entire cost of same, whether
or not as additional rent) protection and security; maintenance, painting and
cleaning of the Complex Common Area; exterior landscape maintenance; snow
removal, parking lot maintenance, striping and repairs, maintenance and repairs
of the roads, streets, driveways, utilities, retention pond and drainage
facilities; all risk, public liability and property damage insurance (excepting
those insurance expenses described in the immediately preceding subparagraph or
otherwise borne by any other tenant or as to which any other tenant is required
to pay the entire cost of same, whether or not as additional rent); supplies;
wages, salaries, disability benefits, pensions, hospitalization, retirement
plans, group insurance, workmen's compensation insurance, payroll, social
security, unemployment and other similar taxes with respect to employees of
Landlord; uniforms and working clothes for such employees and the cleaning
thereof; and other similar employee benefits and expenses imposed on the
Landlord and/or others pursuant to law or to any collective bargaining agreement
with respect to such employees, to the extent and in such proportion that the
services of such employees are dedicated to the operation of the Complex and not
any one particular building, up to and including the manager; the cost for a
bookkeeper and for an accountant and for any other professional and consulting
fees, including legal and auditing fees to the extent and in such proportion
that the services of such professionals and consultants are dedicated to the
operation of the Complex and not to any particular buildings therein;
association fees or dues; the expenses and management fees of the Complex to the
extent consistent with market conditions and any other expenses of any other
kind whatsoever reasonably incurred in managing, operating, maintaining and
repairing the exterior areas of the Complex, Complex Common Area and Complex
Land.
No expense shall be included as both Expenses and Complex Expenses, it
being the intention of this Paragraph 3(a) that there shall be no duplication of
charges in the calculation of Expenses or Complex Expenses hereunder. The
determination of Expenses and Complex Expenses shall be made in a generally
consistent manner from year to year. Expenditures shall be included in Expenses
and Complex Expenses only to the extent that the same are reasonable
7
<PAGE>
given the first class nature of the Building and the Complex and the level of
service being provided to both.
"Base Year Expenses" shall mean the Expenses payable by Landlord for the
Initial Year based upon ninety-five (95%) percent occupancy of the Building. If
the average occupancy of the Building during the Initial Year is less than
ninety-five (95%) percent, Landlord shall reasonably determine what the Expenses
for the Initial Year would have been assuming ninety-five (95%) percent
occupancy of the Building, which reasonable determination shall be binding and
conclusive and be deemed to be the Expenses for the Initial Year.
Landlord agrees that with respect to all maintenance, repair, replacement
and improvement expenses referred to in the two immediately preceding Paragraphs
involving contracts or individual expenditures exceeding $25,000.00, other than
emergency repairs, Landlord shall obtain at least two competitive bids from
persons or entities not affiliated with Landlord and shall utilize the lowest
responsible bidder for such work.
No expenses shall be included as both Expenses and Complex Expenses, it
being the intention of this Paragraph 3(a) that there shall be no duplication of
charges in the calculation of Real Estate Taxes, Expenses or Complex Expenses
hereunder. The determination of Expenses and Complex Expenses shall be made in a
consistent manner from year to year. Expenditures shall be included in Expenses
and Complex Expenses only to the extent that the same are reasonable given the
first class nature of the Building and the Complex and the level of service
being provided to both. Expenses and Complex Expenses shall exclude or have
deducted from them, as the case may be:
(i) leasing commissions, brokerage commissions, finder's fees or
similar commissions or fees;
(ii) salaries for executives above the grade of Building manager, with
regard to Expenses, or Complex manager, with respect to Complex Expenses;
(iii) Building and Complex start-up, opening or construction expenses;
(iv) except as provided hereinbelow, expenditures for capital
improvements, or other expenses which are capital in nature, as determined
pursuant to generally accepted accounting principles consistently applied,
except for those de minimis amounts that are expensed and except for
capital expenses required by law enacted after the Commencement Date, in
which case the cost thereof shall be included in Expenses for the calendar
year in which the costs are incurred and subsequent calendar years on a
straight line basis amortized over its useful life with an interest factor
equal to the Prime Rate;
(v) advertising, marketing and promotional expenditures;
8
<PAGE>
(vi) legal fees for lease negotiations and disputes with tenants or
incurred in connection with enforcing the provisions of any lease of space
in the Building or the Complex and legal and auditing fees, other than
legal and auditing fees reasonably incurred in connection with maintenance
and operation of the Building and the Complex, or in connection with the
preparation of statements required for all tenants pursuant to additional
rent or lease escalation provisions;
(vii) as a deduction, amounts received by Landlord through proceeds of
insurance to the extent the proceeds are compensation for expenses which
were previously included as Expenses hereunder;
(viii) cost of repairs or replacements incurred by reasons of fire or
other casualty or caused by the exercise of the right of eminent domain or
compensable to Landlord by virtue of Landlord's insurance;
(ix) rent under any ground or underlying leases;
(x) depreciation;
(xi) allowances, concessions or other costs and expenses of
decorating, redecorating, fixturing, furnishing or renovating space
demised or intended to be demised to new or existing tenants or for other
occupants of the Building or any other building in the Complex;
(xii) any cost incurred for a service provided to one or more tenants
or occupants of the Building or any other building in the Complex but not
required by this Lease to be provided to Tenant without separate charge;
(xiii) any amount incurred by Landlord (or any owner or operator of
any portion of the Complex) by reason of Landlord's (or other such persons)
negligence or intentional misconduct (but the cost of insuring against such
risks may be included as Expenses or Complex Expenses);
(xiv) any fines or penalties incurred due to violations by Landlord or
any owner or operator of any portion of the Complex of any governmental
law, rule or authority;
(xv) any costs or expenses (including fines, interest, penalties and
legal fees) incurred due to the violation (or the correction thereof) by
Landlord (or any other owner or operator of the Complex), of the terms and
conditions of any lease pertaining to the Building (or any other building
in the Complex) or incurred due to Landlord's failure (or the failure of
any other owner or operator of the Complex) to timely pay Expenses, Complex
Expenses or Real Estate Taxes;
9
<PAGE>
(xvi) the costs or expenses for purchasing, owning, leasing and/or
maintaining sculpture, paintings or other works of art installed or used in
or on the Building, the Complex, the Building Common Areas or the Complex
Common Areas;
(xvii) lease takeover costs incurred by Landlord in connection with
new leases at the Building or Complex;
(xviii) costs relating to withdrawal liability or unfunded pension
liability under the Multi-Employer Pension Plan Act or other similar law;
(xix) costs and expenses of the sale of all or any portion of the
Complex;
(xx) amounts received by Landlord through warranties and service
contracts or otherwise, insurance proceeds and condemnation awards to the
extent they are compensation for sums previously included in Expenses or
Complex Expenses hereunder;
(xxi) costs for performing tenant installations for any individual
tenant or for performing work or furnishing services to or for individual
tenants at such tenant's expense and any other contribution by Landlord to
the costs of tenant improvements;
(xxii) interest, points and fees on debt or amortization on or for any
mortgage or mortgages encumbering the Complex, or any part thereof, and all
principal, escrow deposits and other sums paid on or in respect to any
indebtedness (whether or not secured by a mortgage lien) and on any equity
participations of any lender or lessor, and all costs incurred in
connection with any financing, refinancing or syndication of the Complex,
or any part thereof;
(xxiii) except as provided hereinbelow, rentals and other related
expenses incurred in leasing airconditioning systems, elevators or other
equipment ordinarily considered to be of a capital nature;
(xxiv) the cost and expense of correcting defects in the construction
of the Building or Complex or defects in any other improvements (as
distinguished from maintenance and repairs required as a result of the use
thereof);
(xxv) any amount incurred to a company or other entity affiliated with
Landlord (or affiliated with any other owner or operator of any part of the
Complex) to the extent the same exceeds the amount which would have been
incurred on a fair market basis in the absence of such affiliation;
(xxvi) the costs of furnishing electricity to the leased premises of
any existing tenant in the Building or any area which is or will in the
future be included in the leased premises of any Building tenant; and
10
<PAGE>
(xxvii) the general corporate overhead and general administrative
expenses of landlord or the owner or operator of any portion of the
Complex, except as specifically permitted herein with respect to certain
management, bookkeeping and other expenses incurred in connection with the
management, maintenance and operation of the Building or the Complex.
In computing Expenses and Complex Expenses, there shall be credited as a
deduction therefrom all amounts chargeable to specific tenants of the Building,
and to specific tenants of other buildings in the Complex, to the extent those
amounts are included in Expenses and/or Complex Expenses. Expenses and Complex
Expenses shall be net only and for that purpose shall be deemed reduced by the
amount of all reimbursements, recoupments, payments, discounts, credits,
reductions, allowances, or the like received or receivable by Landlord, or by
any other owner or operator of any part of the Complex in connection with
Expenses and Complex Expenses.
If Landlord and/or others (to the extent such costs incurred by others are
chargeable in whole or in part to Landlord) shall purchase any item of capital
equipment or make any capital expenditure designed to result in savings or
reductions in Expenses or Complex Expenses, then the costs for same shall be
included in Expenses or Complex Expenses. The costs of capital equipment or
capital expenditures are to be included in Expenses or Complex Expenses for the
calendar year in which the costs are incurred and subsequent calendar years on a
straight line basis amortized over such period of time as reasonably can be
estimated as the time in which such savings or reductions in Expenses or Complex
Expenses are expected to equal Landlord's costs for such capital equipment or
capital expenditure with an interest factor equal to the Prime Rate at the time
of Landlord's having actually incurred said costs. If Landlord and/or others
shall lease any such item of capital equipment designed to result in savings or
reductions in Expenses, then the rentals and other costs paid pursuant to
leasing shall be included in Expenses or Complex Expenses for the calendar year
in which they were incurred. Notwithstanding the foregoing, in no event shall
the amount included in Expenses or Complex Expenses for any calendar for
"cost-saving" capital improvements (whether such capital improvements are
purchased or leased) exceed the amount by which Expenses or Complex Expenses are
reasonably estimated to have been reduced in said calendar year as a result of
said capital improvements.
If during all or part of any calendar year (including the Initial Year),
Landlord and/or others shall not furnish any particular item(s) of work or
service (which would constitute an Expense or Complex Expense hereunder) to
portions of the Building or the Complex due to the fact that construction of the
Building or the Complex is not completed, or such portions are not occupied or
leased or because such item of work or service is not required or desired by the
tenant of such portion, or such tenant is itself obtaining and providing such
item of work or service, or for other reasons, for the purposes of computing the
Additional Rent payable hereunder, the amount of the Expenses or Complex
Expenses for such item for such period shall be increased by an amount equal to
the additional operating and maintenance expenses which
11
<PAGE>
would reasonably have been incurred during such period by Landlord and/or others
if it or they had at its or their own expense furnished such item of work or
service to such portion of the Building or Complex.
(b) In the event (i) that the Commencement Date shall occur on other than
the first day of a calendar year, or (ii) that the date of the expiration or
other termination of this Lease shall be a day other than the last day of a
calendar year, or (iii) of any abatement of the Fixed Rent payable hereunder
pursuant to any provision of this Lease (other than Paragraph 2(d)), for any
period of time not equal to a full calendar year, or (iv) of any increase or
decrease (as herein provided) in the Gross Rentable Area of the Demised Premises
or in the Gross Rentable Area of the Building or the Complex, then in each such
event in applying the provisions of this Article 3 with respect to such calendar
year in which such event shall have occurred, appropriate adjustments shall be
made to Tenant's Proportionate Share of Expenses payable pursuant to Paragraph
3(c) so as to apportion such payment on the basis of (i) the pro rata portion of
the calendar year during which such payment is to be made and/or (ii) the
increase or decrease in Tenant's Proportionate Share of Expenses by virtue of
the changes in any such Gross Rentable Area.
(c) Tenant shall be responsible for Tenant's Proportionate Share of the
amount by which Expenses for any Lease Year exceed Base Year Expenses during the
Term as herein provided.
(1) At the end of the Initial Year and thereafter for each successive
Lease Year, or part thereof, Landlord shall send to Tenant a statement of
projected expenses, ("Projected Expenses") for the applicable Lease Year as
estimated by Landlord in good faith, if any, (an "Expense Projection"), and
shall indicate what the estimated amount of Tenant's Proportionate Share of
said Expenses which are in excess of Base Year Expenses shall be, said
amount to be paid in equal monthly installments (rounded to the nearest
whole dollar) in advance on the first day of each month by Tenant as
Additional Rent, commencing January 1st of the applicable Lease Year.
(2) If during the course of any Lease Year, Landlord shall have reason
to believe that the Expenses shall be higher than that upon which the
aforesaid Expense Projections were originally based as set forth in
subparagraph (1) of this paragraph (c) then Landlord shall be entitled to
adjust the Expense Projection by a lump sum invoice for the months of the
Lease Year which precede the revised Projections, and to advise Tenant of
an adjustment in future monthly projection amounts to the end result that
Landlord's Projected Expenses shall be on a reasonably current basis each
Lease Year.
(3) Within ninety (90) days following the end of each Lease Year,
Landlord shall send to Tenant a statement of actual Expenses incurred for
the prior Lease Year showing Tenant's Proportionate Share of Expenses due
from Tenant. Such statement shall
12
<PAGE>
contain sufficient detail to enable Tenant to analyze the same and to
compare the same to the Initial Year. In the event the amount prepaid by
Tenant exceeds the amount that was actually due based upon actual year end
cost, then Landlord shall, at Landlord's option, either credit the amount
of the overcharge against the next due monthly payment of Projected
Expenses pursuant to Paragraph 3(c)(1) hereof or pay to Tenant an amount
equal to the overcharge at the time such statement is provided to Tenant.
In the event Landlord has undercharged Tenant, then Landlord shall provide
Tenant with an invoice stating the additional amount due, which amount
shall be paid in full by Tenant within twenty (20) days of receipt.
(d) Each and every of the aforesaid Expense Projection amounts,
whether requiring lump sum payment or constituting Projected monthly
amounts added to the Fixed Rent, shall for all purposes be treated and
considered as Additional Rent and the failure of Tenant to pay the same as
and when due in advance and without demand shall have the same effect as
failure to pay any installment of the Fixed Rent and shall afford Landlord
all the remedies provided in this Lease therefor, including, without
limitation, the Late Charge as provided in Paragraph 2(c) of this Lease.
(e) Tenant acknowledges and agrees that Landlord shall have the right
to change the period of the Lease Year, either before or during the Term,
to any other fiscal year or twelve month period, provided that the
application of such change does not result in Tenant's paying for any
period of time or in the aggregate more than it would pay absent such
change. In the event Landlord makes such change, then the same shall be
effective upon written notice to Tenant and, in such event, Tenant shall
pay Tenant's Proportionate Share of Expenses for the period from the end of
the initially designated Lease Year, as last billed, to the beginning of
the newly designated Lease Year, prorated for such period, within twenty
(20) days of the rendering by Landlord of the bill for such interim period.
If the Building shall have been less than ninety five percent (95%)
occupied during the entire Lease Year, then the Expenses shall be projected
for such Lease Year as set forth in the last paragraph of the definition of
Expenses contained herein. Real Estate Taxes, for the purposes of this
Lease shall reflect the full assessed value of the Building multiplied by
the tax rate then in effect. If all the Building, Land and improvements to
be included in the Building have not been included in the assessed value of
the Building for the calculation of Real Estate Tax during the Initial
Year, then the Real Estate Taxes for the Initial Year shall be adjusted by
Landlord to reflect the amount of Real Estate Taxes which would be imposed
on the Building if all of the Building, Land and improvements to be
included in the Building were completed and included in said assessed value
of the Building and in the Real Estate Taxes and had been fully assessed.
(f) Landlord shall maintain the Building Common Areas, the building
systems (including, without limitation, heating, ventilating and air
conditioning, plumbing and electric systems), the structural elements of
the Building and the roof. Landlord shall also maintain, or cause to be
maintained, the Complex Common Areas.
13
<PAGE>
4. Completion of Improvements and Commencement of Rent
(a) Landlord agrees to provide the improvements and other work in and to
the Demised Premises in accordance with the terms, conditions and provisions of
Exhibit C, attached hereto and made a part hereof.
(b) The Demised Premises shall be deemed ready for occupancy and the
Commencement Date hereunder shall occur on March 17, 1995 or such later date
that (a) the Demised Premises shall be delivered to Tenant free of occupants, in
tenantable condition, broom clean and free of violations of any health, safety,
fire and other statutes and regulations governing the Demised Premises and its
use, all of which shall be established by issuance of a certificate (temporary
or final) by appropriate governmental authority, permitting occupancy of the
Demised Premises for the purposes set forth herein; and (b) Landlord has
substantially completed the initial installations and other work in and to the
Demised Premises agreed to be performed by it pursuant to Paragraph 4(a) (and
Landlord shall be deemed to have substantially completed said installations and
other work notwithstanding that minor or insubstantial details of construction,
mechanical adjustment or decoration remain to be performed in the Demised
Premises or any part thereof, the non-completion of which does not materially
interfere with Tenant's access to or use of the Demised Premises or with
Tenant's ability to do work in the Demised Premises which is not part of
Landlord's work but which is necessary for Tenant's use of the Demised
Premises). If the occurrence of any of the conditions listed in the preceding
sentence, and thereby the making of the Demised Premises ready for occupancy,
shall be delayed due to a Tenant Delay (as defined in Section 3.2 of Exhibit
"C"); then, subject to the provisions of Exhibit "C", the Commencement Date
shall be accelerated by a time period equal to the number of days of Tenant
Delay so caused by Tenant. In the event any such Tenant Delay days shall be
asserted by Landlord, Landlord shall notify Tenant of the same, as provided in
Section 3.2 of Exhibit "C". Landlord shall give Tenant fourteen (14) days prior
notice of the estimated Commencement Date.
(c) If the Commencement Date does not occur by March 27, 1995 (net of
Tenant Delay days), Landlord shall provide Tenant on such date with
approximately 3,000 to 4,000 gross rentable square feet of space within the
building commonly known as 1 Sylvan Way, Parsippany, New Jersey and located
within the Complex (the "Temporary Space") and shown on Exhibit "A-4" for a
period not to exceed seven (7) months. In the event Tenant elects to accept such
Temporary Space, Tenant's occupancy thereof shall be subject to all of the terms
and conditions of this Lease, except that (i) Tenant shall pay Fixed Rent at the
rate of Twenty-Four and 75/100 Dollars ($24.75) per gross rentable square feet
of the Temporary Space for the month of April, 1995, (ii) Tenant shall not be
obligated to pay Fixed Rent, Expenses and Complex Expenses for the months of
May, June, July, August, September or October, 1995, (iii) Tenant shall pay
electrical energy expenses with respect to the Temporary Space at the monthly
rate of One and 25/100 Dollars ($1.25) per gross rentable square feet of the
Temporary Space and (iv) Tenant shall vacate the Temporary Space on or before
the earlier to occur of (i)
14
<PAGE>
that date which is thirty (30) days after the Commencement Date or (ii) October
31, 1995, whether or not the Commencement Date shall have occurred. If the
Commencement Date shall not have occurred on or before October 31, 1995, Tenant
shall have the option of terminating this Lease by giving written notice of
termination on or before October 31, 1995. Tenant shall be permitted to have
access to the Demised Premises prior to the Commencement Date on reasonable
conditions established by Landlord in order to permit Tenant to complete
Tenant's work in the Demised Premises, provided that such access shall not be
permitted to interfere with Landlord's construction pursuant to Paragraph 4(a).
If Landlord obtains a temporary certificate of occupancy, Landlord shall take
all steps necessary to preserve the continued validity thereof until Landlord
obtains a final, unconditional certificate of occupancy.
(d) Tenant may occupy the Demised Premises as soon as the same are ready
for its occupancy and the Commencement Date shall have occurred (but not prior
to said date except for installation of Tenant's fixtures, equipment, personal
property and for the erection of Tenant's furniture or otherwise with the
express consent of Landlord). If and when Tenant shall take actual possession of
the Demised Premises, subsequent to the completion of the Landlord's work
pursuant to Paragraph 4(a), it shall be conclusively presumed that the same are
in satisfactory condition, except as to (i) those items of work remaining to be
performed by Landlord pursuant to this Paragraph 4, (ii) any items of work set
forth on a "Punch List" to be submitted to and acknowledged by Landlord in
writing within thirty (30) days after the Commencement Date or (iii) any defects
in the construction of the work performed by Landlord pursuant to Paragraph 4(a)
of which Tenant notifies Landlord with one (1) year of the Commencement Date.
Landlord shall proceed diligently to complete such punch list items and to
correct any such construction defects.
5. Tenant Covenants As To Condition of Premises, and Compliance with Laws.
(a) In the event that the Building or any of the equipment affixed thereto
or stored therein should be damaged as a result of any act of Tenant, its
agents, servants, employees, invitees or contractors, Tenant shall, upon demand,
pay to Landlord the reasonable cost of all required repairs, including
structural repairs. Tenant shall commit no act of waste and shall take good care
of the Demised Premises and the equipment affixed thereto and stored therein,
shall maintain the Demised Premises in good condition and state of repair, and
at the end or certain expiration of the term hereof, shall deliver up the
Demised Premises in good order and condition, wear and tear from a reasonable
use thereof, Landlord's repair obligations and damage by fire, casualty and
condemnation excepted. Landlord shall perform, or cause to be performed, all
such maintenance and repairs and Tenant shall pay to Landlord the costs incurred
therefor twenty (20) days after demand as Additional Rent.
(b) Tenant, at Tenant's expense, shall promptly comply in all material
respects with all laws, rules, regulations and ordinances, of all governmental
authorities or agencies having jurisdiction over the Demised Premises, and of
all insurance bodies (including,
15
<PAGE>
without limitation, the Board of Fire Underwriters), at any time duly issued or
in force, applicable to the Demised Premises or any part thereof or to Tenant's
use thereof; but only to the extent that the obligations to comply therewith
arise from Tenant's particular and specific manner of use of the Demised
Premises as distinguished from an obligation to comply with laws arising with
respect to office space generally. Landlord shall comply with all laws relating
to the Common Areas and all laws relating to the Demised Premises which Tenant
is not obligated to comply with hereunder.
6. Tenant Improvements, Alterations and Installations.
(a) With the exception of Tenant's trade and business fixtures and
machinery, furniture, moveable partitions and personalty (including computer,
communication and other office equipment ("Tenant's Property"). All fixtures,
equipment, improvements, alterations, installations which are attached to the
Demised Premises, and any additions and appurtenances made by Tenant to the
Demised Premises shall become the property of Landlord upon installation. Not
later than the last day of the Term, Tenant shall, at its expense, remove from
the Demised Premises all of Tenant's Property and such improvements made by or
on behalf of Tenant to the Demised Premises as Landlord elects to have removed;
provided that Tenant shall not be required to remove any work performed by
Landlord pursuant to Paragraph 4(a) or any replacement floor or wall coverings.
Tenant, at its sole cost and expense, shall repair injury done by or in
connection with the installation or removal of such improvements. Any equipment,
fixtures, goods or other property of Tenant, not removed by Tenant upon the
termination of this Lease, or upon any quitting, vacating or abandonment of the
Demised Premises by Tenant, or upon Tenant's eviction, shall be considered as
abandoned and Landlord shall have the right, without any notice to Tenant, to
sell or otherwise dispose of the same, at the expense of Tenant, and shall not
be accountable to Tenant for any part of the proceeds of such sale, if any.
Landlord may have any such property stored at Tenant's risk and expense.
(b) Tenant, without Landlord's prior consent, shall have the right to make
non-structural alterations, installations, additions or improvements in or to
the Demised Premises that (i) in the aggregate for any Lease Year involve a
total cost of not more than Twenty-Five Thousand Dollars ($25,000.00), as
adjusted by an amount equal to the percentage increase in the Consumer Price
Index for all Urban Consumers, New York-Northeastern New Jersey Region
(1982-84=100), or, in the event such Index is discontinued, any substitute
index, with equitable adjustment, between the month in which the Commencement
Date occurs and the month in which such work is initially proposed by Tenant to
Landlord, (ii) do not require a building permit to be issued by any governmental
authority to legally make same, and (iii) do not affect any existing building
systems outside the Demised Premises and do not impair or adversely affect any
existing building systems within the Demised Premises. No other alterations,
installations, additions or improvements (structural or non-structural) shall be
made by Tenant without Landlord's express prior written approval. Landlord
agrees to promptly respond to any requests for its consent to any alteration,
installation, addition or improvement. Landlord agrees
16
<PAGE>
that approval of alterations, installations and improvements of a non-structural
nature and which do not affect any building systems shall not be unreasonably
withheld. Tenant shall give Landlord prior written notice of any proposed
alterations, installations, additions or improvements (hereinafter called
"Alterations") with copies of proposed plans and as-built plans upon completion
of the Alterations. All such Alterations shall be done at Tenant's sole expense
and the making thereof shall not unreasonably interfere with the use of the
Building by other tenants. Tenant agrees to indemnify, defend and hold harmless
Landlord from any and all costs, expenses, claims, causes of action, damages and
liabilities of any type or nature whatsoever (including, but not limited to
reasonable attorneys' fees and costs of litigation) arising out of or relating
to the making of the Alterations by Tenant. Nothing herein contained shall be
construed as constituting the permission of Landlord for a mechanic, contractor,
subcontractor or material supplier to file a lien claim against the Demised
Premises, the Building, the Land or the Complex and Tenant agrees to secure the
removal of any such lien which any such person purports to file against said
premises (in connection with work performed by or on behalf of Tenant) by
payment, bonding or otherwise pursuant to law. All such Alterations shall be
effected in compliance with all applicable laws, ordinances, rules and
regulations of governmental bodies having or asserting jurisdiction over the
Demised Premises.
(c) Tenant, without Landlord's prior consent and at Tenant's sole cost and
expense, shall have the right to install a satellite dish on the roof of
Building, subject to (i) Tenant's obtaining and complying with the terms of all
necessary governmental approvals, (ii) non-interference with existing roof
equipment and (iii) Landlord's determination of the location, screening
requirements and other similar requirements for such installation.
7. Various Negative Covenants by Tenant. Tenant agrees that it shall not,
without Landlord's prior written consent:
(a) Do anything in or near the Demised Premises which will increase
the rate of fire insurance on the Building, it being understood and agreed
that the mere use of the Demised Premises for the Permitted Use shall not
be deemed to cause such increase;
(b) Permit the accumulation of waste or refuse matter in or near the
Demised Premises except in containers provided therefor;
(c) Mortgage, hypothecate, pledge or encumber this Lease in whole or
in part;
(d) Permit any signs, lettering or advertising matter to be erected or
attached to the Demised Premises if the same will be visible outside of the
Demised Premises (except for signs in the reception area thereof); or
17
<PAGE>
(e) Encumber or obstruct the Common Areas surrounding the Demised
Premises nor cause same to be encumbered or obstructed, nor encumber or
obstruct any access ways to the Demised Premises, nor cause same to be
encumbered or obstructed.
8. Additional Affirmative Covenants of Tenant. Tenant covenants and agrees
that Tenant will faithfully observe and comply with the rules and regulations
annexed hereto and made a part hereof as Exhibit "D" and such additional rules
and regulations as Landlord hereafter at any time or from time to time may
communicate in writing to Tenant, and which, in the reasonable judgment of
Landlord, shall be necessary or desirable for the reputation, safety, care or
appearance of the Building or the Complex, or the preservation of good order
therein, or the operation or maintenance of the Building or Complex, or the
equipment thereof, or the comfort of tenants or others in the Building or
Complex; provided, however, that in the case of any conflict between the
provisions of this Lease and any such rule or regulation, the provisions of this
Lease shall control. Without limitation of Tenant's remedies under Paragraph 19,
nothing contained in this Lease shall be construed to impose upon Landlord any
duty or obligation to enforce the rules and regulations or the terms, covenants
or conditions in any other lease as against any other tenant, and Landlord shall
not be liable to Tenant for violation of any rule or regulation by any other
tenant, its employees, agents, visitors, invitees, subtenants or licensees.
9. Building Directory and Signage. Landlord will, at the request of Tenant,
and at Landlord's expense, maintain listings on the directory located on the
Building site of the names of Tenant and any other firm, association or
corporation in occupancy of the Demised Premises or any part thereof as
permitted hereunder. Landlord shall not be required to list the names of any
individuals on said Building directory. Landlord will, at the request of Tenant,
and at Tenant's expense, install signs identifying Tenant in the third floor
elevator lobby and on Tenant's entrance door to the Demised Premises, which
signs shall be subject to Landlord's prior written approval, which approval
shall not be unreasonably withheld.
10. Casualty and Insurance.
(a) In the event of partial or total destruction, by reason of fire or any
other cause, of (i) the Demised Premises or (ii) the Building or any portion
thereof which renders the Demised Premises untenantable, Landlord shall promptly
restore and rebuild (i) the Demised Premises or (ii) the Building or such
portion thereof as needed to make the Demised Premises tenantable at Landlord's
expense, unless, subject to the immediately following sentence, Landlord elects
by notice to Tenant within ninety (90) days of said destruction not to restore
and rebuild the Demised Premises and/or the Building, and, in such case, upon a
date specified in said notice by Landlord, this Lease shall terminate. Landlord
may elect to terminate this Lease only if (i) twenty-five percent (25%) or
more of the gross floor area of the Building is damaged or destroyed by such
casualty or (ii) if such casualty occurs during the last twelve (12) months of
the Term (or, if Tenant has exercised its option to renew this Lease, if such
18
<PAGE>
casualty occurs during the last twelve (12) months of the final Renewal Term)
and affects at least thirty-three percent (33%) of the Demised Premises. If
Landlord elects or is required to restore and rebuild, Landlord shall, within
ninety (90) days of the fire or casualty, notify Tenant of the estimated time
period for completing such restoration and Tenant shall be relieved of the
obligation to pay that portion of the rent herein reserved which relates to the
area of the Demised Premises which has been rendered untenantable. If the damage
to the Demised Premises (or Building, as applicable) is such that Landlord
reasonably estimates that the restoration of the Demised Premises (or Building,
as applicable) would require a period of time in excess of nine (9) months after
the date of Landlord's notice, then Tenant shall have the right to terminate
this Lease upon notice to Landlord given within twenty (20) days after the date
that Landlord notifies Tenant of the estimated time period required for the
restoration of the Demised Premises (or Building, as applicable). If for any
reason Landlord fails to complete the restoration of the Demised Premises (or
Building, as applicable) within twelve (12) months of the date on which the
casualty occurs, Tenant may terminate this Lease by giving Landlord written
notice of termination prior to the completion of the restoration of the Demised
Premises (or Building, as applicable). In the event of a casualty which renders
the entire Demised Premises untenantable which is restored and rebuilt by
Landlord, Landlord shall give Tenant fourteen (14) days notice prior to the
completion of the restoration and re-commencement of the obligation to pay rent
hereunder.
(b) Tenant shall, at Tenant's sole cost and expense, but, except to the
extent prohibited by law with respect to workmen's compensation insurance, for
the mutual benefit of Landlord and Tenant and any Additional Insured (as
hereinafter defined), maintain or cause to be maintained (a) comprehensive
general liability insurance, including but not limited to, premises, bodily
injury, personal injury and contractual liability coverages for any and all or
injury resulting from any act or omission on the part of Tenant or Tenant's
contractor's, licensees, agents, visitors or employees, on or about the
Demised Premises including such claims arising out of the construction of
improvements on the Demised Premises by or on behalf of Tenant, such insurance
to afford protection to the limit of not less than Two Million Five Hundred
Thousand Dollars ($2,500,000.00) in respect to injury or death to any one person
or to any number of persons or property damage arising out of a single
occurrence; (b) workmen's compensation insurance covering all persons employed
in connection with the construction of any improvements by Tenant and the
operation of its business upon the Demised Premises and (c) "all risk" coverage
on all of Tenant's personal property, including, but not limited to, standard
fire and extended coverage insurance with vandalism and malicious mischief
endorsements on all Tenants improvements and alterations in or about the Demised
Premises, to the extent of their full replacement value. The comprehensive
general liability policy shall, to the extent permitted by law, name any
mortgagees and ground lessors of the Land and the Building and any owners,
mortgagees and ground lessors of other portions of the Complex and their
successors and assigns as additional insureds (the "Additional Insureds") and
shall be written by a good and solvent insurance carrier authorized to do
business in the State of New Jersey.
19
<PAGE>
(c) Prior to the Commencement Date, and at least thirty (30) days prior to
the expiration date of any policy, Tenant shall furnish evidence of such
insurance and payment of premiums thereon to Landlord. Such insurance shall be
in form reasonably satisfactory to Landlord and without limitation, shall
provide that no cancellation or lapse thereof or change therein shall be
effective until after thirty (30) days written notice to Landlord at the address
specified in Paragraph 18 of this Lease.
(d) During the term of this Lease, Tenant shall maintain in effect in each
insurance policy required under this Lease that relates to property damage a
waiver of subrogation in favor of Landlord and the Additional Insureds from its
then-current insurance carriers, and shall at all times furnish evidence of such
currently effective waiver to Landlord. Such waiver shall be in a form
reasonably satisfactory to Landlord and without limitation, shall provide that
no cancellation or lapse thereof or change therein shall be effective until
after thirty (30) days written notice to Landlord at the address, specified in
Paragraph 18 of this Lease.
(e) Each insurance policy required to be maintained under this Lease shall
state that with respect to the interest of Landlord and the Additional Insureds
the insurance maintained pursuant to each such policy shall not be invalidated
by any action or inaction of Tenant and shall insure Landlord and the Additional
Insureds regardless of any breach or violation of any warranties, declarations,
conditions or exclusions by Tenant.
(f) Each insurance policy required to be maintained under this Lease shall
state that all provisions of each such insurance policy, except for the limits
of liability, shall operate in the same manner as if a separate policy had been
issued to each person or entity insured thereunder.
(g) Each insurance policy required to be maintained under this Lease shall
state that the insurance provided thereunder is primary insurance without any
right of contribution from any other insurance which may be carried by or for
the benefit of Landlord or the Additional Insureds.
(h) Each insurance policy required to be maintained under this Lease shall
recognize the indemnification set forth in Paragraph 11 of this Lease.
(i) Failure of Tenant to maintain any of the insurance required under this
Lease or to cause to be provided in any insurance policy the requirements set
forth in this Paragraph 10, shall constitute a default under this Lease without
any notice being required by Landlord.
(j) Landlord and Tenant hereby release each other from any and all
liability or responsibility (to the other or anyone claiming through or under
them by way of
20
<PAGE>
subrogation or otherwise) for any loss or damage to property caused by fire or
any of the extended coverage or supplementary insurance contract casualties even
if such fire or other casualty shall have been caused by the fault or negligence
of the other party, or anyone for whom such party may be responsible; provided,
however, that this release shall be applicable and in force and effect only with
respect to loss or damage occurring during such time as the releasor's policies
shall contain a clause or endorsement to the effect that any such release shall
not adversely affect or impair or prejudice the right of the releasor to recover
thereunder. Landlord and Tenant each agree that their respective policies will
include such a clause or endorsement so long as the same is obtainable and if
not obtainable (cost shall not be a basis to claim non-obtainability), shall so
advise the other in writing and such notice shall release both parties from the
obligation to obtain such a clause or endorsement.
11. Indemnification. Subject to Paragraph lO(j) hereof, Tenant shall
indemnify and hold harmless Landlord, the Additional Insureds, any mortgagee,
and any lessor under any underlying leases or ground leases, from and against
any expense (including, without limitation, reasonable legal and collection
fees), loss, liability or damages (excluding consequential damages) suffered or
incurred as a result of or in connection with (i) any breach by Tenant of its
obligations contained in this Lease or (ii) its acts or the acts of its agents,
servants, invitees, contractors or employees.
12. Non-Liability of Landlord. Landlord shall not be liable for (and Tenant
shall make no claim against Landlord for) any property damage which may be
sustained by Tenant or any other person, as a consequence of the failure,
breakage, leakage, inadequacy, defect or obstruction of the water, plumbing,
steam, sewer, waste or soil pipes, roof, drains, leaders, gutters, valleys,
downspouts, or the like or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, air conditioning or heating systems, elevators or
hoisting equipment; or by reason of the elements; or resulting from the
carelessness, negligence or improper conduct on the part of any other tenant of
Landlord or this or any other tenant's agents, employees, guests, licensees,
invitees, subtenants, assignees or successors; or attributable to any
interference with, interruption of or failure, except resulting from Landlord's
negligence, of any services or utilities to be furnished or supplied by
Landlord. Tenant shall give Landlord prompt written notice of the occurrence of
any events set forth in this Paragraph 12. Tenant shall indemnify Landlord from
any expense (including legal fees), loss, liability or damages suffered or
incurred in connection with the matters referred to in this Paragraph.
13. Remedies and Termination Upon Tenant Default.
(a) In the event that:
(1) Tenant shall default in the payment of (i) any Fixed Rent or (ii)
any Additional Rent or other charge payable monthly hereunder by Tenant to
Landlord, on any date upon which the same becomes due, and such default
shall continue for five (5) days after
21
<PAGE>
the same becomes due.
(2) Tenant shall default in the payment of any Additional Rent or any
other charge payable hereunder which are not due and payable hereunder on a
monthly basis, on any date upon which the same becomes due, and such
default shall continue for five (5) days after Landlord shall have given to
Tenant a written notice specifying such default; or
(3) Tenant shall default in the due keeping, observing or performing
of any covenant, agreement, term, provision or condition of Paragraph l(c)
of this lease on the part of Tenant to be kept, observed or performed, and
if such default shall continue and shall not be remedied by Tenant within
forty-eight (48) hours after Landlord shall have given to Tenant a written
notice specifying the same; or
(4) if during the term hereof the Demised Premises or any part thereof
shall be or become abandoned; or
(5) Tenant shall default in the due keeping, observing or performing
of any covenant, agreement, term, provision or condition of this Lease on
the part of Tenant to be kept, observed or performed (other than a default
of the character referred to in clauses (1), (2), (3) or (4) of this
Paragraph 13(a)), and if such default shall continue and shall not be
remedied by Tenant within fifteen (15) days after Landlord shall have given
to Tenant a written notice specifying the same, provided that if such
default cannot reasonably be cured within such fifteen (15) day period and
Tenant shall have commenced to cure such default within such fifteen (15)
day period and thereafter diligently and expeditiously proceeds to cure the
same, such fifteen (15) day period shall be extended for so long as it
shall require Tenant, in the exercise of due diligence, to cure such
default;
"then, Landlord" may, in addition to any other remedies herein contained, as may
be permitted by law, without being liable for prosecution therefor, or for
damages, re-enter the Demised Premises and the same have and again possess and
enjoy; and re-let the Demised Premises and receive the rents therefor for the
account of Tenant and apply the same, first to the payment of such expenses,
reasonable attorney fees and costs, as Landlord may have been put to in
re-entering and repossessing the same and in making such repairs and alterations
as may be necessary; and second to the payment of the rents due hereunder.
Tenant shall remain liable for such rents as may be in arrears and also the
rents as may accrue subsequent to the reentry by Landlord, to the extent of the
difference between the rents reserved hereunder and the rents, if any, received
by Landlord during the remainder of the unexpired term hereof, after deducting
the aforementioned expenses, fees and costs; the same to be paid as such
deficiencies arise and are ascertained each month. Landlord, at its option, may
require Tenant to pay in a single lump sum payment, at the time of such
expiration or re-entry as the case may be, a sum which represents the present
value (using a discount rate equal to the annual rate of interest applicable to
five (5) year treasury notes as of the date of the default) of the excess of the
aggregate of the
22
<PAGE>
Fixed Rent which would have been payable by Tenant for the period commencing
with such expiration or re-entry, as the case may be, and ending on the
originally fixed Expiration Date of the Term, over the aggregate rental value of
the Demised Premises for the same period.
(b) Upon the occurrence of any of the contingencies set forth in the
preceding clause, or should Tenant be adjudicated a bankrupt, insolvent or
placed in receivership, or should proceedings be instituted by or against Tenant
for bankruptcy, insolvency, receivership, agreement of composition or assignment
for the benefit of creditors and not dismissed within sixty (60) days, or if
this Lease or the estate of Tenant hereunder shall pass to another by virtue of
any court proceedings, writ of execution, levy, sale, or by operation of law,
Landlord may, if Landlord so elects, at any time thereafter, terminate this
Lease and the term hereof, upon giving to Tenant or to any trustee, receiver,
assignee or other person in charge of or acting as custodian of the assets or
property of Tenant, five days notice in writing, of Landlord's intention so to
do. Upon the giving of such notice, this Lease and the term hereof shall end on
the date fixed in such notice as if the said date was the date originally fixed
in this Lease for the expiration hereof; and Landlord shall have the right to
remove all person, goods, fixture and chattels therefrom, by force or otherwise
without liability for damages.
14. Remedies Cumulative; Non-Waiver By Landlord. The various rights,
remedies, options and elections of Landlord, expressed herein, are cumulative,
and the failure of Landlord to enforce strict performance by Tenant of the
conditions and covenants of this Agreement, to exercise any election or option,
or to resort or have recourse to any remedy herein conferred, or the acceptance
by Landlord of any installment of rent after any breach by Tenant, in any one or
more instances, shall not be construed or deemed to be a waiver or a
relinquishment for the future by Landlord of any such conditions and covenants,
options, elections or remedies, but the same shall continue in full force and
effect. Tenant waives trial by jury in any action or proceeding arising out of
this Lease.
15. Services; Electric Energy.
(a) Landlord will: (i) supply heat for the warming of the Demised Premises
and the public portions of the Building during Business Hours in the cold
season, when it may be required for the comfortable occupancy of the Demised
Premises by Tenant; (ii) furnish to, and distribute in, the Demised Premises air
conditioning during Business Hours when it may be required for the comfortable
occupancy of the Demised Premises by Tenant; (iii) provide snow and ice removal
for the parking area, sidewalks and driveways in a reasonably expeditious
manner; (iv) provide refuse removal from a dumpster to be provided on site to be
used for normal paper waste attendant to an office building; and (v) provide hot
and cold drinking water to the Demised Premises. Attached hereto as Exhibit "E"
are the heating and cooling specifications of the heating ventilating and air
conditioning systems of the Building. "Business Hours" as used in this Lease,
means the generally customary daytime business hours of Tenant but not before
8:00 A.M. or after 6:00 P.M. on weekdays and 8:00 A.M. to 1:00 P.M. on
23
<PAGE>
Saturdays, and not including Sundays and those legal holidays listed in Exhibit
"F" annexed hereto and made a part hereof. Tenant agrees at all times to
cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of such air conditioning system. Landlord will clean the Demised
Premises in accordance with the cleaning schedule annexed hereto as
Exhibit "G". The cost of the services and utilities provided pursuant to this
Paragraph 15(a) is included in Expenses as defined in Paragraph 3(a).
(b) Provided Tenant is not then in default of this Lease, Landlord will
provide to Tenant overtime services and utilities when and to the extent
reasonably requested by Tenant or when activated by Tenant's use of an overtime
thermostat and time clock and in accordance with such reasonable conditions as
shall he determined by Landlord. Tenant shall pay to Landlord, as Additional
Rent, a charge determined by Landlord for such additional service and utilities
which charge is and shall initially be Thirty-Five and 00/100 Dollars ($35.00)
per hour and which may only be increased to reflect any increases in the cost of
utilities to Landlord.
(c) Except in case of an emergency, Tenant shall have access to the Demised
Premises seven (7) days a week, twenty-four (24) hours a day. Landlord shall
retain the right to control and prevent access to the Building of all persons
whose presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interests of the Building and its tenants; provided
that nothing herein contained shall be construed to prevent such access to
persons with whom Tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities.
(d) Landlord reserves the right, without liability to Tenant and without
constituting any claim of constructive eviction, to stop or interrupt any
heating, lighting, ventilating, air conditioning, gas, steam, power,
electricity, water or other service and to stop or interrupt the use of any
building or Building facilities at such times as may be necessary and for as
long as may reasonably be required by reason of accidents, strikes, or the
making of repairs, alterations or improvements, or inability to secure a proper
supply of fuel, gas, steam, water, electricity, labor or supplies, or by reason
of any other similar or dissimilar cause beyond the reasonable control of
Landlord. No such stoppage or interruption shall entitle Tenant to any
diminution or abatement of rent or other compensation nor shall this Lease or
any of the obligations of Tenant be affected or reduced by reason of any such
stoppage or interruption.
(e) Landlord shall furnish to Tenant, seven(7) days a week, twenty-four
(24) hours a day, through the transmission facilities installed in the Demised
Premises, electric energy to be used by Tenant, at Tenant's expense as provided
for in this Article 15, in the Demised Premises as shall be sufficient to meet
Tenant's business needs, including, without limitation, for lighting and the
operation of its business machines, including photocopy equipment and computer
and data processing equipment, provided that Landlord shall not be
24
<PAGE>
obligated to provide such electrical energy in any amount in excess of an
average connected load of five (5) watts of electric consumption for all
purposes per square foot of rentable area.
(f) At any time following the Commencement Date a survey (the "Survey")
shall be made by a licensed independent electrical engineer selected by Landlord
("Surveyor") to determine the amounts to be charged Tenant for usage of the
electrical energy provided pursuant to Paragraph 15(e) above. The amounts
determined by said Survey shall be based upon certain theoretical assumptions
incorporating approximate estimates of the probable consumption of electric
energy by the lighting fixtures and other equipment and business machines
installed in the Demised Premises, the anticipated periods of operation of such
lighting fixtures, equipment and machines and the cost of furnishing such
electric energy. The determination of the electricity charges by the Surveyor
shall be expressed as an annual dollar amount per square foot of the Demised
Premises and shall be binding and conclusive on Landlord and on Tenant unless
within thirty (30) days after the delivery of a copy of such determination to
Tenant, Tenant disputes such determination by written notice to the Landlord.
Pending the resolution of any such dispute, however, Tenant shall pay to
Landlord in accordance with the provisions of this Paragraph 15(f), the amount
as determined by the Surveyor; provided, however, that if the electricity charge
as finally determined is different from that determined by the Surveyor, then
Landlord and Tenant shall make adjustment for any deficiency owed by Tenant or
overage paid by Tenant pursuant to the determination of the Surveyor. Any
dispute by Tenant over the determination of electricity charges by the Surveyor
shall be resolved by Tenant and Landlord selecting a different licensed
electrical engineer acceptable to both Landlord and Tenant, to prepare a new
survey, which new survey shall be binding on Landlord and Tenant. The cost of
such new survey shall be borne by Tenant unless the amount determined by the
Surveyor shall be more than seven percent (7%) less than that determined in the
disputed survey, in which latter event Landlord shall bear such cost.
(g) Throughout the term of this Lease, Landlord, upon the receipt of a
notice from Tenant pursuant to Subparagraph 15(n) and at the expense of Tenant,
may cause a new Survey to be made by the Surveyor to determine if a further
adjustment in the electricity charges is warranted. When any such Survey (the
"Subsequent Survey") is so completed and delivered to Tenant, the cost of
electricity as set forth in the Subsequent Survey shall become binding upon both
parties as of the first day of the month next succeeding the month in which
Landlord receives a copy of the Subsequent Survey, unless within thirty (30)
days after the delivery of such Subsequent Survey, Tenant notifies Landlord, in
writing, that it disputes the amount set forth in said Subsequent Survey.
Settlement of the dispute shall be made in the same manner as provided in
Paragraph 15(e) of this Lease.
(h) The charge for electricity determined in accordance with the provisions
of this Article 15 shall be paid by Tenant to Landlord as Additional Rent
hereunder in the following manner:
25
<PAGE>
(i) commencing on the Commencement Date and on the first day of each
month thereafter until the provisions of Paragraph 15(e) become effective,
the sum of Six Hundred Two and 92/100 Dollars ($602.92) per month, which
sum shall represent 1/12 of the estimated annual electricity charge
applicable to the Demised Premises;
(ii) commencing on the first day of the month next succeeding the
month in which Landlord and Tenant receive a copy of the Survey, an amount
equal to one-twelfth (1/12) of the annual electricity charge allocable to
the Demised Premises as determined by the Survey; and
(iii) on the first day of each month thereafter, throughout the term
of this Lease one-twelfth (1/12) of the annual electricity charge allocable
to the Demised Premises as determined by the Survey or any Subsequent
Survey.
Within thirty (30) days after determination of the electricity charge in
accordance with the Survey, Landlord or Tenant, as the case may be, shall
reimburse the other party for any overpayment or underpayment of such charge
calculated by comparison of the total amount of estimated electricity charges
paid with the amount which would have been payable since the Commencement Date
in accordance with the Survey.
(i) If the cost to Landlord of electricity shall have been increased or
decreased subsequently, by change in Landlord's electric rates, charges, fuel
adjustment, or by taxes of any kind imposed thereon, or for any other such
reason, then the aforesaid electricity charge as determined by the Survey or
Subsequent Survey shall be increased or decreased in the same percentage.
(j) Landlord reserves the right to discontinue furnishing electric energy
to Tenant in the Demised Premises at any time upon not less than sixty (60) days
notice to Tenant. If Landlord exercises such right of termination, this Lease
shall continue in full force and effect and shall be unaffected thereby, except
only that, from and after the effective date of such termination, Landlord shall
not be obligated to furnish electric energy to Tenant.
(k) If Landlord discontinues furnishing electric energy to Tenant, Tenant
shall arrange to obtain electric energy directly from the public utility company
furnishing electric service to the Building. Such electric energy may be
furnished to Tenant by means of the then existing Building system feeders,
risers and wiring, provided that Tenant shall be entitled to receive electric
service in the amount provided for in subparagraph (e) above. There shall be no
discontinuance of the furnishing of electric current to the premises by Landlord
until Tenant has completed its arrangements to obtain electric current
directly from the public utility company furnishing electric current to the
Building, so that there is no interruption in the continuity of electric
service.
26
<PAGE>
(1) In the event that Tenant shall require electric energy for use in the
Demised Premises in excess of the quantity to be initially furnished as herein
provided and if, in Landlord's reasonable judgment such excess requirements
cannot be furnished unless additional risers, conduits, feeders, switchboards
and/or appurtenances are installed in the Building, Landlord, upon written
request of Tenant, will proceed with reasonable diligence to install such
additional riser, conduits, feeders, switchboards and/or appurtenances provided
the same and the use thereof shall be permitted by applicable laws and insurance
regulations and shall not cause permanent damage or injury to the Building or
the Premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations or repairs or interfere with or disrupt
other tenants or occupants of the Building, and Tenant agrees to pay all costs
and expenses incurred by Landlord in connection with such installation.
(m) Landlord, at Tenant's reasonable expense, shall purchase and install
all lamps (including, but not limited to, incandescent and fluorescent),
starters and ballasts used in the Demised Premises, which expense shall not
materially exceed the cost at which Tenant could obtain the same from a third
party vendor.
(n) In order that Landlord may at all times have all necessary information
which it requires in order to maintain and protect its equipment, Tenant agrees
that Tenant will not make any material alteration or material addition to the
electrical equipment and/or appliances in the Demised Premises without the prior
written consent of Landlord in each instance and will promptly advise Landlord
of any other alteration or addition to such electrical equipment and/or
appliances. Landlord agrees that it shall not unreasonably withhold its consent
to a material alteration or material addition to the electrical equipment and/or
appliances in the Demised Premises so long as Tenant's electrical usage after
such alteration or addition shall not exceed an average connected load of five
(5) watts of electric consumption for all purposes per square foot of rentable
area. Tenant agrees to advise Landlord in writing as to any material change in
the periods of use of the lighting fixtures and Tenant's business machines and
equipment.
(o) Landlord shall in no way be liable or responsible to Tenant for any
loss or damage or expense which Tenant may sustain or incur by reason of any
failure, inadequacy or defect in the character, quantity or supply of electric
energy furnished to the Demised Premises except for actual damage other than
property damage suffered by Tenant by reason of any negligence of Landlord.
16. Subordination. This Lease is subject and subordinate in all respects to
any underlying leases, ground leases and to all mortgages which may now or
hereafter be placed on or affect such leases or the Land or the Demised Premises
and also to all renewals, modifications, consolidations and extensions of such
underlying leases, ground leases and mortgages. Although no instrument or act on
the part of Tenant shall be necessary to effectuate such subordination, Tenant
shall, nevertheless, execute and deliver such further instruments
27
<PAGE>
confirming such subordination as may be desired by any holder of any such
mortgage or by a lessor under any such underlying lease or ground lease. Tenant
hereby appoints Landlord its attorney-in-fact, irrevocably, to execute and
deliver any such instrument on behalf of Tenant, provided that Landlord agrees
that it shall not execute and deliver any such subordinating instrument pursuant
to such power of attorney unless Tenant shall have failed to execute and deliver
such subordinating instrument within a period of ten (10) days following
Landlord's written request to Tenant to execute and deliver such instrument. If
any underlying lease, ground lease, license or agreement to which this agreement
is subject and subordinate terminates, or if any Mortgage to which this lease is
subordinate is foreclosed, Tenant shall, on timely request, attorn to the holder
of the reversionary interest or to the Mortgagee in possession, as the case may
be.
17. Landlord's Cure of Tenant's Defaults. If Tenant shall fail or refuse to
comply with and perform any conditions and covenants of this Lease after the
expiration of any applicable grace period, Landlord may, if Landlord so elects,
carry out and perform such conditions and covenants, at the cost and expense of
Tenant, and the said cost and expense shall be payable twenty (20) days after
demand, or at the option of Landlord shall be added to the installment of rent
due immediately thereafter but in no case later than one month after such
demand, whichever occurs sooner, and shall be due and payable as such. This
remedy shall be in addition to such other remedies as Landlord may have
hereunder by reason of the breach of Tenant of any of the covenants and
conditions in this Lease contained.
18. Notices. Any notice, demand, statement or other communication which
under the terms of this Lease or under any statute or law must or may be given
shall be given by hand delivery (which shall be followed up by reputable private
overnight courier sent on the business day on which the notice was hand
delivered) to the respective parties as follows or by registered or certified
mail, return receipt requested, or by reputable private overnight delivery
service addressed to the respective parties as follows:
To Landlord: Sammis New Jersey Associates
c/o Gale & Wentworth, Inc.
100 Campus Drive - Suite 300
Florham Park, New Jersey 07932
Attn: Mr. F.X. Wentworth
With a copy to: Kelley Drye & Warren
5 Sylvan Way
Parsippany, New Jersey 07054
Attn: Jay R. Kolmar, Esq.
28
<PAGE>
To Tenant: Prior to the Commencement Date:
Diagnostic/Retrieval Systems, Inc.
16 Thornton Road
Oakland, New Jersey 07436
Attn: Mr. Mark S. Newman
President and Chief Executive Officer
Following the Commencement Date:
Diagnostic/Retrieval Systems, Inc.
5 Sylvan Way
Parsippany, New Jersey 07054
Attn: Mr. Mark S. Newman
President and Chief Executive Officer
With a copy to: Hannoch Weisman, P.C.
4 Becker Farm Road
Roseland, New Jersey 07068-3788
Attn: Howard A. Kantrowitz, Esq.
Any such notice, demand, statement or other communication shall be deemed to
have been given or made (i) upon delivery, if hand delivered; (ii) upon receipt
or the first attempted delivery date, whichever is earlier if mailed, postage
prepaid, certified or registered mail; or (iii) upon receipt or the first
attempted delivery date, whichever is earlier, if sent, charges prepaid, or
charged to sender, by a reputable private overnight delivery service. Any of the
above addresses may be changed at any time by notice given as provided above.
Legal counsel for the respective parties may provide the requisite notice(s)
hereunder on behalf of their respective client.
19. Quiet Enjoyment. Landlord covenants that Tenant upon keeping and
performing each and every covenant, agreement, term, provision and condition
herein contained on the part and on behalf of Tenant to be kept and performed,
shall quietly enjoy the Demised Premises without hindrance or molestation by
Landlord or by any other person lawfully claiming by, through or under the same
subject to the covenants, agreements, terms, provisions and conditions of this
Lease and the effect of the application of same.
20. Security Deposit. Tenant has this day deposited with Landlord the
Security Deposit for the payment of the Fixed Rent, Additional Rent and other
charges hereunder and the full and faithful performance by Tenant of the
covenants and conditions on the part of Tenant to be performed. Said sum shall
be returned to Tenant, without interest, after the expiration of the term
hereof, provided that Tenant has fully and faithfully performed all such
covenants and conditions and is not in arrears in Fixed Rent, Additional Rent
and other charges. Landlord
29
<PAGE>
may, if Landlord so elects, have recourse to such Security Deposit, to make good
any default by Tenant, in which event Tenant shall, on demand, promptly restore
said Security Deposit to its original amount. Liability to repay said Security
Deposit to Tenant shall run with the reversion and title to the Demised
Premises, whether any change in ownership thereof be by voluntary alienation or
as the result of judicial sale, foreclosure or other proceedings, or the
exercise of a right of taking or entry by any mortgagee. Landlord shall assign
or transfer said Security Deposit, for the benefit of Tenant, to any subsequent
owner or holder of the reversion or title to Demised Premises, in which case the
assignee shall become liable for the repayment thereof as herein provided, and
the assignor shall be deemed to be released by Tenant from all liability to
return such Security Deposit.
21. Inspection and Entry by Landlord.
(a) Tenant agrees, upon reasonable prior notice, to permit Landlord and
Landlord's agents, employees or other representatives to show the Demised
Premises to any lessor under any underlying lease or ground lease or any
mortgage or any persons wishing to rent or purchase the same.
(b) Tenant agrees that Landlord and Landlord's agents, employees or other
representatives, shall have the right, upon reasonable prior notice, except in
the event of emergency, to enter into and upon the Demised Premises or any part
thereof, at all reasonable hours, for the purpose of examining the same or
reading meters, or performing maintenance or making such repairs or alterations
therein as may be necessary for the safety and preservation thereof. Landlord
shall endeavor to not unreasonably materially interfere with the conduct of
Tenant's business in connection with any such entry, based upon the
circumstances existing at the time of such entry including any emergency. This
clause shall not be deemed to be a covenant by Landlord nor be construed to
create an obligation on the part of Landlord to make such inspection or repairs.
22. Brokerage. Tenant and Landlord warrant and represent to each other that
neither has dealt with any broker or brokers regarding the negotiation of the
within Lease other than Cushman & Wakefield of New Jersey, Inc. Landlord shall
pay the commission (or other similar fee or charge) earned by Cushman &
Wakefield of New Jersey, Inc. (the "Designated Broker") in connection with this
Lease pursuant to a separate agreement. Tenant and Landlord agree to be
responsible for and to indemnify and save the other harmless from and against
any claim for a commission or other compensation by any broker other than the
Designated Broker claiming to have negotiated with the indemnifying party with
respect to the Demised Premises or to have called the Demised Premises to
Tenant's attention or to have called Tenant to Landlord's attention.
23. Parking. Tenant shall have the right under this Lease to the exclusive
use of the Exclusive Spaces in the Building garage and the non-exclusive use of
the Non-Exclusive
30
<PAGE>
Spaces in the outdoor parking lot of the Building in compliance with such
reasonable Rules and Regulations as Landlord may promulgate from time to time.
Landlord shall have the right to assign the location of said Non-Exclusive
parking spaces or may designate the location of same from time to time.
24. Landlord's Inability to Perform. Except as specifically provided to the
contrary herein, this Lease and the obligation of Tenant to pay the rent
hereunder and to comply with the covenants and conditions hereof, shall not be
affected, curtailed, impaired or excused because of the Landlord's inability to
supply any service or material called for herein, by reason of any rule, order,
regulation or preemption by any governmental entity, authority, department,
agency or subdivision or for any delay which may arise by reason of negotiations
for the adjustment of any fire or other casualty loss or because of strikes or
other labor trouble or for any cause beyond the control of the Landlord.
25. Condemnation. If the Land, Building and Demised Premises leased herein,
or of which the Demised Premises is a part, or any portion thereof, shall be
taken under eminent domain or condemnation proceedings, or if suit or other
action shall be instituted for the taking or condemnation thereof, or if in lieu
of any formal condemnation proceedings or actions, Landlord shall grant an
option to purchase and or shall sell and convey the Land, Building and Demised
Premises or any portion thereof (collectively, an "Event of Condemnation"), then
this Lease, at the option of Landlord, shall terminate, and the term hereof
shall end as of such date as Landlord shall fix by notice in writing; and Tenant
shall have no claim or right to claim or be entitled to any portion of any
amount which may be awarded as damages or paid as the result of such
condemnation proceedings or paid as the purchase price for such option, sale or
conveyance in lieu of formal condemnation proceedings; and all rights of Tenant
to damages, if any, are hereby assigned to Landlord. Notwithstanding the
foregoing, Landlord shall not terminate this Lease upon an Event of Condemnation
for the mere purpose of reletting the Demised Premises to another person or
entity for a greater rental than provided for hereunder or for the mere purpose
of visciating Tenant's renewal option pursuant to Paragraph 29. Tenant agrees to
execute and deliver any instruments, at the expense of Landlord, as may be
deemed necessary or required to expedite any condemnation proceedings or to
effectuate a proper transfer of title to such governmental or other public
authority, agency, body or public utility seeking to take or acquire the Land,
Building and Demised Premises or any portion thereof. Tenant covenants and
agrees to vacate the Demised Premises, remove all Tenant's personal property
therefrom and deliver up peaceable possession thereof to Landlord or to such
other party designated by Landlord in the aforementioned notice. Failure by
Tenant to comply with any provision in this clause shall subject Tenant to such
costs, expenses, damages and losses as Landlord may incur by reason of Tenant's
breach hereof. Tenant shall have the right to terminate this Lease by serving
Landlord with a Notice of Termination within twenty (20) days of an Event of
Condemnation whereby ten percent (10%) or more of the gross rentable area of the
Demised Premises is taken.
31
<PAGE>
26. Assignment and Subletting.
(1) In the event that Tenant desires to assign this Lease or sublease the
Demised Premises to any other party the terms and conditions of such assignment
or sublease shall be communicated to Landlord in writing and Landlord shall have
the option, exercisable in writing to Tenant within fifteen (15) days of
Landlord's receipt of such notice, to recapture said space and Tenant shall be
fully released from any and all obligations hereunder. Tenant acknowledges and
agrees that if Landlord exercises its right to recapture said space that
Landlord may subsequently lease said space to any person or entity including,
without limitation, Tenant's prospective assignee or sublessee and that Landlord
shall have no liability to Tenant in connection therewith.
(2) In the event that Landlord elects not to recapture the Lease as
hereinabove provided, Tenant may nevertheless assign or sublet the whole of the
Demised Premises, subject to the Landlord's prior written consent, which consent
shall not be unreasonably withheld and shall be deemed given if Landlord does
not respond within fifteen (15) days of Landlord's receipt of such notice, and
subject to the consent of any mortgagee if required under its mortgage, or
ground lessor if required under its ground lease, on the basis of the following
terms and conditions:
(a) Tenant shall provide to Landlord the name and address of the
assignee or sublessee.
(b) The assignee or sublessee shall assume, by written instrument, all
of the obligations of this Lease, and a copy of such assumption agreement
shall be furnished to Landlord within ten (10) days of its execution.
(c) Tenant and each assignee or sublessee shall be and remain liable
for the observance of all the covenants and provisions of this Lease,
including, but not limited to, the payment of Fixed Rent, Additional Rent
and other charges due hereunder through the entire term of this Lease, as
the same may be renewed, extended or otherwise modified.
(d) Tenant shall promptly pay to Landlord fifty percent (50%) of the
difference of all consideration (other than rent received for or in
connection with any assignment or sublease or the fair market value of any
tangible personal property sold by Tenant to the assignee or sublessee),
however denominated, and fifty percent (50%) of all of the rent, as and
when received, in excess of the Fixed Rent required to be paid by Tenant
for the area assigned or sublet less reasonable real estate brokerage
commissions paid by Tenant and reasonable costs or allowances for tenant
improvements incurred or granted by Tenant in connection with such
assignment or sublease.
32
<PAGE>
(e) In any event, the acceptance by Landlord of any rent from any of
the subtenants or the failure of Landlord to insist upon a strict
performance of any of the terms, conditions and covenants herein from any
assignee or subtenant shall not release Tenant herein, from any and all of
the obligations herein during and for the entire terms of this Lease.
(f) Tenant shall only assign or sublet the Demised Premises to an
assignee or sublessee (1) whose financial status is acceptable to Landlord,
at Landlord's reasonable discretion and (2) whose use is permitted under
this Lease.
(g) Landlord shall require Five Hundred and 00/l00 ($500.00) Dollars
payment to cover its handling charges for each request for consent to any
assignment or sublet prior to its consideration of the same. Tenant
acknowledges that its sole remedy with respect to any assertion that
Landlord's failure to consent to any assignment or sublet is unreasonable
shall be the remedy of specific performance and Tenant shall have no other
claim or cause of action against Landlord as a result of Landlord's actions
in refusing to consent thereto.
(h) The assignment or sublease shall provide that there shall be no
further assignments and/or subletting without Landlord's consent.
(3) Notwithstanding anything to the contrary set forth herein, Tenant shall
have the right to assign this Lease or sublease the entire Demised Premises to
an affiliate of Tenant free of any of the provisions and requirements set forth
in subsections (1) and (2) of this Paragraph 26, but on the conditions that (a)
Tenant delivers to Landlord a true and correct copy of the assignment or
subleasing instrument at least ten (10) business days prior to the effective
date of the assignment or sublease and (b) no event of default beyond any
applicable notice or cure period exists hereunder either at the time of the
notice given pursuant to clause (a) of this subsection (3) or at the time of the
effective date of the assignment or sublease.
(4) Notwithstanding anything to the contrary set forth herein, Tenant shall
have the right to assign this Lease or sublease the entire Demised Premises to a
person or entity acquiring all or substantially all of Tenant's assets free of
any of the provisions and requirements set forth in subsections (1) of this
Paragraph 26, but on the conditions that (a) Tenant delivers to Landlord written
notice that Tenant is under contract or negotiating for the sale of all or
substantially all of its assets and identifies to Landlord in writing the
prospective purchaser and such prospective purchaser's billing address and
contact person at least thirty (30) days prior to the effective date of the
assignment or sublease and (b) no event of default beyond any applicable notice
or cure period exists hereunder either at the time of the notice given pursuant
to clause (a) of this subsection (4) or at the time of the effective date of the
assignment or sublease.
33
<PAGE>
27. Environmental Laws
(a) Tenant agrees to comply with all applicable environmental laws, rules
and regulations, including but not limited to the Industrial Site Recovery Act
(N.J.S.A. 13:1K-6 et seq.) ("ISRA"), as the same may be amended from time to
time, regarding the Demised Premises if such compliance is necessitated by
Tenant's specific manner of use of the Demised Premised (as compared to the mere
use for office purposes). Tenant represents to Landlord that Tenant's Standard
Industrial Classification (SIC) Number as used on Tenant's Federal Tax Return is
3812. Tenant shall not conduct any operations that shall cause the Building or
the Demised Premises to be deemed an "industrial establishment" as defined in
ISRA. Tenant's obligation to comply with ISRA under this subparagraph (a) shall
arise only if the need to comply with ISRA is triggered by Tenant or the
expiration or earlier termination of this Lease. If ISRA is triggered by any
other transaction involving Landlord or the Building and Land in general, Tenant
shall, at Landlord's expense, cooperate with Landlord's efforts to comply with
ISRA.
(b) Tenant hereby agrees to execute such documents Landlord reasonably
deems necessary and to make such applications as Landlord reasonably requires to
assure compliance with ISRA. Subject to the provisions of subparagraphs (a) and
(g) of this Paragraph 27, Tenant shall bear all costs and expenses incurred by
Landlord associated with any required ISRA compliance resulting from Tenant's
specific manner of use of the Demised Premises (including, without limitation,
Tenant's SIC number being within those group numbers specifically identified in
the definition of an "industrial establishment" as set forth in ISRA) or the
expiration or earlier termination of this Lease including, but not limited to,
state agency fees, engineering fees, clean-up costs filing fees and suretyship
expenses. As used in this Lease, ISRA compliance shall include applications for
determinations of nonapplicability by the appropriate governmental authority.
The foregoing undertaking shall survive the termination or sooner expiration of
the Lease and surrender of the Demised Premises and shall also survive sale, or
lease or assignment of the Demised Premises by Landlord. Tenant shall
immediately provide Landlord with copies of all correspondence, reports,
notices, orders, findings, declarations and other materials pertinent to
Tenant's compliance and the New Jersey Department of Environmental Protection's
("NJDEP") requirements under ISRA as they are issued or received by the Tenant.
(c) Tenant shall not generate, store, manufacture, refine, transport,
treat, dispose of, or otherwise permit to be present on or about the Demised
Premises, any Hazardous Substances. As used herein, Hazardous Substances shall
be defined as any "hazardous chemical," "hazardous substance" or similar term as
defined in the Comprehensive Environmental Responsibility Compensation and
Liability Act, as amended (42 U.S.C. 9601, et seq.), ISRA, as amended, the New
Jersey Spill Compensation and Control Act, as amended, (N.J.S.A. 58:10-23.11b,
et seq.), any rules or regulations promulgated thereunder, or in any other,
present or future applicable federal, state or local law, rule or regulation
dealing with
34
<PAGE>
environmental protection (except for Hazardous Substances typically used in
operating, cleaning or maintaining business offices, with respect to which
Tenant shall comply with all present or future applicable federal, state or
local law, rule or regulation dealing with environmental protection).
(d) Tenant agrees to indemnify and hold harmless the Landlord and each
mortgagee of the Demised Premises from and against any and all liabilities,
damages (excluding consequential damages), claims, losses, judgments, causes of
action, costs and expenses (including the reasonable fees and expenses of
counsel) which may be incurred by the Landlord or any such mortgagee or
threatened against the Landlord or such mortgagee, relating to or arising out of
any breach by Tenant of this paragraph, which indemnification shall survive the
expiration or sooner termination of this Lease.
(f) Landlord represents and warrants to Tenant, to the best of Landlord's
knowledge, that the Building and Land is entirely free of asbestos and other
hazardous substances, except for commercially reasonable amounts of hazardous
substances used by Landlord and/or tenants for cleaning and other uses customary
in a commercial office building.
(g) Nothing in this Article 27 shall be deemed or construed to require
Tenant to remediate any environmental condition which was not caused or
exasperated by Tenant, its agents, servants, employees, invitees, contractors,
assigns or subtenants.
28. Parties Bound
(a) The covenants, agreements, terms, provisions and conditions of this
Lease shall bind and benefit the respective successors, assigns and legal
representatives of the parties hereto with the same effect as if mentioned in
each instance where a party hereto is named or referred to except that no
violation of the provisions of Paragraph 7(c) hereof shall operate to vest any
rights in any successor, assignee or legal representative of Tenant and that the
provisions of this Paragraph 28 shall not be construed as modifying the
conditions contained in Paragraph 13 hereof.
(b) Tenant acknowledges and agrees that if Landlord shall be an individual,
joint venture, tenancy in common, firm, or partnership, general or limited,
there shall be no personal liability on such individual or on the members of
such joint venture, tenancy in common, firm or partnership in respect of any of
the covenants or conditions of this Lease; rather, Tenant agrees to look solely
to Landlord's estate and property in the Land and Building (or the proceeds
thereof) for the satisfaction of Tenant's remedies arising out of or related to
this Lease.
(c) The term "Landlord" as used in this Lease means only the owner, or the
mortgagee in possession, for the time being of the Land and Building (or the
owner of a
35
<PAGE>
lease of the Land and Building) so that in the event of any sale or sales of the
Land and Building, or of said lease, or in the event of a lease of the Land and
Building, the said Landlord shall be and hereby is entirely freed and relieved
of all covenants and obligations of Landlord hereunder thereafter accruing, and
it shall be deemed and construed without further agreement between the parties
or their successors in interest, or between the parties and the purchaser, at
any such sale, or the said lessee of the Land and Building that the purchaser
or the lessee of the same has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder.
29. Renewal Option.
(a) Provided this Lease is in full force and effect and there exists no
default hereunder by Tenant beyond any applicable notice and grace period on
both the date of delivery by Tenant to Landlord of the Renewal Notice (as
hereinafter defined) and on the Expiration Date, Tenant shall have the right by
an unconditional written notice (the "Renewal Notice"), given to Landlord not
later than eleven (11) months prior to the Expiration Date to elect to extend
the term of this Lease for the entire Demised Premises for a single five (5)
year period (the "Renewal Option Period") commencing on the day following the
Expiration Date (the last day of such five (5) year Renewal Option Period
thereupon becoming the Expiration Date).
(b) The Renewal Option Period shall be upon all of the terms, covenants and
conditions of this Lease except as follows:
(i) The Fixed Rent for the Renewal Option Period shall be an amount
equal to ninety-five percent (95%) of the fair market annual rent for the
Demised Premises (based upon rental rates paid by tenants renewing leases,
but without consideration of any other terms of such renewals including,
without limitation, rent concessions and tenant allowances provided to such
renewing tenants, if any) determined pursuant to this Paragraph 29, but in
no event less than an amount equal to the Fixed Rent payable during the
last year of the original Term plus all escalations then in effect; and
(ii) The "Initial Year" shall be deemed to be the 2000 calendar year.
(iii) Tenant shall have no further right to extend or renew this Lease
beyond the Expiration Date of the Renewal Option Period.
(c) Within thirty (30) days after receipt of the Renewal Notice, Landlord
shall notify Tenant of Landlord's determination of the fair market annual rent
then applicable to the Demised Premises. In the event Tenant disagrees with such
specified rent as the fair market annual rent for the Renewal Option Period,
Tenant shall notify Landlord within thirty (30) days thereafter of the amount it
determines as the fair market annual rent. If within such thirty (30) day
period, Tenant fails to notify Landlord that it disagrees with Landlord's
36
<PAGE>
determination of the fair market annual rent, Landlord's determination shall be
used to calculate the Fixed Rent for the Renewal Period.
(d) If, within thirty (30) days after the receipt by Landlord of Tenant's
determination of the fair market annual rent, the parties are unable to agree on
the Fixed Rent for the Renewal Option Period then Tenant shall have the right,
at its discretion, to rescind its notice of intention to renew this Lease by
written notice of rescission, failing which, the matter shall be submitted to
arbitration in accordance with the following procedure. Each party shall appoint
an arbitrator within ten (10) days after the expiration of such thirty (30) day
period. The arbitrators so chosen ("Initial Arbitrators") shall meet within
fifteen (15) days after they accept their appointment and within thirty (30)
days thereafter decide the dispute. If the Initial Arbitrators do not reach
agreement within such thirty (30) day period, then they shall appoint another
arbitrator ("Third Arbitrator") within such thirty (30) day period. If the
Initial Arbitrators do not decide the dispute or agree on the designation of the
Third Arbitrator within such thirty (30) day period, then either Tenant or
Landlord shall be entitled to submit the dispute regarding the fair market
annual rent to the American Arbitration Association ("AAA") for arbitration of
the dispute in accordance with its Commercial Arbitration Rules, and judgment
upon any decision rendered in accordance therewith may be entered in any court
have jurisdiction thereof. If the Third Arbitrator is designated in accordance
with the procedures set forth above, the Third Arbitrator and the Initial
Arbitrators all shall meet within fifteen (15) days after the Third Arbitrator
accepts its appointment and decide the dispute within thirty (30) days after the
Third Arbitrator accepts such appointment. Subject to the limitation set forth
in subparagraph (b) hereof, a decision in which two of the three arbitrators
concur shall be binding and conclusive upon the parties; provided, however, that
if no two arbitrators can agree upon the fair market annual rent, the fair
market annual rent (subject to the foregoing limitation) shall be the average of
the two closest determinations. Such determination (as limited by subparagraph
(b) hereof) shall be final. Judgment may be had on the decision and award of the
arbitrators so rendered (as limited pursuant to subparagraph (b) hereof) in any
court. If a Third Arbitrator is designated and the disputed matter is not
submitted to the AAA as provided above, then except as otherwise specifically
provided in this subparagraph (d), the arbitration nonetheless shall be
conducted substantially in accordance with the Commercial Arbitration Rules of
the AAA. If an arbitration decision and award is not made prior to the
commencement of the Renewal Option Period and the parties are unable to agree on
the Fixed Rent for the Renewal Option Period prior to its commencement, Tenant
shall continue to occupy the Demised Premises until an arbitration decision
shall be made, whereupon retroactive adjustment shall be made between the
parties and, if Tenant shall have overpaid (or underpaid) the amount of such
overpayment (or underpayment) shall be refunded (or paid). If the disputed
matter is not submitted to AAA but is arbitrated by arbitrators appointed in
accordance with the procedures set forth above, each party shall pay the fees
and expenses of the arbitrator appointed by it and the fees and expenses of the
Third Arbitrator, if any, shall be borne equally by Landlord and Tenant. If the
disputed matter is submitted to AAA for decision, the fees and expenses of such
arbitration shall be borne by the parties in accordance with the Commercial
Arbitration Rules
37
<PAGE>
of AAA.
(e) If the disputed matter is not submitted to AAA in accordance with
subparagraph (d), then each of the arbitrators selected or designated under this
Article shall be reputable and independent MAI real estate appraisers with at
least ten (10) years experience in the commercial real estate field and be
familiar with other rental properties similar to the Building in Northern New
Jersey.
(f) Time shall be of the essence in Tenant's giving of the Renewal Notice
and may not be extended or abbreviated for any reason. If Tenant fails to
exercise any of its rights to extend the Term, Landlord may demand and Tenant
shall deliver a letter that it has not so exercised such right, but Tenant's
failure or refusal to give such a letter will not extend the time within which
Tenant may exercise such right or create or bestow any other rights upon Tenant
by reason thereof.
30. Estoppel Certificates.
(a) At any time and from time to time, Tenant shall execute, acknowledge
and deliver to Landlord, or to anyone Landlord shall designate, a tenant
estoppel certificate in form reasonably acceptable to Landlord or financial
institutions requesting the same relating to matters customarily included in
tenant estoppel certificates; and
(b) Upon written request from Tenant, but in no event on more than two (2)
occasions in any calendar year, Landlord shall execute, acknowledge and deliver
to Tenant, or to anyone Tenant shall designate, an estoppel certificate in form
reasonably acceptable to Tenant indicating whether this Lease remains in full
force and effect, stating any modification hereto and whether Tenant is then in
default with respect to any of its monetary obligations under this Lease.
31. Miscellaneous.
(a) This Lease contains the entire contract between the parties. No
representative, agent or employee of Landlord has been authorized to make any
representations or promises with reference to the leasing of the Demised
Premises or to vary, alter or modify the terms hereof. No additions, changes or
modifications, renewals, or extensions hereof, shall be binding unless reduced
to writing and signed by Landlord and Tenant.
(b) The terms, conditions, covenants and provisions of this Lease shall be
deemed to be severable. If any clause or provision herein contained be adjudged
to be invalid or unenforceable by a court of competent jurisdiction or by
operation of any applicable law, it shall not affect the validity of any other
clause or provision herein, but such other clauses or provisions shall remain
in full force and effect.
38
<PAGE>
(c) Tenant shall not be entitled to exercise any right of termination or
other option granted to it by this Lease at any time when Tenant is in default
beyond any applicable notice or grace period in the performance or observance of
any of the covenants, agreement terms, provisions or conditions on its part to
be performed or observed under this Lease.
(d) The paragraph headings in this Lease are for convenience only and are
not to be considered in construing the same.
(e) If, in connection with obtaining financing for the Building, a banking,
insurance or other recognized institutional lender shall request reasonable
modifications in this Lease as a condition to such financing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder or diminish
the rights of Tenant hereunder or materially adversely affect the leasehold
interest created hereby or impair the conduct of Tenant's business operations at
the Demised Premises or diminish Landlord's responsibilities hereunder and such
modifications do not affect the Term, rent, renewal rights or work letter
allowances afforded Tenant hereunder.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
LANDLORD:
SAMMIS NEW JERSEY ASSOCIATES
By: Gale & Wentworth, Inc., as
authorized management agent
By: /s/ STANLEY C. GALE
-------------------------------
Name: Stanley C. Gale
Title: President
TENANT:
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC.
By: /s/ MARK S. NEWMAN
--------------------------------
Name: Mark S. Newman
Title: President and Chief Executive
Officer
<PAGE>
APPENDIX A
EXHIBIT A
FLOOR PLAN
Floor Plan of Sammis Corporate Park, Third Floor, Building "A"
Scale 1/16" = 1'-0"
As referred to in Preamble
<PAGE>
EXHIBIT A
Floor Plan
[Diagram]
<PAGE>
APPENDIX A-1
EXHIBIT A-1
SITE PLAN OF BUILDING
As referred to in Preamble
<PAGE>
EXHIBIT A-1
Site Plan of Building
[Diagram]
<PAGE>
APPENDIX A-2
EXHIBIT A-2
SITE PLAN OF COMPLEX
As referred to in Preamble
<PAGE>
EXHIBIT A-2
Site Plan of Complex
[Diagram]
<PAGE>
EXHIBIT "A"-3
LEGAL DESCRIPTION
Lot 4.03 Block 202--Property known as Building "A" in The Morris County
Financial Center, located in the Township of Parsippany-Troy Hills, County of
Morris.
Consists of 6.14 acres of land and is located on Sylvan Way, Parsippany, New
Jersey; more commonly known as 5 Sylvan Way.
<PAGE>
APPENDIX A-4
EXHIBIT A-4
FLOOR PLAN OF TEMPORARY SPACE IN SAMMIS CORPORATE PARK
FIRST FLOOR PLAN
BUILDING "C"
1/16" = 1'-0"
<PAGE>
EXHIBIT A-4
Floor Plan of Temporary Space
[Diagram]
<PAGE>
APPENDIX B
EXHIBIT B
LOCATION OF EXCLUSIVE SPACES
<PAGE>
EXHIBIT B
Location of Exclusive Spaces
[Diagram]
<PAGE>
EXHIBIT "C"
WORK LETTER TO LEASE
Between
Sammis New Jersey Associates
and
Diagnostic/Retrieval Systems, Inc.
Section 1.1. The provisions of this Exhibit shall have the same force and
effect as if this Exhibit were a numbered Article of the Lease.
Section 2.1. Landlord and Tenant have approved and do hereby incorporate by
reference herein the design development documents for the construction of the
Demised Premises as set forth on Exhibit "C-1" attached hereto (the "Design
Development Documents") as well as the construction specifications as set forth
on Exhibit "C-2" attached hereto (the "Construction Specifications"). Landlord
agrees to construct the Demised Premises in accordance with the Design
Development Documents and the Construction Specifications. The work, fixtures,
equipment and improvements depicted on the Design Development Documents and the
Construction Specifications are referred to in this Exhibit "C" as the "Tenant
Improvements." The Tenant Improvements shall be completed in a good and
workmanlike manner and in compliance with all applicable laws and regulations.
Landlord warrants that the Tenant Improvements shall be free from defects for a
period of one (1) year from and after the Commencement Date.
Section 3.1. In the event that Tenant desires any change in the Design
Development Documents and/or the Construction Specifications, Tenant shall
submit to Landlord revised final plans setting forth the proposed change and
instructing Landlord whether to cease work or cease any segment of work while
the change is approved (in which case the delay shall be a Tenant Delay as
hereinafter defined) or whether Landlord should continue constructing the
Demised Premises in accordance with the Design Development Documents and the
Construction Specifications notwithstanding the proposed change thereto. In the
event that no such instructions are given, Landlord shall continue constructing
the Demised Premises in accordance with the Design Development Documents and the
Construction Specifications without regard to the proposed changes thereto.
Within five (5) business days after receipt of any proposed change in the Design
Development Documents and/or the Construction Specifications from Tenant,
Landlord shall approve or reject same and if rejecting same shall state the
reasons for such rejection. If Landlord has stopped work, or some segment
thereof at Tenant's request, Landlord shall not recommence same until Landlord
receives written instructions from Tenant authorizing the recommencement of such
work. Upon the granting of any approval, Landlord shall notify Tenant of the
amount, if any, of the cost associated with such new work ("Tenant's
i
<PAGE>
Additional Finish Cost") arising therefrom and Landlord's estimate of the delay
in completion that will be caused by such proposed revision to the Design
Development Documents and/or the Construction Specifications. In the event of a
rejection by Landlord of a proposed revision, Tenant may make changes to the
proposed revision and resubmit it pursuant hereto. Upon receiving Landlord's
approval to any revision, Tenant shall, as soon thereafter as practicable, but
in no event in excess of five (5) business days, and understanding that any
delay in responding may cause delays in completion substantially greater than
the estimate given by Landlord, authorize the work that Tenant desires by
approving in writing the work and the cost thereof, and submitting to Landlord
signed and sealed revised final plans sufficient for Landlord to obtain all
necessary permits and approvals to construct the Demised Premises in accordance
with such revised final plans. Upon the submission of such revised final plans,
such revised final plans shall become the Design Development Documents and the
Construction Specifications hereunder. Any delay in completion caused by the
revision to the Design Development Documents and the Construction
Specifications, whether greater or less than Landlord's estimate, shall be a
Tenant Delay (as hereinafter defined). Tenant shall pay to Landlord the amount
of the Tenant's Additional Finish Cost within thirty (30) days after the
issuance of a temporary or permanent certificate of occupancy for the Demised
Premises. Tenant's Additional Finish Cost shall be Additional Rent, and Tenant
shall pay such amount in full, without set-off or deduction.
Section 3.2. If (a) a delay shall occur in the completion of the Demised
Premises in accordance with the Design Development Documents and the
Construction Specifications or any revised Design Development Documents and/or
Construction Specifications by the Landlord as the result of (i) any delay in
delivering any change to the Design Development Documents and/or the
Construction Specifications to Landlord in the form required by Section 3.1
hereof, (ii) any direction by Tenant that the Landlord delay proceeding with the
work or any segment of the work in anticipation of a possible revision to the
Design Development Documents and/or the Construction Specifications by Tenant or
for any other reason, (iii) any revision to the Design Development Documents
and/or the Construction Specifications authorized by Tenant, or (iv) any other
act or omission of Tenant, its agents, employees or contractors (any of such
events being a "Tenant Delay"), then (b) the Commencement Date shall (even
though no Certificate of Occupancy has been issued or the Demised Premises has
not been completed) be deemed to be one day earlier than provided for in
Paragraph 4(b) of the Lease for each day of such Tenant Delay.
The extent of any Tenant Delay shall be determined in the following manner:
Landlord shall notify Tenant of the estimated length of the Tenant Delay
involved as soon a practicable after the information necessary to estimate such
Tenant Delay is available (which notice shall include the basis for the
Landlord's estimate) and, as Landlord obtains the information to calculate the
actual Tenant Delay, Landlord shall so notify Tenant, providing it with the
basis used in calculating such Tenant Delay. In the event of a dispute
concerning the length of any Tenant Delay, Landlord's calculation shall be used
and the Commencement Date shall occur in accordance therewith, provided,
however, that Tenant shall retain its right to
ii
<PAGE>
challenge Landlord's calculation of the length of the Tenant Delay.
Section 4.1. Landlord shall complete the Tenant Improvements for an amount
equal to or less than One Hundred Forty-Four Thousand Seven Hundred and 00/100
($144,700) dollars. Landlord represents that this amount is sufficient to
complete the Tenant Improvements in accordance with the Design Development
Documents and the Construction Specifications. Tenant shall have no obligation
to contribute to the cost of the Tenant Improvements even if the amount exceeds
$144,700 unless Tenant is required to pay for Tenant Additional Finish Cost
pursuant to the provisions of Section 3.1 of this Exhibit C.
iii
<PAGE>
EXHIBIT "C-1"
DESIGN DEVELOPMENT DOCUMENTS
iv
<PAGE>
EXHIBIT C-2
Construction Specifications
January 13, 1995
DIAGNOSTIC RETRIEVAL SYSTEMS
The construction cost for your new facility at 5 Sylvan Way in Parsippany, NJ
has been determined based on the documents prepared by NSB Associates. The total
cost will be One hundred forty-four thousand seven hundred Dollars
($144,700.00).
The scope of work includes:
1. Demolition of the partitions, removal of doors, frames and hardware. The
removal of existing computer room and flooring. The removal of existing
glass panels at offices, removal of existing electrical panels. Removal of
existing ceiling system including light fixtures (save for reuse). All
existing VCT and carpet shall be removed.
2. Roofing work is included for new vent penetration from kitchen sink.
3. Millwork is included at reception area. Also new kitchen cabinetry.
4. Glass work includes the reinstallation of glass panels at offices. Also,
new door lite at reception, 1/4" tempered sliders and 1/4" tempered fixed
lights with sandblasting.
5. The cost includes all new Sargent 10 series locksets and latchsets in
bright brass finish. New door stops and closures where required. New doors
to be solid core oak veneer (stain grade). New hollow metal frames to be KD
type.
6. Drywall includes new one hour rated demising partition, new ceiling height
partitions and new partitions with sound insulation where walls penetrate
grid. Also includes taping and spackling, 3 coats.
7. The acoustical ceiling grid system shall be replaced. New ceiling tiles,
similar to the existing, will be installed at the conference room, office
No. 8 and office No. 9. Ceiling tiles salvaged from the demolition will be
installed within the new grid in other areas.
<PAGE>
January 13, 1995
8. The flooring work shall be as follows:
a. New carpet is estimated as Show/Stratton Commercial Design Series III,
30 oz. glue down.
b. VCT at storage and kitchen (Room No. 11 and No. 12) estimated as
Armstrong Stonetex.
c. All base figured as Kentile vinyl cove base at 4".
9. Painting includes one prime coat plus two finish coats of Benjamin Moore or
equal wall plex. Door frames to receive one prime coat plus two finish
coats of enamel paint. New doors shall be stained to match building
standard and finished with two (2) coats of polyurethane.
10. Plumbing cost includes LK-PSR-2522 sink, delta 100 faucet, pipe covering,
coffee maker water line, 15 gallon 277/2000 watt hot water heater, 1 1/2"
vent pipe installation of dishwasher (dishwasher not included). Includes
work performed under floor including core drilling of concrete slab and
drain piping tie-in.
11. Price includes the relocation and/or addition of 40 recessed sprinkler
heads. Includes draining of system and recharge.
12. The HVAC work includes the addition of two (2) new envirotech cooling only
boxes and one (1) new envirotech cooling only box with end switch.
Installation of new and relocated diffusers. Cap two existing VAV boxes.
Relocate existing thermostats. Check and test of existing VAV boxes. Start
and test, guarantee of new VAV boxes. Start up and air balance.
13. Electrical work includes all power and lighting requirements. New
downlights, exit signage, poke-thrus at three (3) locations, relocation of
200 AMP panel to electrical closet, wiring for hot water heater, wire and
transformer for electric strike at reception area. Electrical demolition is
included under demolition. Install switches and receptacles as noted on the
plans.
14. General Conditions include: supervision, project management, dumpster cost,
final cleanup, building permits, zoning fees, certificate of occupancy fees
and general items such as floor waxing. General cleanup is included as a
part of each activity.
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed
or displayed on any part of the exterior or interior Common Areas of the
Building without the prior written consent of Landlord. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign
installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or
inscribed at the expense of Tenant by a person chosen by Landlord.
2. No awning shall be permitted on any part of the Demised Premises. Tenant
shall not place anything against or near glass partitions or doors or
windows which may appear unsightly from outside the Demised Premises.
3. Landlord shall retain the right to control and prevent access to the
Building of all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interests of the
Building and its tenants; provided that nothing herein contained shall be
construed to prevent such access to persons with whom any tenant normally
deals in the ordinary course of its business, unless such persons are
engaged in illegal activities. No tenant and no employee or invitee of any
tenant shall go upon the roof of the Building.
4. All cleaning and janitorial services for the Building and the Demised
Premises shall be provided exclusively through Landlord, and except with
the written consent of Landlord, no person or persons other than those
approved by Landlord shall be employed by Tenant or permitted to enter the
Building for the purpose of cleaning the same. Tenant shall not cause any
unnecessary labor by carelessness or indifference to the good order and
cleanliness of the Demised Premises. Landlord shall not in any way be
responsible to any Tenant for any loss of property on the Demised Premises,
however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person.
5. Landlord will furnish Tenant, free of charge, a reasonable number of keys
to each door lock in the Demised Premises. Landlord may charge a reasonable
amount for any additional keys requested by Tenant. Tenant shall not alter
any lock or install a new additional lock or bolt on any door of its
Demised Premises. Tenant, upon the termination of its tenancy, shall
deliver to Landlord the keys of all doors which have been furnished to
Tenant, and in the event of loss of any keys so furnished, shall pay
vi
<PAGE>
Landlord therefor.
6. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions
in their installation.
7. Any freight elevator shall be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture,
packages, supplies, merchandise or other property will be received in the
Building or carried in the elevators except between such hours and in such
elevators as may be designated by Landlord.
8. Tenant shall not place a load upon any floor of the Demised Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to
be necessary to properly distribute the weight. Business machines and
mechanical equipment belonging to Tenant, which cause noise or vibration
that may be transmitted to the structure of the Building or to any space
therein to such a degree as to be objectionable to Landlord or to any
tenants in the Building, shall be placed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment
in or out of the Building must be acceptable to Landlord. Landlord will not
be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining
or moving such equipment or other property shall be repaired at the expense
of Tenant.
9. Tenant shall not use or keep in the Demised Premises any kerosene, gasoline
or inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Demised Premises any foul
or noxious gas or substance, or permit or allow the Demised Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors or vibrations,
nor shall Tenant bring into or keep in or about the Demised Premises any
birds or animals.
10. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord.
11. Tenant shall cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning and to comply with
any governmental energy-saving rules, laws or regulations of which Tenant
has actual notice, and shall
vii
<PAGE>
refrain from attempting to adjust controls other than room thermostats
installed for Tenant's use. Tenant shall keep corridor doors closed, and
shall close window coverings at the end of each business day.
12. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
13. Landlord reserves the right to exclude from the Building between the hours
of 6 p.m. and 8 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal
holidays, any person unless that person is known to the person or employee
in charge of the Building and has a pass or is properly identified. Tenant
shall be responsible for all persons for whom it requests passes and shall
be liable to Landlord for all acts of such persons. Landlord shall not be
liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. Landlord reserves the right to
prevent access to the Building in case of invasion, mob, riot, public
excitement or other commotion by closing the doors or by other appropriate
action.
14. Tenant shall close and lock the doors of the Demised Premises and entirely
shut off all water faucets or other water apparatus, and electricity, gas
or air outlets before tenant and its employees leave the Demised Premises.
Tenant shall be responsible for any damage or injuries sustained by other
tenants or occupants of the Building or by Landlord for noncompliance with
this rule.
15. Tenant shall not obtain for use on the Demised Premises ice, drinking
water, food, beverage, towel or other similar services or accept barbering
or bootblacking services upon the Demised Premises, except at such hours
and under such regulations as may be fixed by Landlord.
16. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown thereto.
The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees
or invitees shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise
to the general public in or on the Demised Premises. Tenant shall not make
any room-to-room solicitation of business from other tenants in the
Building.
18. Tenant shall not install any radio or television antenna, loud speaker or
other device on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or
viii
<PAGE>
television broadcasting or reception from or in the Building or elsewhere.
19. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Demised Premises or any
part thereof. Landlord reserves the right to direct electricians as to
where and how telephone and telegraph wires are to be introduced to the
Demised Premises. Tenant shall not cut or bore holes for wires. Tenant
shall not affix any floor covering to the floor of the Demised Premises in
any manner except as approved by Landlord. Tenant shall repair any damage
resulting from noncompliance with this rule.
20. Tenant shall not install, maintain or operate upon the Demised Premises any
vending machine without the written consent of Landlord.
21. Canvassing, soliciting and distribution of handbills or any other written
material, and peddling in the Building are prohibited, and each tenant
shall cooperate to prevent same.
22. Landlord reserves the right to exclude or expel from the Building any
person who, in Landlord's judgment, is intoxicated or under the influence
of liquor or drugs or who is in violation of any of the Rules and
Regulations of the Building.
23. Tenant shall store all its trash and garbage within the Demised Premises.
Tenant shall not place in any trash box or receptacle any material which
cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in
accordance with directions issued from time to time by Landlord.
24. The Demised Premises shall not be used for the storage of merchandise held
for sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Demised Premises be used for any improper, immoral or
objectional purpose. No cooking shall be done or permitted by any tenant on
the Demised Premises, except that use by Tenant of Underwriters' Laboratory
approved equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, provided that such equipment and use is in
accordance with all applicable federal, state, county and city laws, codes,
ordinances, rules and regulations.
25. Tenant shall not use in any space or in the public halls of the Building
any hand trucks except those equipped with rubber tires and side guards or
such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
26. Without the written consent of Landlord, Tenant shall not use the name of
the Building in connection with or in promoting or advertising the business
of Tenant except as
ix
<PAGE>
Tenant's address.
27. Tenant shall comply with all safety fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting the Demised
Premises from theft, robbery and pilferage.
29. The requirements of Tenant will be attended to only upon written
application to the office of the Building Manager by an authorized
individual.
30. Tenant shall not park its vehicles in any parking areas designated by
Landlord as areas for parking by visitors to the Building. Tenant shall not
leave vehicles in the Building parking areas overnight.
31. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall
be construed as a waiver of such Rules and Regulations in favor of Tenant
or any other tenant, nor prevent Landlord from thereafter enforcing any
such Rules and Regulations against any or all of the tenants of the
Building.
32. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building. In the
event of conflict between the provisions contained in this Lease and these
Rules and Regulations the provisions of this Lease shall prevail.
33. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Complex and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations hereinabove stated and any additional rules and
regulations which are adopted.
34. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and
guests.
x
<PAGE>
EXHIBIT "E"
"HVAC SPECIFICATIONS"
The heating, ventilation and air conditioning system to be completed to provide
interior conditions to 78 degrees Fahrenheit dry bulb and 50% relative humidity
when outside conditions are 95 degrees Fahrenheit dry bulb and 75 degrees
Fahrenheit wet bulb, and 68 degrees Fahrenheit dry bulb inside when outside
temperatures are 0 degrees Fahrenheit. Duct work and diffusers to be provided
for the partition layout and shall provide not less than 15 cubic feet of
outside air per minute per occupant provided that in any given room or area the
occupancy does not exceed one person per 150 square feet and total electric load
does not exceed 4.00 watts per square foot for all purposes, including lighting
and power.
<PAGE>
EXHIBIT "F"
BUILDING HOLIDAYS
Building Holidays shall be Washington's Birthday; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day and day after; Christmas Day; New
Years Day; Monday before or Friday after if Christmas Day, New Years Day or
Independence Day fall on Tuesday or Thursday; and Monday after or Friday before
if Christmas Day, New Years Day or Independence Day fall on Saturday or Sunday.
<PAGE>
Exhibit G
Cleaning And Janitorial Schedule
General Cleaning
Nightly
Empty and clean all waste receptacles removing waste to a designated central
location for disposal. Landlord is to provide for disposal of waste.
Empty and clean all ash trays and receptacles.
Remove finger marks and smudges from doors, door frames, walls, light switches
and glass.
Weekly
Dust with treated cloths, all office furniture, that has been cleared of papers,
boxes, and/or personal items, (including telephone shelving, window frames,
sills up to 84" in height), chair rails, baseboards, and other surfaces.
Floors
Group A--Granite, ceramic tile, marble, terrazzo.
Group B--Linotile, asphalt, koroseal, plastic vinyl, wood, rubber, or other
composition floors and base.
Nightly
All floors in Group A to be swept, wet mopped and rinsed.
All floors in group B to be dry mopped.
Weekly
All floors in Group B to be damp mopped.
Every Six (6) Months
All floors to be scrubbed and buffed.
Vacuuming
Nightly
Vacuum or carpet sweep all rugs and carpeted areas.
Monthly
Brush or dust by hand carpet edges inaccessible to high pressure vacuum
attachments.
High Dusting
Every Six Months
Dust all clothes closet shelving, pictures, charts, graphs, etc.
Dust clean all vertical surfaces such as walls, partitions, door bucks and
other surfaces.
Dust all venetian blinds.
i
<PAGE>
Special Services
Records and General Storage Area
Floors are to be broom cleaned weekly. Files and exposed open shelves dusted
once every three (3) months.
Other Services
Landlord shall supply all soap, towels, and toilet tissue in both men's and
women's rooms and sanitary napkins in coin dispensers in the women's rooms.
Landlord will supply all coin operated dispensers and will be responsible for
the servicing of same and for the collection of money from the machine.
During the term of the lease the dispenser price for sanitary napkins will not
exceed a price equal to 150% of the wholesale price paid by the Landlord.
Carpeting
In addition to the aforementioned nightly and weekly vacuuming. Landlord will do
the following.
Weekly
All carpeting is to be spot cleaned removing all stains, smudges, and unsightly
appearances.
Glass
Monthly
Clean all partitions and furniture glass.
Annually
Clean all perimeter windows, both inside and out at least twice per annum.
General
All lights are to be extinguished and the doors as specified by tenant are to be
locked after cleaning is complete.
All personnel are to be uniformed and clean in appearance during business hours.
Cleaning of all private bathrooms and/or kitchen area will be subject to
additional charges which will be determined on a case-by-case basis.
[Letterhead of Laurel Technologies]
March 23, 1995
Mr. John Nesbitt
West Virginia Air Center
2400 Aviation Way
Bridgeport, West Virginia 26330
Subject: Memorandum of Understanding
Resultant from our meeting of March 22, the following contractual issues
are agreed to between West Virginia Air and Laurel Technologies.
Laurel Technologies will provide fabricating services In support of the
C23B+ as follows:
FIRST ARTICLE ---$509,000 LOT CHARGE
19 additional ship sets at $80,000 per set. (This is referred to as "Block
1") 8 additional ship sets at $78,000 each.
In consideration that advance funding has been paid against work in process
already completed, Laurel Technologies will issue a credit in the amount of
$7,600 for each ship set delivered beginning with sets 2 through 20. This credit
will be reflected each time an invoice is submitted.
The delivery schedule is to build one complete ship set per month beginning
in April, 1995, increasing to two ship sets starting in the month of July. The
rate of two sets per month will continue until a total of 27 sets have been
delivered plus the first article.
<PAGE>
Memorandum of Understanding
March 23, 1995
Page 2
This overview is submitted as a general understanding of the agreements
reached on March 23, and the parties will execute a summary contract specifying
the particulars including such items as tooling requirements, engineering
support, and material delivery information by May 15, 1995.
The agreement reached between the parties has established a working
partnership between the two organizations.
/s/ JOHN J. DONNELLY /s/ JOHN NESBITT
John J. Donnelly John Nesbitt
President, Laurel Technologies General Manager, West Virginia Air Center
<TABLE>
<CAPTION>
Exhibit 11
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
Computation of Earnings per Share
Year Ended March 31,
-------------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
Primary Fully-Diluted Primary Fully-Diluted Primary Fully-Diluted
------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares:
Weighted average number of shares
of Class A and Class B Common Stock
outstanding 5,108,296 5,108,296 5,334,477 5,334,477 5,324,084 5,324,084
Effect of dilutive common stock options (1) 123,038 123,038 -- -- -- --
Effect of 8 1/2% convertible subordinated
debentures (2) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Adjusted shares 5,231,334 5,231,334 5,334,477 5,334,477 5,324,084 5,324,084
========== ========== ========== ========== ========== ==========
Net Earnings:
Net earnings for the year $2,604,000 $2,604,000 $1,615,000 $1,615,000 $1,085,000 $1,085,000
Effect of assumed conversion of 8 1/2%
convertible subordinated debentures (2) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Adjusted net earnings $2,604,000 $2,604,000 $1,615,000 $1,615,000 $1,085,000 $1,085,000
========== ========== ========== ========== ========== ==========
Earnings per share (adjusted net earnings
divided by adjusted shares) $ .50 $ .50 $ .30 $ .30 $ .20 $ .20
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Options outstanding to purchase shares of common stock are not included in
fiscal 1994 and 1993, because their effect was not material.
(2) The 8 1/2% convertible subordinated debentures are excluded from the
calculation of fully diluted earnings per share for fiscal years 1995, 1994
and 1993, as they would have an antidilutive effect on earnings per share.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Diagnostic/Rerieval Systems, Inc. and Subsidiaries
Years Ended March 31, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------
Summary of Operations
<S> <C> <C> <C> <C> <C>
Revenues ............................. $69,930,000 $57,820,000 $47,772,000 $28,925,000 $47,762,000
Costs and Expenses ................... 64,836,000 54,372,000 45,461,000 37,032,000 52,812,000
----------- ----------- ----------- ----------- -----------
Operating Income (Loss) .............. 5,094,000 3,448,000 2,311,000 (8,107,000) (5,050,000)
Interest and Related Expenses ........ (1,372,000) (1,574,000) (1,735,000) (2,198,000) (2,362,000)
Other Income, Net .................... 534,000 834,000 1,224,000 944,000 1,677,000
----------- ----------- ----------- ----------- -----------
Earnings (Loss) before Income Taxes
(Benefit) ............................ 4,256,000 2,708,000 1,800,000 (9,361,000) (5,735,000)
Income Taxes (Benefit) ............... 1,652,000 1,093,000 715,000 (4,006,000) (1,488,000)
----------- ----------- ----------- ----------- -----------
Net Earnings (Loss) .................. $ 2,604,000 $ 1,615,000 $ 1,085,000 $(5,355,000) $(4,247,000)
- --------------------------------------------------------------------------------------------------------------------------
Per-Share Data*
Net Earnings (Loss) per Share ........ $ .50 $ .30 $ .20 $ (1.01) $ (.79)
Book Value per Share ................. $ 4.30 $ 3.70 $ 3.40 $ 3.20 $ 4.21
- --------------------------------------------------------------------------------------------------------------------------
Summary of Financial Position
Working Capital ...................... $20,317,000 $19,803,000 $17,994,000 $17,747,000 $24,833,000
Net Property, Plant and Equipment .... $ 9,849,000 $ 8,893,000 $ 9,768,000 $11,602,000 $13,904,000
Total Assets ......................... $64,590,000 $58,836,000 $51,948,000 $53,904,000 $58,527,000
Long-Term Debt, Excluding Current
Installments ......................... $11,732,000 $14,515,000 $17,290,000 $19,958,000 $22,240,000
Net Stockholders' Equity ............. $22,509,000 $19,759,000 $18,115,000 $17,047,000 $22,300,000
- --------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Pretax Return on Revenues ............ 6.1% 4.7% 3.8% (32.4)% (12.0)%
After Tax Return on Revenues ......... 3.7% 2.8% 2.3% (18.5)% (8.9)%
Return on Average Stockholders' Equity 12.3% 8.5% 6.2% (27.2)% (17.2)%
Current Ratio ........................ 1.9 2.1 2.4 2.3 3.9
Long-Term Debt, Excluding Current
Installments to Capitalization ....... 34.3% 42.3% 48.8% 53.9% 49.9%
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Information
Capital Expenditures** ............... $ 2,805,000 $ 1,203,000 $ 922,000 $ 882,000 $ 862,000
Depreciation and Amortization ........ $ 2,480,000 $ 2,558,000 $ 3,202,000 $ 3,714,000 $ 4,077,000
Company-Sponsored Research and
Development .......................... $ 795,000 $ 537,000 $ 470,000 $ 661,000 $ 771,000
Weighted Average Number of Shares
Outstanding .......................... 5,231,000 5,334,000 5,324,000 5,310,000 5,378,000
Employees*** ......................... 565 548 296 294 354
Revenues per Employee**** ............ $ 130,000 $ 137,000 $ 164,000 $ 91,000 $ 122,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* No cash dividends have been distributed during each of the years in the
five-year period ended March 31, 1995.
** Capital expenditures in fiscal 1995 and 1994 include $262,000 and $215,000,
respectively, representing the total fair-market value of property, plant
and equipment purchased as a result of business combinations.
*** Indicates the number of employees at March 31 for each of the fiscal years
presented. Included in fiscal 1995 and 1994 are approximately 46 and 260
employees, respectively, from new operations. (See Note 11 of Notes to
Consolidated Financial Statements.)
**** Based upon average number of employees.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
Results of Operations
The following table sets forth items in the Consolidated Statements of
Operations as a percent of revenues and the percentage increase or decrease of
those items as compared with the prior period.
Percent of Revenues Percent Changes
---------------------------- ------------------
1995 vs. 1994 vs.
Fiscal Years 1995 1994 1993 1994 1993
- -----------------------------------------------------------------------------
Revenues .................. 100.0% 100.0% 100.0% 20.9% 21.0%
Costs and
Expenses .................. 92.7 94.0 95.2 19.2 19.6
----- ----- -----
Operating
Income .................... 7.3 6.0 4.8 47.7 49.2
Interest and
Related Expenses .......... (2.0) (2.7) (3.6) (12.8) (9.3)
Other Income, Net ......... .8 1.4 2.6 (36.0) (31.9)
----- ----- -----
Earnings before
Income Taxes .............. 6.1 4.7 3.8 57.2 50.4
Income Taxes .............. 2.4 1.9 1.5 51.1 52.9
----- ----- -----
Net Earnings .............. 3.7% 2.8% 2.3% 61.2% 48.8%
- -------------------------------------------------------------------------------
Business Overview and Outlook
Fiscal 1995 was a successful year for DRS in many respects. Overall operating
performance exceeded prior-year results and showed substantial growth in both
revenues and profitability. The businesses of Technology Applications & Service
Company (TAS), CMC Technology (CMC) and Laurel Technologies (Laurel), which
joined the Company in the latter part of fiscal 1994, became an integral part of
the fiscal 1995 business base and significantly contributed to the current years
performance. During fiscal 1995, DRS also continued to pursue its commitment to
broadening its product base while reducing its dependency on military defense
spending. In November 1994, the Company acquired Ahead Technology Corporation
(Ahead), located in Los Gatos, California. Ahead manufactures a variety of
consumable magnetic head products used in the production of computer disk
drives. Its products include burnish heads, glide heads and specialty test
heads. The acquisition of Ahead provided approximately $2.7 million of
additional commercial revenues during fiscal 1995.
New opportunities occurred in the Company's traditional core business
lines, as well. Fiscal 1995 bookings for signal processing, display, data
storage and optical systems products accounted for approximately 68% of new
contract awards for the year of approximately $61 million. These awards included
contracts for the Company's existing products as well as modifications to its
products. In addition, contracts for new products, such as the Company's
recently developed line of 8mm video recorders, also were received. Certain of
these awards provide for the deployment of DRS products on military platforms
which did not previously operate with the Company's equipment.
Shortly after the close of fiscal 1995, the Company announced the signing
of a letter of intent contemplating the merger of DRS with NAI Technologies,
Inc. (NAI), a diversified international electronics company specializing in
advanced computer system design and telecommunications. Under the terms of the
letter of intent, stockholders of NAI would receive .6 share of DRS Class B
Common Stock for each outstanding share of NAI common stock. Based upon
approximately 7.5 million NAI shares currently outstanding, DRS would issue
approximately 4.5 million shares of Class B Common Stock in the proposed merger.
NAI, headquartered in Woodbury, New York, is a provider of rugged computers,
peripherals and integrated systems for military, government and commercial
applications. NAI reported revenues of approximately $55 million for its fiscal
year ended December 31, 1994 and has been restructuring its business as a result
of recent poor operating results. If consummated, the merger is expected to
afford the combined entity with greater opportunities for growth than exist for
the two companies separately.
Comparison of Fiscal 1995 with Fiscal 1994
Revenues for fiscal 1995 increased 21% to $69.9 million from revenues of
$57.8 million in fiscal 1994. The increase during fiscal 1995 was primarily
attributable to revenues from the display, manufacturing and video broadcast
product lines of TAS, CMC and Laurel, which were included in the Company's
results for the full year. In addition, commercial revenues increased by
approximately $2.7 million as a result of the Company's November 1994
acquisition of Ahead, bringing total commercial revenues for fiscal 1995 to
approximately $6.4 million, up $4.3 million from fiscal 1994. Revenues from the
Company's core signal processing, display, data storage and optical product
lines experienced a slight decrease during fiscal 1995, as development efforts
on several major programs substantially were completed, and the receipt of
certain new awards was delayed into the latter part of the year.
Operating income for fiscal 1995 increased 48% to $5.1 million from
operating income of $3.4 million a year ago. The increase in profits during
fiscal 1995 reflects the contribution of higher margin commercial products to
the Company's business base and the positive impact of Managements continuing
cost reduction efforts.
Interest and related expenses decreased by $.2 million, or 13%, to $1.4
million during fiscal 1995, as a result of the reduction in the Company's
long-term debt. The Company repurchased approximately $2.7 million of its 8 1/2%
Convertible Subordinated Debentures (Debentures) during fiscal 1995, which were
used principally to satisfy the August 1, 1994 mandatory sinking fund
requirement for the debt.
Other income, net for fiscal 1995 of $.5 million reflected a decrease of
$.3 million, or 36%, from other income, net of $.8 million for fiscal 1994. This
decrease was primarily attributable to lower gains from the repurchases of
Debentures of $.2 million. Substantially all Debentures repurchased during
fiscal 1995 were at prices approximating par value.
The Company's effective income tax rate in fiscal 1995 and 1994 was 39% and
40%, respectively.
14
<PAGE>
Comparison of Fiscal 1994 with Fiscal 1993
Fiscal 1994 revenues reached $57.8 million, representing a 21% increase over
fiscal 1993 revenues of $47.8 million. The revenue increase reflected the
incremental contribution during the second half of the fiscal year of the newly
added product lines of TAS, CMC and Laurel. Revenues from core signal
processing, display, data storage and optical product lines were primarily from
contracts awarded during fiscal 1994 and 1993. Revenues from certain older
contracts for these products were not as significant during fiscal 1994, due to
the completion or near-completion of these contracts during the year.
Operating income of $3.4 million reflected a 49% increase over operating
income of $2.3 million in fiscal 1993. Operating income not only improved as a
result of the higher revenue volume in fiscal 1994, it also reflected lower
write-offs for cost overruns on two of the Company's fixed-price development
recorder contracts, as these contracts were completed or substantially completed
during the year.
The decrease in interest and related expenses reflects the Company's
retirement of $2.5 million of principal on its Debentures during the first half
of fiscal 1994, pursuant to the mandatory sinking fund requirement for the debt.
The Company also repurchased an additional $.1 million in principal amount of
the Debentures during the latter half of the year.
Other income, net, of $.8 million, was $.4 million lower than the $1.2
million generated in fiscal 1993. Fiscal 1994 results included gains on the
repurchases of Debentures of approximately $.3 million, while fiscal 1993 gains
for similar transactions amounted to $.5 million.
The Company's effective income tax rate in both fiscal 1994 and 1993 was
40%.
Financial Condition and Liquidity
Cash and Cash Flow: Cash and cash equivalents at March 31, 1995 of $11.2 million
was down $4.3 million from the balance at March 31, 1994 of $15.5 million. Cash
represented 17.3% of total assets at the end of fiscal 1995, as compared with
26.3% in the prior year. During fiscal 1995, cash generated by operations, net
of the effects of business combinations, amounted to $2.5 million. In
comparison, cash generated by operations during fiscal 1994 was $10.2 million.
The reduction in the amount of cash generated by operations during fiscal 1995
was primarily attributable to the build-up in inventory which occurred during
the year in preparation for the fiscal 1996 production and shipment of products
under several significant development contracts. Cash used in investing and
financing activities during the year totalled $3.8 million and $3.0 million,
respectively, with the majority of the expenditures attributable to purchases of
capital equipment for $2.5 million, the acquisition of Ahead for $1.5 million
and the repurchase of Debentures for $2.7 million.
It is anticipated that the Company will experience negative net cash flow
in fiscal 1996 primarily due to sinking fund requirements on its long-term debt
and capital equipment purchases which will be required to support the Company's
growth, particularly for its commercial product lines. While Management believes
that current cash levels will be sufficient to sustain operations over the
coming fiscal year, longer range growth objectives may require additional
sources of working capital. The Company currently is exploring new banking
arrangements and anticipates that it will be able to negotiate a line of credit
on satisfactory terms.
Accounts Receivable and Inventories: Accounts receivable were approximately
$17.4 million at March 31, 1995, an increase of $1.9 million from the balance at
March 31, 1994 of approximately $15.5 million. This increase was primarily
attributable to significant shipments on several contracts which occurred toward
the end of the fiscal year. The Company receives progress payments on certain
contracts from the U.S. Government of between 80-100% of allowable costs
incurred. The remainder, including profits and incentive fees, is billed to its
customers based upon delivery and final acceptance of all products. In addition,
the Company may bill its customers based upon units delivered. Generally, there
are no contract provisions for retainage, and all accounts receivable are
expected to be collected within one year.
The net inventory balance at March 31, 1995 was $11.7 million, an increase
of $6.7 million from the balance at March 31, 1994 of $5.0 million. As mentioned
previously, the Company experienced a build-up in inventory during the year in
preparation for production and shipment on several major development contracts.
In addition, the terms of certain production contracts in process during fiscal
1995, specifically those with foreign governments, did not provide for progress
billings. In such cases, the Company is required to fund the cost of inventory
until such time as shipments are made.
Long-Term Debt: Long-term debt outstanding decreased by approximately $2.8
million during fiscal 1995. The reduction in outstanding debt was primarily due
to the $2.5 million mandatory sinking fund obligation on the Debentures, as well
as the mandatory redemption of $.2 million in principal amount on the Company's
industrial revenue bonds (Bonds) on January 1, 1995. The Company is subject to
annual redemptions on the Bonds through 1998. The principal amount of the bonds
to be redeemed varies each year in accordance with the redemption schedule
provided in the indenture. Under the terms of the Bonds, the Company is a
guarantor under a letter-of-credit arrangement and has agreed to certain
financial covenants (see Note 6 of Notes to Consolidated Financial Statements).
The Company must realize a certain level of profits during each quarter of
fiscal 1996 to be in compliance with these covenants.
Stockholders' Equity: Net stockholders' equity increased by $2.8 million during
fiscal 1995, primarily as a result of net earnings of $2.6 million generated for
the year.
In July 1994, pursuant to a Stock Purchase Agreement (the Stock Purchase
Agreement) between the Company and David E. Gross, its former President and
Chief Technical Officer, the Company purchased 659,220 shares of its Class A
Common Stock and 45,179 shares of its Class B Common Stock owned by Mr. Gross,
at a price of $4.125 and $4.00 per share, respectively, totaling approximately
$2.9 million in cash (the Buy-back). On October 18, 1994, the Company filed
15
<PAGE>
a Registration Statement on Form S-2 and on November 10, 1994, the Company filed
Amendment No. 1 to such Registration Statement (the Registration Statement) with
the Securities and Exchange Commission for the purpose of selling shares of its
common stock purchased in the Buy-back. Pursuant to the Registration Statement,
the Company sold 650,000 shares of its Class A Common Stock and 45,000 shares of
its Class B Common Stock, at prices of $4.125 and $4.00 per share, respectively,
totaling approximately $2.9 million.
Backlog: The Company closed fiscal 1995 with a funded backlog of $126.0
million representing an $8.5 million decrease from backlog at March 31, 1994.
Included in the fiscal 1995 year-end backlog is approximately $2.2 million of
commercial orders. New business awards during fiscal 1995 totaled approximately
$61.4 million and included approximately $5.8 million of new commercial orders.
Significant awards received during the year included $5.9 million in contracts
from the Naval Air Systems Command to produce additional quantities of
A/U36M-1(V) Weapons Boresight Equipment for the Marine Corps' AH-1W Cobra
helicopters, approximately $9.4 million from the Government Systems Group of
Unisys Corporation to provide portions of the AN/UYQ-70 Advanced Display System
and a $4.9 million contract with the U.S. Navy to provide Readiness Trainer
Systems for the Mobile In-shore Undersea Warfare System Upgrade program.
Contract awards for the Company's 8mm video recorder products totaled
approximately $5.4 million and included a $3.1 million award from the Naval Air
Systems Command to equip the Navys F/A-18 Hornet carrier-based aircraft with
WRR-818 8mm video recorders. The Company also received funding under a $12.5
million not-to-exceed contract from Lockheed Aeronautical Systems Company to
provide engineering services and modified AN/USH-42 Mission Recording Systems
for deployment on the U.S. Navys S-3B Viking carrier-based jet aircraft, as well
as additional funding under a multi-year contract with the Navy, initially
received in fiscal 1994, to provide combat-system display consoles for
land-based applications.
Approximately 84%, 94% and 83% of revenues in fiscal 1995, 1994 and 1993,
respectively, were derived directly or indirectly from contracts or subcontracts
with the U.S. Government, principally the Navy. Included in revenues for fiscal
1995, 1994 and 1993 were $18.8 million, $27.5 million and $19.2 million,
respectively, of customer-sponsored research and development, which were the
result of contract agreements directly or indirectly with the U.S. Government.
Commitments and Contingencies: The books and records of the Company are subject
to audit and post-award review by the Defense Contract Audit Agency. The Company
is not a party to any legal proceedings with the U.S. Government.
Effective July 20, 1994, the Company entered into an Employment,
Non-Competition and Termination Agreement (the Gross Agreement) and a Stock
Purchase Agreement with David E. Gross, who retired as President and Chief
Technical Officer of the Company on May 12, 1994. Under the terms of the Gross
Agreement, Mr. Gross will receive a total of $.6 million as compensation for his
services under a five-year consulting agreement with the Company and a total of
$.8 million as consideration for a five-year non-compete arrangement. The
payments will be charged to expense over the term of the Gross Agreement as
services are performed and obligations are fulfilled by Mr. Gross. He also will
receive, at the conclusion of such initial five-year period, an aggregate of
approximately $1.3 million payable over a nine-year period as deferred
compensation. The net present value of the payments to be made to Mr. Gross
pursuant to the deferred compensation portion of the Gross Agreement
approximated the amount of the Company's previous deferred compensation
arrangement with Mr. Gross. In addition to the terms of the Buy-back discussed
previously, the Stock Purchase Agreement also includes certain provisions
regarding the sale and voting of Mr. Gross' remaining shares of stock in the
Company, as well as the adjustment which would be made in the purchase price
paid to Mr. Gross pursuant to the Buy-back should a change in control of the
Company occur within three years from the date of the Stock Purchase Agreement.
As of March 31, 1995, the Company was in the process of finalizing an
Employment, Non-Competition and Termination Agreement (the Newman Agreement)
between the Company and Leonard Newman, the Chairman of the Board and Secretary
of the Company. Pursuant to the Newman Agreement, it is expected that Mr. Newman
will receive certain compensation from the Company over a five-year period for
consulting services and a non-compete arrangement. In addition, Mr. Newman will
receive certain retirement benefits payable over a ten-year period at the
conclusion of such initial five-year period. Results of operations for fiscal
1995 reflect a charge of $1.5 million representing the estimated net present
value of the Company's obligation under the Newman Agreement. The corresponding
amount was included in Other Liabilities in the Consolidated Balance Sheet at
March 31, 1995 as an addition to the accrual which had been established to cover
the Company's liability to Mr. Newman under a previous deferred compensation
arrangement.
Inflation: The Company has experienced the effects of inflation through
increased costs of labor, services and raw materials. Although a majority of the
Companys revenues derive from long-term contracts, the selling prices of such
contracts generally reflect estimated costs to be incurred in the applicable
future periods.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
16
<PAGE>
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Effective April 1, 1993, the Company adopted SFAS 109. Until March 31,
1993, the Company used the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 96,
"Accounting for Income Taxes" (SFAS 96). Under SFAS 96, deferred income taxes
are recognized by applying statutory tax rates to the difference between the
financial statement carrying amounts and tax bases of assets and liabilities.
The statutory tax rates applied are those applicable to the years in which the
differences are expected to reverse. The cumulative effect of adopting SFAS 109
was not material to the Company's consolidated results of operations or
financial position.
Postretirement Benefits Other Than Pensions
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). The Company adopted
SFAS 106 during the first quarter of fiscal 1994, and its adoption did not have
a material impact on the Company's consolidated results of operations or
financial position.
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). The Company adopted SFAS 112 during the
first quarter of fiscal 1995, and its adoption did not have a material impact on
the Companys consolidated results of operations or financial position.
Acquisitions and Related Activities
On October 1, 1993, the Company acquired (through TAS Acquisition Corp., a
wholly-owned subsidiary) a 95.7% equity interest in TAS, a Maryland corporation,
pursuant to a Stock Purchase Agreement (the Agreement) dated as of August 6,
1993. TAS, headquartered in Gaithersburg, Maryland, was a privately-held company
incorporated in early 1991. Under the terms of the Agreement, the Company paid
$15.10 in cash for a total of 97,317 issued and outstanding shares of common
stock, par value $.01 per share, of TAS. The price paid by the Company for the
shares of TAS common stock was obtained from the Company's working capital. On
September 30, 1993, the Company, in anticipation of the acquisition, advanced
$1.8 million to TAS pursuant to a demand promissory note. Such advance was
converted to an intercompany liability on the date of the acquisition and is
eliminated in consolidation. On November 1, 1993, Articles of Merger were filed
in order to merge TAS into TAS Acquisition Corp. The name TAS Acquisition Corp.
was changed to Technology Applications & Service Company (TAS).
The acquisition has been accounted for using the purchase method of
accounting. The excess of cost over the estimated fair value of net assets
acquired was approximately $.4 million and is being amortized on a straight-line
basis over 30 years, or $14,000 annually.
On December 13, 1993, the Company, through its wholly-owned subsidiary, DRS
Systems Management Corporation, entered into a partnership (the Partnership)
with Laurel Technologies, Inc. of Johnstown, Pennsylvania. Pursuant to a Joint
Venture Agreement dated November 3, 1993 and a Partnership Agreement dated
December 13, 1993, by and between DRS Systems Management Corporation and Laurel
Technologies, Inc., the Partnership was formed for the purposes of electronic
cable and harness manufacturing, military-quality circuit card assembly and
other related activities. The Company's contribution to the Partnership
consisted of cash, notes and equipment valued at approximately $.6 million,
representing an 80% controlling interest in the Partnership. As a result, the
financial position and results of operations of the Partnership since December
13, 1993 have been consolidated with those of the Company's. The related
minority interest in the Partnership has been included in Other Liabilities and
Other Income, Net, respectively, in the Company's Consolidated Financial
Statements for the period ended March 31, 1995 and 1994.
Also during December 1993, the Company acquired certain assets of CMC,
located in Santa Clara, California, for approximately $.4 million. CMC primarily
refurbishes magnetic video recording rotary-head scanner assemblies for
post-production facilities and television broadcast stations worldwide. This
acquisition provides the Company with a key customer base in the commercial
video recording systems industry.
On November 17, 1994, Precision Echo, Inc. a wholly-owned subsidiary of the
Company, acquired, through its wholly-owned subsidiary (Precision Echo), the net
assets of Ahead Technology Corporation, pursuant to an Asset Purchase Agreement,
dated October 28,1994. Under the terms of the Asset Purchase Agreement,
Precision Echo paid, on the date of acquisition, approximately $1.1 million for
the net assets of Ahead. In addition, Precision Echo entered into a Covenant and
Agreement Not to Compete (Covenant), dated October 28, 1994, with the chairman
of the board of Ahead. Under the terms of the Covenant, the total cash
consideration to be paid by Precision Echo consisted of approximately $.4
million payable at the acquisition date, and an additional $.5 million, payable
in equal monthly installments over a period of five years from the acquisition
date.
The acquisition has been accounted for using the purchase method of
accounting and, therefore, Aheads financial statements are included in the
consolidated financial statements of the Company from the date of acquisition.
The excess of cost over the estimated fair value of net assets acquired was
approximately $.9 million and will be amortized on a straight-line basis over 5
years, or approximately $.2 million annually. The acquisition had no significant
effect on the Company's consolidated financial position or results of
operations.
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
Diagnostic/Retrieval System, Inc. and Subsidiaries
March 31, 1995 1994
- -------------------------------------------------------------------------------
Assets
Current Assets:
Cash and Cash Equivalents ...................... $11,197,000 $15,465,000
Accounts Receivable (Notes 2 and 6) ............ 17,432,000 15,538,000
Inventories, Net of Progress Payments
(Note 3) ..................................... 11,724,000 5,042,000
Other Current Assets ........................... 2,445,000 2,563,000
----------- -----------
Total Current Assets ........................... 42,798,000 38,608,000
----------- -----------
Property, Plant and Equipment,
at Cost (Notes 4 and 6) ...................... 33,661,000 32,182,000
Less Accumulated Depreciation
and Amortization ............................. 23,812,000 23,289,000
----------- -----------
Net Property, Plant and Equipment .............. 9,849,000 8,893,000
----------- -----------
Intangible Assets, Less Accumulated
Amortization of $3,457,000 and $3,008,000
in 1995 and 1994, Respectively ............... 8,920,000 8,414,000
Other Assets ................................... 3,023,000 2,921,000
----------- -----------
Total Assets ................................... $64,590,000 $58,836,000
- -------------------------------------------------------------------------------
Liabilities and Stockholders Equity
Current Liabilities:
Current Installments of Long-Term Debt
(Note 6) ..................................... $ 2,492,000 $ 2,664,000
Accounts Payable and Accrued
Expenses (Note 5) ............................. 19,989,000 16,141,000
----------- -----------
Total Current Liabilities ...................... 22,481,000 18,805,000
Long-Term Debt, Excluding Current
Installments (Note 6) ........................ 11,732,000 14,515,000
Deferred Income Taxes (Note 8) ................. 4,605,000 4,624,000
Other Liabilities (Notes 10 and 11) ............ 3,263,000 1,133,000
----------- -----------
Total Liabilities .............................. 42,081,000 39,077,000
----------- -----------
Stockholders Equity (Notes 6 and 9):
Class A Common Stock, $.01 par Value
per Share. Authorized 10,000,000 Shares;
Issued 3,699,963 and 3,674,963 Shares
at March 31, 1995 and 1994, Respectively ..... 37,000 37,000
Class B Common Stock, $.01 par Value
per Share. Authorized 20,000,000 Shares;
Issued 2,163,253 and 2,105,528 Shares
at March 31, 1995 and 1994, Respectively ..... 22,000 21,000
Additional Paid-in Capital ..................... 13,435,000 12,970,000
Retained Earnings .............................. 10,919,000 8,315,000
----------- -----------
24,413,000 21,343,000
Treasury Stock, at Cost: 432,639 Shares
of Class A Common Stock and 21,619
Shares of Class B Common Stock at
March 31, 1995, and 423,419 Shares
of Class A Common Stock and 21,440
Shares of Class B Common Stock at
March 31, 1994 (Note 10) ..................... (1,617,000) (1,579,000)
Unamortized Restricted Stock Compensation ...... (287,000) (5,000)
----------- -----------
Net Stockholders' Equity ....................... 22,509,000 19,759,000
----------- -----------
Commitments and Contingencies (Note 10)
Total Liabilities and Stockholders' Equity ..... $64,590,000) $58,836,000
- -------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended March 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues ................................... $69,930,000 $57,820,000 $47,772,000
Costs and Expenses (Note 3) ................ 64,836,000 54,372,000 45,461,000
----------- ----------- -----------
Operating Income .......................... 5,094,000 3,448,000 2,311,000
Interest and Related Expenses .............. (1,372,000) (1,574,000) (1,735,000)
Other Income, Net (Notes 7 and 11) ......... 534,000 834,000 1,224,000
----------- ----------- -----------
Earnings before Income Taxes ............... 4,256,000 2,708,000 1,800,000
Income Taxes (Note 8) ...................... 1,652,000 1,093,000 715,000
----------- ----------- -----------
Net Earnings ............................... $ 2,604,000 $ 1,615,000 $ 1,085,000
- --------------------------------------------------------------------------------------------
Earnings per Share of Class A and Class B
Common Stock ............................. $ .50 $ .30 $ .20
- --------------------------------------------------------------------------------------------
Weighted Average Number of Shares of Class A
and Class B Common Stock Outstanding ..... 5,231,000 5,334,000 5,324,000
- --------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------
Class A Class B Additional
--------------------- -------------------- Paid-in
Year Ended March 31, 1995, 1994 and 1993 Shares Amount Shares Amount Capital
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1992 ........... 3,674,963 $37,000 2,089,528 $21,000 $12,984,000
Net Earnings ......................... -- -- -- -- --
Stock Options Exercised .............. -- -- 5,000 -- --
Compensation Relating to Stock
Options, Net ....................... -- -- -- -- (39,000)
--------- ------- --------- ------- -----------
Balances at March 31, 1993 ........... 3,674,963 37,000 2,094,528 21,000 12,945,000
Net Earnings ......................... -- -- -- -- --
Stock Options Exercised .............. -- -- 11,000 -- 2,000
Compensation Relating to Stock
Options, Net ....................... -- -- -- -- 23,000
--------- ------- --------- ------- -----------
Balances at March 31, 1994 ........... 3,674,963 37,000 2,105,528 21,000 12,970,000
Net Earnings ......................... -- -- -- -- --
Stock Options Exercised .............. 25,000 -- 57,725 1,000 188,000
Compensation Relating to Stock
Options, Net ....................... -- -- -- -- 388,000
Purchase of Treasury Stock ........... -- -- -- -- --
Sale of Treasury Stock ............... -- -- -- -- (111,000)
--------- ------- --------- ------- -----------
Balances at March 31, 1995 ........... 3,699,963 $37,000 2,163,253 $22,000 $13,435,000
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Unamortized
Restricted Net
Retained Treasury Stock Stockholders'
Earnings Stock Compensation Equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at March 31, 1992 ............. $ 5,615,000 $(1,579,000) $ (31,000) $17,047,000
Net Earnings ........................... 1,085,000 -- -- 1,085,000
Stock Options Exercised ................ -- -- -- --
Compensation Relating to Stock
Options, Net ......................... -- -- 22,000 (17,000)
----------- ----------- --------- -----------
Balances at March 31, 1993 ............. 6,700,000 (1,579,000) (9,000) 18,115,000
Net Earnings ........................... 1,615,000 -- -- 1,615,000
Stock Options Exercised ................ -- -- -- 2,000
Compensation Relating to Stock
Options, Net ......................... -- -- 4,000 27,000
----------- ----------- --------- -----------
Balances at March 31, 1994 ............. 8,315,000 (1,579,000) (5,000) 19,759,000
Net Earnings ........................... 2,604,000 -- -- 2,604,000
Stock Options Exercised ................ -- -- -- 189,000
Compensation Relating to Stock
Options, Net ......................... -- -- (282,000) 106,000
Purchase of Treasury Stock ............. -- (2,900,000) -- (2,900,000)
Sale of Treasury Stock ................. -- 2,862,000 -- 2,751,000
----------- ----------- --------- -----------
Balances at March 31, 1995 ............. $10,919,000 $(1,617,000) $(287,000) $22,509,000)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended March 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C> <C>
Net Earnings ......................................... $ 2,604,000 $ 1,615,000 $ 1,085,000
Adjustments to Reconcile Net Earnings to Cash Flows
from Operating Activities:
Depreciation and Amortization ...................... 2,480,000 2,558,000 3,202,000
Deferred Income Taxes .............................. 26,000 (15,000) (31,000)
Other, Net ......................................... (77,000) (233,000) (446,000)
Changes in Assets and Liabilities, Net of Effects from
Business Combinations:
(Increase) Decrease in Accounts Receivable ......... (1,415,000) 1,443,000 (880,000)
(Increase) Decrease in Inventories ................. (6,408,000) 2,069,000 2,186,000
(Increase) Decrease in Other Current Assets ........ (7,000) (133,000) 1,400,000
Increase (Decrease) in Accounts Payable
and Accrued Expenses ............................... 3,640,000 2,928,000 (400,000)
Other, Net ......................................... 1,643,000 (62,000) (357,000)
------------ ------------ ------------
Net Cash Provided by Operating Activities ............ 2,486,000 10,170,000 5,759,000
------------ ------------ ------------
Cash Flows from Investing Activities
Capital Expenditures ................................. (2,543,000) (988,000) (922,000)
Payments Pursuant to Business Combinations, Net of
Cash Acquired ........................................ (1,514,000) (696,000) --
Cash Advanced to Company Acquired for Repayment of
Debt Prior to Acquisition ............................ -- (1,800,000) --
Other, Net ........................................... 263,000 11,000 2,000
------------ ------------ ------------
Net Cash Used in Investing Activities ................ (3,794,000) (3,473,000) (920,000)
------------ ------------ ------------
Cash Flows from Financing Activities
Payments on Long-Term Debt ........................... (275,000) (168,000) (262,000)
Repurchases of Convertible Subordinated Debentures ... (2,667,000) (2,354,000) (1,880,000)
Other Borrowings ..................................... 20,000 325,000 --
Purchase of Treasury Stock ........................... (2,900,000) -- --
Sale of Treasury Stock ............................... 2,862,000 -- --
------------ ------------ ------------
Net Cash Used in Financing Activities ................ (2,960,000) (2,197,000) (2,142,000)
------------ ------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents . (4,268,000) 4,500,000 2,697,000
Cash and Cash Equivalents, Beginning of Year ......... 15,465,000 10,965,000 8,268,000
------------ ------------ ------------
Cash and Cash Equivalents, End of Year ............... $ 11,197,000 $ 15,465,000 $ 10,965,000
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
Note 1. Summary of Significant Accounting Policies
A. Basis of Presentation
The Consolidated Financial Statements include the accounts of
Diagnostic/Retrieval Systems, Inc., its subsidiaries, all of which are wholly
owned, and a joint venture consisting of an 80% controlling partnership interest
(the Company). All significant intercompany transactions and balances have been
eliminated in consolidation.
B. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
C. Revenue Recognition
Revenues related to long-term, firm fixed-price contracts, which principally
provide for the manufacture and delivery of finished units, are recognized as
shipments are made. The estimated profits applicable to such shipments are
recorded pro rata based upon estimated total profit at completion of the
contracts.
Revenues on contracts with significant engineering as well as production
requirements are recorded using the percentage-of-completion method measured by
the costs incurred on each contract to estimated total contract costs at
completion (cost-to-cost) with consideration given for risk of performance and
estimated profit.
Revenues related to incentive-type contracts also are determined on a
percentage-of-completion basis measured by the cost-to-cost method. Revenues
from cost-reimbursement contracts are recorded, together with the fees earned,
as costs are incurred.
Revenues recognized under the cost-to-cost percentage-of-completion basis
during fiscal 1995, 1994 and 1993 approximated 16%, 26% and 37% of total
revenues, respectively, with remaining revenues recognized as delivery of
finished units is made, or as costs are incurred under cost-reimbursement
contracts. Included in revenues for fiscal 1995, 1994 and 1993 are $18,771,000,
$27,496,000 and $19,155,000, respectively, of customer-sponsored research and
development.
Revisions in profit estimates are reflected in the year in which the facts,
which require the revisions, become known, and any estimated losses and other
future costs are accrued in full.
Approximately 84%, 94% and 83% of the Company's revenues in fiscal 1995,
1994 and 1993, respectively, were derived directly or indirectly from
defense-industry contracts with the United States Government (principally the
U.S. Navy). In addition, approximately 7%, 3% and 17% of the Company's revenues
in fiscal 1995, 1994 and 1993, respectively, were derived directly or indirectly
from sales to foreign governments. Sales to commercial customers comprised 9%
and 3% of revenues in fiscal 1995 and 1994, respectively.
D. Inventories
Costs accumulated under contracts are stated at actual cost, not in excess of
estimated net realizable value, including, for long-term government contracts,
applicable amounts of general and administrative expenses, which include
research and development costs, where such costs are recoverable under customer
contracts.
In accordance with industry practice, inventories include amounts relating
to contracts having production cycles longer than one year, and a portion
thereof will not be realized within one year.
E. Depreciation and Amortization of Property, Plant and Equipment
Depreciation and amortization have been provided on the straight-line method.
The ranges of estimated useful lives are: office furnishings, motor vehicles and
equipment, 3-10 years; building and building improvements, 15-40 years; and
leasehold improvements, over the shorter of the estimated useful lives or the
life of the lease.
Maintenance and repairs are charged to operations as incurred; renewals and
betterments are capitalized. The cost of assets retired, sold or otherwise
disposed of are removed from the accounts, and any gains or losses thereon are
reflected in operations.
F. Excess of Cost over Net Assets of Businesses Acquired
Intangibles resulting from acquisitions represent the excess of cost of the
investments over the fair-market values of the underlying net assets at the
dates of investment. All intangibles are being amortized on the straight-line
method, over five to thirty years. The carrying value of intangible assets
periodically is reviewed by the Company, and impairments are recognized when the
expected undiscounted future operating cash flows derived from such intangible
assets are less than their carrying value.
21
<PAGE>
G. Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the asset and liability method of SFAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred
tax asset will not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
SFAS 109 supersedes Statement of Financial Accounting Standards No. 96,
"Accounting for Income Taxes" (SFAS 96).
Effective April 1, 1993, the Company adopted SFAS 109. The cumulative
effect of adopting SFAS 109 was not material to the Company's consolidated
results of operations or financial position. Prior-year financial statements
have not been restated to apply the provisions of SFAS 109. Until March 31,
1993, the Company used the asset and liability method of accounting for income
taxes, as set forth in SFAS 96. Under SFAS 96, deferred income taxes are
recognized by applying statutory tax rates to the difference between the
financial statement carrying amounts and tax bases of assets and liabilities.
The statutory tax rates applied are those applicable to the years in which the
differences are expected to reverse. Deferred tax expense represents the change
in the liability for deferred taxes from year to year.
H. Postretirement Benefits Other Than Pensions
In December 1990, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). The Company adopted
SFAS 106 during the first quarter of fiscal 1994, and its adoption did not have
a material impact on the Company's consolidated results of operations or
financial position.
I. Postemployment Benefits
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). The Company adopted SFAS 112 during the
first quarter of fiscal 1995, and its adoption did not have a material impact on
the Company's consolidated results of operations or financial position.
J. Earnings per Share
Earnings per share of common stock is computed by dividing net earnings by the
weighted average number of shares of Class A and Class B Common Stock
outstanding during each period. In fiscal 1995, the computation of earnings per
share included approximately 123,000 shares from the assumed exercise of
dilutive stock options computed using the treasury stock method. Options
outstanding to purchase shares of common stock are not included in the
computation of earnings per share for fiscal 1994 and 1993, because their effect
was not material. Furthermore, additional shares assumed to be outstanding
applicable to the Company's Convertible Subordinated Debentures also are not
included for any of the periods presented, because their effect on earnings per
share was antidilutive.
Note 2. Accounts Receivable
The component elements of accounts receivable are as follows:
March 31, 1995 1994
- ----------------------------------------------------------------------
U.S. Government:
Amounts Billed $ 5,885,000 $ 5,746,000
Recoverable Costs and Accrued
Profit on Progress Completed,
Not Billed 7,264,000 5,374,000
----------- -----------
13,149,000 11,120,000
----------- -----------
Other U.S. Defense Contracts:
Amounts Billed 1,418,000 2,981,000
Recoverable Costs and Accrued
Profit on Progress Completed,
Not Billed 639,000 537,000
----------- -----------
2,057,000 3,518,000
----------- -----------
Other Amounts Billed 2,226,000 900,000
----------- -----------
Total $17,432,000 $15,538,000
- ----------------------------------------------------------------------
Generally, no accounts receivable arise from retainage provisions in contracts.
The Company receives progress payments on certain contracts from the U.S.
Government of between 80-100% of allowable costs incurred; the remainder,
including profits and incentive fees, if any, is billed upon delivery and final
acceptance of the product. In addition, the Company may bill based upon units
delivered.
22
<PAGE>
Note 3. Inventories
Inventories are summarized as follows:
March 31, 1995 1994
- ---------------------------------------------------
Work-in-Process ......... $23,017,000 $14,639,000
Raw Material ............ 2,573,000 2,917,000
----------- -----------
25,590,000 17,556,000
Less Progress Payments... 13,866,000 12,514,000
----------- -----------
Total ................... $11,724,000 $ 5,042,000
- ---------------------------------------------------
General and administrative costs included in work-in-process were $6,584,000 and
$3,753,000 at March 31, 1995 and 1994, respectively. General and administrative
costs included in costs and expenses amounted to $17,681,000, $16,896,000 and
$14,028,000 in fiscal 1995, 1994 and 1993, respectively. Included in those
amounts are expenditures for Company-sponsored independent research and
development, amounting to approximately $795,000, $537,000 and $470,000 in
fiscal 1995, 1994 and 1993, respectively.
Note 4. Property, Plant and Equipment
Property, plant and equipment at March 31, 1995 and 1994 are summarized as
follows:
March 31, 1995 1994
- ---------------------------------------------------
Land .................... $ 1,350,000 $ 1,350,000
Building and Building
Improvements ............ 2,384,000 2,289,000
Office Furnishings and
Equipment ............... 3,621,000 3,754,000
Laboratory and Production
Equipment ............... 15,639,000 14,457,000
Motor Vehicles .......... 235,000 389,000
Computer Equipment ...... 7,246,000 7,323,000
Leasehold Improvements .. 3,186,000 2,620,000
----------- -----------
Total ................... $33,661,000 $32,182,000
- ---------------------------------------------------
Depreciation and amortization of plant and equipment amounted to $1,833,000,
$2,061,000 and $2,748,000 in fiscal 1995, 1994 and 1993, respectively.
Note 5. Accounts Payable and Accrued Expenses
The component elements of accounts payable and accrued expenses are as follows:
March 31, 1995 1994
- -----------------------------------------------------------
Payrolls, Including Payroll Taxes $ 648,000 $ 1,753,000
Holiday and Vacation Pay ........ 1,102,000 849,000
Income Taxes Payable ............ 1,821,000 1,917,000
Losses and Future Costs Accrued
on Uncompleted Contracts ...... 4,555,000 3,214,000
Other ........................... 3,897,000 4,101,000
----------- -----------
12,023,000 11,834,000
Accounts Payable ................ 7,966,000 4,307,000
----------- -----------
Total ........................... $19,989,000 $16,141,000
- -----------------------------------------------------------
Note 6. Long-Term Debt
A summary of long-term debt is as follows:
March 31, 1995 1994
- ---------------------------------------------------------
Convertible Subordinated
Debentures, Due 1998 .......... $12,209,000 $14,889,000
Industrial Revenue Bonds,
Due 1998 ...................... 1,895,000 2,095,000
Other Obligations ............. 120,000 195,000
----------- -----------
14,224,000 17,179,000
Less Current Installments of
Long-Term Debt ................ 2,492,000 2,664,000
----------- -----------
Total ......................... $11,732,000 $14,515,000
- ---------------------------------------------------------
The Convertible Subordinated Debentures (Debentures) bear interest at a rate of
8 1/2% per annum and are convertible at their face amount any time prior to
maturity into shares of Class B Common Stock, unless previously redeemed, at a
conversion price of $15.00 per share, subject to adjustment under certain
conditions. The Debentures are redeemable at the option of the Company, in whole
or in part, at face value, together with interest accrued to the redemption
date. As of August 1, 1990 and on August 1 of each year thereafter, to and
including August 1, 1997, the Company is required to provide for the retirement
of the Debentures by mandatory redemption (sinking fund) in the aggregate annual
principal amount of $2,500,000. As of March 31, 1995, the Company had
repurchased $12,791,000 of the Debentures and has satisfied all sinking fund
requirements to date. The Consolidated Statements of Earnings for fiscal years
1995, 1994 and 1993 reflect gains resulting from these repurchases of $13,000,
$257,000 and $500,000, respectively.
23
<PAGE>
The Debentures are subordinate to the prior payment in full of the
principal and interest on all senior indebtedness of the Company, which amounted
to $2,015,000 at March 31, 1995. The indenture contains certain dividend and
other restrictions. Under such provisions, the Company may not distribute
dividends or purchase, redeem or otherwise acquire or retire any of its capital
stock in excess of an aggregate amount which, at March 31, 1995, was
approximately $4,400,000.
On December 19, 1991, the Suffolk County Industrial Development Agency
(Agency) issued variable rate demand industrial development revenue refunding
bonds (Bonds) in the amount of $2,395,000 to refinance a prior bond issue which
provided funds for the construction of the manufacturing facilities of
Photronics Corp. (Photronics), a wholly-owned subsidiary of the Company. All
property, plant and equipment acquired or constructed from the proceeds of the
original bonds collateralizes the obligation, and payment of the principal and
interest and premium (if any) on the Bonds is further secured by the
unconditional guaranty of the Company. The Bonds are supported by an
irrevocable, direct-pay letter of credit in an amount equal to the principal
balance plus interest thereon for 45 days. At March 31, 1995, the contingent
liability of the Company as guarantor under the letter of credit was
approximately $1,930,000. The Company has collateralized the letter of credit
with accounts receivable and also has agreed to certain financial covenants,
including the maintenance of: (i) a certain minimum ratio of consolidated
tangible net worth to total debt (Debt Ratio), (ii) a certain minimum quarterly
ratio of earnings before interest and taxes to interest (Interest Ratio), and
(iii) a certain minimum balance of billed and unbilled accounts receivable
(Eligible Receivables), all as defined in the related agreements. At March 31,
1995, the covenants, all of which the Company was in compliance with, required
(i) a Debt Ratio of .60:1, (ii) an Interest Ratio of 1.5:1, and (iii) Eligible
Receivables of $2,500,000. The financial covenants also require that the Company
realize a certain level of profits during each quarter of fiscal 1996 in order
to be in compliance. A default under the Bonds constitutes a default on the
Debentures.
Commencing February 1, 1992 and on the first business day of each month
thereafter, interest on the Bonds is payable at that daily rate determined to be
necessary under prevailing market conditions to enable the Bonds to be sold at a
price equal to 100% of the principal amount thereof plus accrued interest. Such
rate was 4.5% at March 31, 1995. At the option of the Company, the interest rate
payable on the Bonds may be changed to a weekly or fixed rate.
Commencing February 1, 1992 and until such time as the Bonds may be
converted to fixed-rate obligations, the Bonds are subject to redemption, in
whole or in part, at the option of the Company at a price equal to their
principal amount plus accrued interest. On or after the second anniversary of a
conversion, Bonds bearing interest at a fixed rate are subject to the
redemption, in whole on any date or in part on any interest payment date, at the
option of the Company at an annual redemption rate of 102% at the second
anniversary of such conversion and diminishing by one percent each year to 100%
on or after the fourth anniversary of such conversion. Commencing January 1,
1993 and on each January 1 thereafter, to and including January 1, 1998, the
Bonds are subject to a schedule of mandatory sinking fund redemptions at a price
equal to 100% of the principal amount of the Bonds redeemed plus accrued
interest. The principal amount of the Bonds redeemed at January 1, 1995 was
$200,000.
Cash payments for interest during fiscal 1995, 1994 and 1993 were
$1,237,000, $1,448,000 and $1,687,000, respectively.
The aggregate maturities of long-term debt for the five years ending March
31, 2000 are as follows: 1996, $2,492,000; 1997, $2,637,000; 1998, $4,095,000;
1999, $5,000,000; and 2000, $0.
Note 7. Other Income, Net
Other income, net includes:
Years Ended March 31, 1995 1994 1993
- -------------------------------------------------------
Interest Income $439,000 $370,000 $ 585,000
Royalty Income ... 63,000 157,000 221,000
Gain on Repurchase
of Subordinated
Debentures ....... 13,000 257,000 500,000
Other ............ 19,000 50,000 (82,000)
-------- -------- ----------
Total ............ $534,000 $834,000 $1,224,000
- -------------------------------------------------------
24
<PAGE>
Note 8. Income Taxes
Income tax expense consists of:
Years Ended March 31, 1995 1994 1993
- ------------------------------------------------------------
Current:
Federal ............. $ 1,498,000 $ 884,000 $ 688,000
State ............... 128,000 224,000 58,000
----------- ----------- -----------
1,626,000 1,108,000 746,000
----------- ----------- -----------
Deferred:
Federal ............. 172,000 33,000 (103,000)
State ............... (146,000) (48,000) 72,000
----------- ----------- -----------
26,000 (15,000) (31,000)
----------- ----------- -----------
Total ............... $ 1,652,000 $ 1,093,000 $ 715,000
- ------------------------------------------------------------
Deferred income taxes at March 31, 1995 and 1994 reflect the impact of temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. The tax effects of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities at March 31, 1995 and 1994 are as follows:
March 31, 1995 1994
- ------------------------------------------------------------
Deferred Tax Assets:
State Net Operating Loss
Carryforwards .................. $ 3,977,000 $ 5,849,000
Inventory Capitalization ....... 1,687,000 1,888,000
Costs Accrued on Uncompleted
Contracts ...................... 2,627,000 2,163,000
Other .......................... 2,287,000 1,846,000
------------ ------------
Total Gross Deferred Tax Assets 10,578,000) 11,746,000)
Less Valuation Allowance ....... (2,279,000) (3,575,000)
------------ ------------
Net Deferred Tax Assets ........ 8,299,000 8,171,000
------------ ------------
Deferred Tax Liabilities:
Depreciation and Amortization .. (5,048,000) (5,540,000)
General and Administrative Costs (4,325,000) (2,740,000)
Federal Impact of the State
Benefits ....................... (1,136,000) (1,986,000)
Other .......................... (828,000) (917,000)
------------ ------------
Total Gross Deferred Tax
Liabilities .................... (11,337,000) (11,183,000)
------------ ------------
Net Deferred Tax Liabilities.... $ 3,038,000 $ (3,012,000)
- ------------------------------------------------------------
A valuation allowance is provided when it is more likely than not that some
portion or all of a deferred tax asset will not be realized. The Company has
established a valuation allowance for the deferred tax asset attributable to
state net operating loss carryforwards, due to the uncertainty of future Company
earnings attributable to various states and the status of applicable statutory
regulations that could limit or preclude utilization of these benefits in future
periods. A deferred tax asset of $1,567,000 and $1,612,000 is included in Other
Current Assets in the Consolidated Balance Sheets at March 31, 1995 and 1994,
respectively. Approximately $47,647,000 of state net operating loss
carryforwards were available in various tax jurisdictions at March 31, 1995. Of
that amount, $29,655,000 will expire between fiscal years 1997 and 2002; the
remaining $17,992,000 will expire between fiscal years 2005 and 2010.
A reconciliation of the statutory federal income tax rate to the effective tax
rate follows:
Years Ended March 31, 1995 1994 1993
- ----------------------------------------------------
Statutory Tax Rate .............. 34% 34% 34%
State Income Tax, Net of Federal
Income Tax Benefit .............. 3 4 5
Amortization of Intangible Assets 1 2 3
Other ........................... 1 -- (2)
-- -- --
Total ........................... 39% 40% 40%
- ----------------------------------------------------
The provision for income taxes includes all estimated income taxes payable
to federal and state governments, as applicable.
Cash payments for income taxes during fiscal 1995, 1994 and 1993 amounted
to $1,723,000, $311,000 and $303,000, respectively.
25
<PAGE>
Note 9. Common Stock, Stock Option Plans and Employee Benefit Plans
The Company has three authorized classes of stock: A class consisting of
10,000,000 shares of Class A Common Stock, a class consisting of 20,000,000
shares of Class B Common Stock, and a class consisting of 2,000,000 shares of
Preferred Stock (none of which has been issued). The holders of Class A and
Class B Common Stock are entitled to one vote per share and one-tenth vote per
share, respectively.
On February 7, 1991, the Board of Directors (Board) adopted the 1991 Stock
Option Plan (Stock Option Plan), which authorizes the issuance of up to 600,000
shares of Class B Common Stock. The Stock Option Plan was approved by the
Company's stockholders on August 8, 1991. The Stock Option Plan is the successor
to the Company's 1981 Non-Qualified Stock Option Plan (Non-Qualified Plan) that
expired on May 12, 1991 and to the 1981 Incentive Stock Option Plan (Incentive
Plan) that expired on October 31, 1991. Under the terms of the Stock Option
Plan, options to purchase shares of Class B Common Stock may be granted to key
employees, directors and consultants of the Company. Options granted under the
Stock Option Plan are at the discretion of the Stock Option Committee of the
Board (Stock Option Committee) and may be incentive stock options or
non-qualified stock options, except that incentive stock options may be granted
only to employees. The option price is determined by the Stock Option Committee
and must be a price per share which is not less than the par value per share of
the Class B Common Stock, and in the case of an incentive stock option, may not
be less than the fair-market value of the Class B Common Stock on the date of
the grant. Options may be exercised during the exercise period, as determined by
the Stock Option Committee, except that no option may be exercised within six
months of its grant date, and in the case of an incentive stock option,
generally, the exercise period may not exceed ten years from the date of the
grant. At March 31, 1995, 286,250 shares of Class B Common Stock were reserved
for future grants under the Stock Option Plan.
The Non-Qualified Plan, as amended, provided for the grant of options to
purchase a total of 100,000 shares of Class A Common Stock and 50,000 shares of
Class B Common Stock through May 12, 1991. Under the Non-Qualified Plan, the
Stock Option Committee had discretion to grant options to employees, consultants
and directors of the Company. The exercise price of an option granted under the
Non-Qualified Plan was the price, as determined by the Stock Option Committee,
but was not less than the aggregate par value of the shares subject to the
option. Options granted under the Non-Qualified Plan are exercisable in
accordance with the terms of the grant during a specified period, which did not
exceed five years. Upon the expiration of the Non-Qualified Plan, a total of
87,600 shares of Class A Common Stock and a total of 10,300 shares of Class B
Common Stock remained ungranted.
The Incentive Plan, as amended, provided for the grant of options to
purchase a total of 150,000 shares of Class A Common Stock and 475,000 shares of
Class B Common Stock through October 31, 1991. Under the Incentive Plan, options
were granted at the discretion of the Stock Option Committee only to employees
of the Company. Options are exercisable in accordance with the terms of the
grant within a specified period, which may not exceed ten years. Each option
granted provided for the purchase of a specified number of shares of Class A
Common Stock or Class B Common Stock, or both, at an exercise price not less
than the fair-market value of the shares subject to the option on the date of
grant. Upon the expiration of the Incentive Plan, options representing a total
of 23,665 shares of Class A Common Stock and a total of 269,832 shares of Class
B Common Stock remained ungranted.
Under the Stock Option Plan, pursuant to the terms of exercise under the
grant, the excess of the fair-market value of shares under option at the date of
grant over the option price may be charged to unamortized restricted stock
compensation or to earnings as compensation expense and credited to additional
paid-in capital. The unamortized restricted stock compensation, if any, is
charged to expense as the options become exercisable, in accordance with the
terms of the grant. Under the Non-Qualified Plan, pursuant to the restriction
periods on the exercise of options as stated in the stock option agreements, the
excess of the fair-market value of shares under option at the date of grant over
the option price was charged to unamortized restricted stock compensation and
credited to additional paid-in capital. The unamortized restricted stock
compensation is charged to expense as services are performed during the periods
of restriction. As restricted options expire, the amount of unamortized
restricted stock compensation relating to the options is credited and eliminated
through a charge to additional paid-in capital. In addition, the total amount of
compensation previously charged to expense is credited. The amount of
compensation charged (credited) to earnings for all plans in fiscal 1995, 1994
and 1993 was $106,000, $27,000 and ($17,000), respectively.
When stock is issued on exercise of options, the par value of each share
($.01) is credited to common stock and the remainder of the option price is
credited to paid-in capital. No charge is made to operations.
26
<PAGE>
A summary of all transactions under the Stock Option, Incentive and
Non-Qualified Plans follows:
<TABLE>
<CAPTION>
Number of Shares Option Price Number of Shares Option Price
of Class A per of Class B per
Common Stock Share Common Stock Share
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at March 31, 1992
(of Which 16,250 Shares and
77,238 Shares of Class A and Class B,
Respectively, Were Exercisable) ............. 65,000 $2.61 205,450 $ .01-4.75
Granted ..................................... -- -- 10,000 $ .01
Exercised ................................... -- -- (5,000) $ .01
Expired ..................................... -- -- (35,600) $ .01-4.75
------ ----- ------- ----------
Outstanding at March 31, 1993
(of Which 32,500 Shares and 111,925 Shares of
Class A and Class B, Respectively,
Were Exercisable) ........................... 65,000 $2.61 174,850 $ .01-4.75
Granted ..................................... -- -- 142,750 $ .01-3.63
Exercised ................................... -- -- (11,000) $ .01-2.25
Expired ..................................... -- -- (32,250) $2.13-2.25
------ ----- ------- ----------
Outstanding at March 31, 1994
(of Which 48,750 Shares and 111,163 Shares of
Class A and Class B, Respectively,
Were Exercisable) ........................... 65,000 $2.61 274,350 $ .01-4.75
Granted ..................................... -- -- 150,000 $ .01-4.95
Exercised ................................... (25,000) $2.61 (57,725) $ .01-3.63
Expired ..................................... -- -- (17,000) $ .01-3.63
------ ----- ------- ----------
Outstanding at March 31, 1995
(of Which 40,000 Shares and 145,425 Shares of
Class A and Class B, Respectively,
Were Exercisable) ........................... 40,000 $2.61 349,625 $ .01-4.95
- --------------------------------------------------------------------------------------------------------
</TABLE>
The Company also maintains defined contribution plans covering substantially all
full-time eligible employees. The Company's contributions to these plans for
fiscal 1995 and 1994 amounted to $365,000 and $203,000, respectively. The
Company did not make any contributions to these plans during fiscal 1993.
27
<PAGE>
Note 10. Commitments, Contingencies and Related Party Transactions
At March 31, 1995, the Company was party to various noncancelable operating
leases (principally for administration, engineering and production facilities)
with minimum rental payments as follows:
1996 ................. $1,909,000
1997 ................. 1,555,000
1998 ................. 1,133,000
1999 ................. 811,000
2000 ................. 695,000
Thereafter ........... 72,000
----------
Total ................ $6,175,000
==========
It is not certain as to whether the Company will negotiate new leases as
existing leases expire. Determinations to that effect will be made as existing
leases approach expiration and will be based on an assessment of the Company's
capacity requirements at that time.
Total rent expense aggregated $2,490,000, $1,703,000 and $1,492,000 in
fiscal 1995, 1994 and 1993, respectively.
In April 1984, the Board of Directors approved a lease agreement with LDR
Realty Co. (wholly owned by the Chairman of the Board of Directors and former
President) for additional office and manufacturing space for the Company. The
LDR lease, which expired on May 31, 1988, was renegotiated for a ten-year term
commencing June 1, 1988 at a net annual rental of $233,000. The Company is
required to pay all real-estate taxes, maintenance and repairs to the facility.
Effective July 20, 1994, the Company entered into an Employment,
Non-Competition and Termination Agreement (the Gross Agreement) and a Stock
Purchase Agreement (the Stock Purchase Agreement) with David E. Gross, who
retired as President and Chief Technical Officer of the Company on May 12, 1994.
Under the terms of the Gross Agreement, Mr. Gross will receive a total of
$600,000 as compensation for his services under a five-year consulting agreement
with the Company and a total of $750,000 as consideration for a five-year
non-compete arrangement. The payments will be charged to expense over the term
of the Gross Agreement as services are performed and obligations are fulfilled
by Mr. Gross. He also will receive, at the conclusion of such initial five-year
period, an aggregate of approximately $1.3 million payable over a nine-year
period as deferred compensation. The net present value of the payments to be
made to Mr. Gross, pursuant to the deferred compensation portion of the Gross
Agreement, approximated the amount of the Company's previous deferred
compensation arrangement with Mr. Gross. On July 28, 1994, pursuant to the Stock
Purchase Agreement, the Company purchased 659,220 shares of Class A Common Stock
and 45,179 shares of Class B Common Stock owned by Mr. Gross for $4.125 and
$4.00 per share, respectively, totaling approximately $2.9 million in cash (the
Buy-back). The Stock Purchase Agreement also includes certain provisions
regarding the sale and voting of Mr. Gross' remaining shares of stock in the
Company, as well as the adjustment which would have been made in the purchase
price paid to Mr. Gross pursuant to the Buy-back should a change in control of
the Company occur within three-years from the date of the Stock Purchase
Agreement.
On October 18, 1994, the Company filed a Registration Statement on Form
S-2, and on November 10, 1994, the Company filed Amendment No. 1 to such
Registration Statement (the Registration Statement) with the Securities and
Exchange Commission for the purpose of selling shares of its common stock
purchased by the Company in the Buy-back. Pursuant to the Registration
Statement, the Company offered to sell 650,000 shares of its Class A Common
Stock at a purchase price of between $3.92 per share and $4.33 per share and
45,000 shares of its Class B Common Stock at a purchase price of between $3.80
per share and $4.20 per share. As of March 31, 1995, all shares of Class A and
Class B Common Stock offered for sale under the Registration Statement had been
sold at a price of $4.125 per share and $4.00 per share, respectively, totaling
approximately $2.9 million.
As of March 31, 1995, the Company was in the process of finalizing an
Employment, Non-Competition and Termination Agreement (the Newman Agreement)
between the Company and Leonard Newman, the Chairman of the Board and Secretary
of the Company. Pursuant to the Newman Agreement, it is expected that Mr. Newman
will receive certain compensation from the Company over a five-year period for
consulting services and a non-compete arrangement. In addition, Mr. Newman will
receive certain retirement benefits payable over a ten-year period at the
conclusion of such initial five-year period. Results of operations for fiscal
1995 reflect a charge of $1.5 million representing the estimated net present
value of the Company's obligation under the Newman Agreement. The corresponding
amount was included in Other Liabilities in the Consolidated Balance Sheet at
March 31, 1995 as an addition to the accrual which had been established to cover
the Company's liability to Mr. Newman under a previous deferred compensation
arrangement.
The Company is a party to various legal actions and claims arising in the
ordinary course of its business. In management's opinion, the Company has
adequate legal defenses for each of the actions and claims and believes that
their ultimate disposition will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Since substantially all of the Company's revenues are derived from
contracts or subcontracts with the U.S. Government, future revenues and profits
will be dependent upon continued contract awards, Company performance and volume
of Government business. The books and records of the Company are subject to
audit and post-award review by the Defense Contract Audit Agency.
28
<PAGE>
Note 11. Business Combinations
On October 1, 1993, the Company acquired (through TAS Acquisition Corp., a
wholly-owned subsidiary) a 95.7% equity interest in Technology Applications and
Service Company (TAS), a Maryland corporation, pursuant to a Stock Purchase
Agreement (the Agreement) dated as of August 6, 1993. Under the terms of the
Agreement, the Company paid $15.10 in cash for a total of 97,317 issued and
outstanding shares of common stock, par value $.01 per share, of TAS. TAS,
headquartered in Gaithersburg, Maryland, was a privately-held company
incorporated in 1991. It applies state-of-the-art technology to produce
emulators that can replace display consoles and computer peripherals used by the
military. TAS also produces simulators, stimulators and training products used
primarily for testing and training at military land-based sites, as well as
provides technical services to both Department of Defense and commercial
customers. On September 30, 1993, the Company, in anticipation of the
acquisition, advanced $1,800,000 to TAS pursuant to a demand promissory note.
Such advance was converted to an intercompany liability on the date of the
acquisition and is eliminated in consolidation. On November 1, 1993, Articles of
Merger were filed in order to merge TAS into TAS Acquisition Corp. The name TAS
Acquisition Corp. was changed to Technology Applications & Service Company
(TAS).
The acquisition has been accounted for using the purchase method of
accounting. The excess of cost over the estimated fair value of net assets
acquired was approximately $405,000 and is being amortized on a straight-line
basis over 30 years, or $14,000 annually. The Consolidated Statements of
Earnings include the operations of TAS from October 1, 1993.
The following unaudited proforma financial information shows the results of
earnings for the years ended March 31, 1994 and 1993 as though the acquisition
of TAS had occurred at the beginning of each period presented. In addition to
combining the historical results of operations of the two companies, the pro
forma calculations include: the amortization of the excess of cost over the
estimated fair value of net assets acquired; the effect of a reduction in
interest expense arising from the assumed repayment by TAS prior to the
acquisition date of its outstanding borrowings under a bank line of credit; the
effect of a reduction in interest income from the assumed decrease in cash
associated with the $1,800,000 advanced to TAS prior to the acquisition and the
funding of the TAS operating loss for the periods presented; and the adjustment
to income taxes (benefit) to reflect the effective income tax (benefit) rate
assumed for the Company and TAS on a combined basis for each pro forma period
presented:
Year Ended March 31, 1994 1993
- ---------------------------------------------------------
Revenues .................... $ 65,944,000 $ 56,652,000
Net Earnings (Loss) before
Extraordinary Item .......... $ 1,291,000 $ (2,364,000)
Net Earnings (Loss) per Share
before Extraordinary Item ... $ .24 $ (.44)
- ---------------------------------------------------------
The unaudited pro forma financial information is not necessarily indicative
either of the results of operations that would have occurred had the acquisition
been made at the beginning of the period, or of the future results of operations
of the combined companies.
On December 13, 1993, pursuant to a Joint Venture Agreement dated November
3, 1993 and a Partnership Agreement dated December 13, 1993, by and between DRS
Systems Management Corporation, a wholly-owned subsidiary of the Company, and
Laurel Technologies, Inc. (Laurel) of Johnstown, Pennsylvania, the Company
entered into a partnership with Laurel (the Partnership) for the purposes of
electronic cable and harness manufacturing, military-quality circuit card
assembly and other related activities. The Company's contribution to the
Partnership consisted of cash, notes and equipment valued at approximately
$600,000, representing an 80% controlling interest in the Partnership. As a
result, the financial position of the Partnership has been consolidated with
that of the Company's, and the Consolidated Statements of Earnings include the
operations of Laurel from December 13, 1993. The related minority interest in
the Partnership has been included in Other Liabilities and Other Income, Net,
respectively, in the Company's consolidated financial statements for the periods
ended March 31, 1995 and 1994.
The Company also made one other asset acquisition in December 1993 which
was not significant to the Company's consolidated financial statements.
29
<PAGE>
On November 17, 1994, Precision Echo, Inc., a wholly-owned subsidiary of
the Company, acquired, through its wholly-owned subsidiary (Precision Echo), the
net assets of Ahead Technology Corporation (Ahead), pursuant to an Asset
Purchase Agreement dated October 28, 1994. Under the terms of the Asset Purchase
Agreement, Precision Echo paid, on the date of acquisition, approximately
$1,100,000 for the net assets of Ahead. In addition, Precision Echo entered into
a Covenant and Agreement Not to Compete (Covenant), dated October 28, 1994, with
the chairman of the board of Ahead. Under the terms of the Covenant, the total
cash consideration to be paid by Precision Echo consisted of approximately
$400,000 payable at the acquisition date, and an additional $540,000 payable in
equal monthly installments over a period of five years from the acquisition
date. Ahead, located in Los Gatos, California, designs and manufactures a
variety of consumable magnetic head products used in the production of computer
disk drives. Its products include burnish heads, glide heads and specialty test
heads.
The acquisition has been accounted for using the purchase method of
accounting and, therefore, Ahead's financial statements are included in the
consolidated financial statements of the Company from the date of acquisition.
The excess of cost over the estimated fair value of net assets acquired was
approximately $940,000 and will be amortized on a straight-line basis over five
years, or approximately $188,000 annually. The financial position and results of
operations of Ahead were not significant to those of the Company's at the date
of acquisition.
Note 12. Quarterly Financial Information (Unaudited)
The following table sets forth unaudited quarterly financial information for
fiscal 1995 and 1994:
<TABLE>
<CAPTION>
First Quarter Second Quarter
-------------------- --------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $16,012,000 $11,280,000 $15,650,000 $ 8,988,000
Operating Income $ 1,076,000 $ 692,000 $ 1,180,000 $ 753,000
Income Taxes $ 382,000 $ 306,000 $ 335,000 $ 182,000
Net Earnings $ 508,000 $ 460,000 $ 570,000 $ 272,000
Net Earnings per Share $ .10 $ .09 $ .12 $ .05
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Third Quarter Fourth Quarter
-------------------- --------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $15,742,000 $15,101,000 $22,526,000 $22,451,000
Operating Income $ 1,005,000 $ 728,000 $ 1,833,000 $ 1,275,000
Income Taxes $ 425,000 $ 192,000 $ 510,000 $ 413,000
Net Earnings $ 634,000 $ 266,000 $ 892,000 $ 617,000
Net Earnings per Share $ .13 $ .05 $ .16 $ .12
- -----------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
[PEAT MARWICK LLP letterhead]
To the Board of Directors and Stockholders,
Diagnostic/Retrieval Systems, Inc.:
We have audited the accompanying consolidated balance sheets of
Diagnostic/Retrieval Systems, Inc. and subsidiaries as of March 31, 1995 and
1994, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended March 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Diagnostic/Retrieval Systems, Inc. and subsidiaries as of March 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended March 31, 1995 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
May 18, 1995
COMMON STOCK
Diagnostic/Retrieval Systems, Inc. and Subdsidiaries
Fiscal 1995 Fiscal 1994
- --------------------------------------------------------------------
Class A Class A
As Traded on the American -------------- --------------
Stock Exchange High Low High Low
- --------------------------------------------------------------------
First Quarter ............. 5 1/4 3 5/8 4 3/8 2 3/4
Second Quarter ............ 4 3/4 3 3/4 3 7/8 3 1/16
Third Quarter ............. 4 5/16 3 15/16 3 11/16 2 15/16
Fourth Quarter ............ 5 1/4 4 4 1/16 3
- --------------------------------------------------------------------
Class B Class B
As Traded on the American -------------- --------------
Stock Exchange High Low High Low
- --------------------------------------------------------------------
First Quarter ............. 5 1/8 3 3/4 4 1/4 2 13/16
Second Quarter ............ 4 5/8 3 3/4 3 13/16 3
Third Quarter ............. 4 3/8 3 7/8 3 1/2 2 3/4
Fourth Quarter ............ 5 1/2 3 7/8 4 3
- --------------------------------------------------------------------
As of June 5, 1995, the Class A and Class B Common Stock of the Company was held
by 326 and 223 stockholders of record, respectively.
31
<PAGE>
SUPPLEMENTAL INFORMATION
Diagnostic/Retrieval Systems, Inc. and Subsidiaries
Directors
Theodore Cohn
Management Consultant
The Honorable Dr. Donald C. Fraser
Management Consultant
Mark N. Kaplan
Partner,
Skadden, Arps, Slate, Meagher & Flom
Leonard Newman
Chairman of the Board and Secretary, DRS, Inc.
Mark S. Newman
President and Chief Executive Officer,
DRS, Inc.
RADM Stuart F. Platt, USN (Ret.)
President, Precision Echo, Inc.
Jack Rachleff
President, Fablok Mills, Inc.
Corporate Officers
Paul G. Casner, Jr.
Vice President
Leonard Newman
Chairman of the Board and Secretary
Mark S. Newman
President and Chief Executive Officer
Nancy R. Pitek
Controller and Treasurer
RADM Stuart F. Platt, USN (Ret.)
Vice President
Richard Ross
Vice President
Corporate Offices
Corporate Headquarters
5 Sylvan Way, Parsippany, New Jersey 07054
201 898-1500
Washington Operations
1215 S. Jefferson Davis Highway, Suite 1004
Arlington, Virginia 22202
703 416-8000
Jackson Kemper, Jr.
Vice President, Washington Operations
Cynthia L. Martin
Vice President, Government Relations
Operations
Electronic Systems Group
200 Professional Drive, Gaithersburg, Maryland 20879
301 921-8100
Paul G. Casner, Jr., President
Laurel Technologies, a Partnership
423 Walters Avenue, Johnstown, Pennsylvania 15904
814 269-4141
John J. Donnelly, President
Military Systems, a Division of DRS
138 Bauer Drive, Oakland, New Jersey 07436
201 337-3800
John V. Giordano
Vice President, General Manager
Technology Applications & Service Company,
a Subsidiary of DRS
200 Professional Drive, Gaithersburg, Maryland 20879
301 921-8100
Terrence L. DeRosa
Vice President, General Manager
Technical Services Division, a Division of
Technology Applications & Service Company
5721 Thurston Avenue, Virginia Beach, Virginia 23455
804 464-4094
105 West 35th Street, Suite C, National City,
California 91950
619 427-4091
Photronics Corp., a Subsidiary of DRS
270 Motor Parkway, Hauppauge, New York 11788
516 231-9500
Richard Ross, President
Robert Russo, Vice President, General Manager
Precision Echo, Inc., a Subsidiary of DRS
3105 Patrick Henry Drive, Santa Clara, California 95054
408 988-0516
RADM Stuart F. Platt, USN (Ret.), President
Ahead Technology, Inc., a Subsidiary of
Precision Echo, Inc.
103 Cooper Court, Los Gatos, California 95030
408 354-6118
Arthur Honegger, President
CMC Technology, a Division of Precision Echo, Inc.
2650 Lafayette Street
Santa Clara, California 95054
408 980-9800
William E. Fitts, General Manager
Exhibit 21
DIAGNOSTIC/RETRIEVAL SYSTEMS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
MARCH 31, 1995
Subsidiary State of Incorporation
---------- ----------------------
Precision Echo, Inc. Delaware
Photronics Corp. New York
Technology Applications & Service Company Delaware
DRS Systems Management Corporation Delaware
Ahead Technology, Inc. Delaware
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Diagnostic/Retrieval Systems, Inc.:
We consent to the incorporation by reference in the registration statements
(No. 2-87303, No. 2-99986, No. 33-33125, No. 2-97784 and No. 33-42886) on Form
S-8 and Form S-3 of Diagnostic/Retrieval Systems, Inc. of our reports dated May
18, 1995, relating to the consolidated balance sheets of Diagnostic/Retrieval
Systems, Inc. and subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows and
related schedule for each of the years in the three-year period ended March 31,
1995, which reports appear or are incorporated by reference in the March 31,
1995 Annual Report on Form 10-K of Diagnostic/Retrieval Systems, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
June 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM DIAGNOSTIC/RETRIEVAL
SYSTEMS, INC. FORM 10-K FOR THE ANNUAL PERIOD
ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<RESTATED>
<CIK> 0000028630
<NAME> 0
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 11,197,000
<SECURITIES> 0
<RECEIVABLES> 17,432,000
<ALLOWANCES> 0
<INVENTORY> 11,724,000
<CURRENT-ASSETS> 42,798,000
<PP&E> 33,661,000
<DEPRECIATION> 23,812,000
<TOTAL-ASSETS> 64,590,000
<CURRENT-LIABILITIES> 22,481,000
<BONDS> 11,732,000
<COMMON> 59,000
0
0
<OTHER-SE> 22,450,000
<TOTAL-LIABILITY-AND-EQUITY> 64,590,000
<SALES> 69,930,000
<TOTAL-REVENUES> 69,930,000
<CGS> 64,836,000
<TOTAL-COSTS> 64,836,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,372,000
<INCOME-PRETAX> 4,256,000
<INCOME-TAX> 1,652,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,604,000
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0
</TABLE>
