FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_________ to________
Commission file number 0-9919
PSC Inc.
Exact name of registrant as specified in its charter
New York 16-0969362
State or other jurisdiction of IRS Employer ID No.
incorporation or organization
675 Basket Road, Webster, New York 14580
Address of principal executive offices zip code
Registrant's telephone number, including area code: 716-265-1600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
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As of March 18, 1996 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $75,435,000 (Assumes
officers, directors, and any shareholder holding 5% of the outstanding shares
are affiliates.)
As of March 18 1996, there were outstanding 10,001,124 shares of Common Stock.
Documents incorporated by reference:
Portions of PSC Inc.'s Proxy Statement for the Annual Meeting
of Shareholders to be held on April 30, 1996 are incorporated into Part
III of this Form 10-K.
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TABLE OF CONTENTS
PART I
PAGE
Item 1: Business................................................ 4
Item 2: Properties.............................................. 16
Item 3: Legal Proceedings....................................... 17
Item 4: Submission of Matters to a Vote of Security Holders..... 17
Executive Officers of Registrant..................... 18
PART II
Item 5: Market for Registrant's Common Equity and Related
Security Holder Matters.............................. 21
Item 6: Selected Financial Data................................. 22
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 23
Item 8: Financial Statements and Supplementary Data............. 27
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 27
PART III
Item 10: Directors and Executive Officers of the Registrant...... 27
Item 11: Executive Compensation.................................. 27
Item 12: Security Ownership of Certain Beneficial Owners and
Management........................................... 27
Item 13: Certain Relationships and Related Transactions.......... 27
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.......................................... 28
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PART I
ITEM 1: BUSINESS
COMPANY OVERVIEW
PSC Inc., (together with its subsidiaries, the "Company") was
incorporated in the State of New York in 1969. The Company designs, manufactures
and markets handheld and fixed position laser-based bar code scanners, scan
engines and other scanning products for the worldwide automatic identification
and data collection market ("Auto ID"). By identifying, collecting, processing
and transmitting data, the Company's scanning products serve as the "front end"
of terminals or host computers used by industry, business and government to
manage and control production, warehousing, distribution, sales and service.
Headquartered in upstate New York, with additional operations in Florida and the
United Kingdom, the Company serves original equipment manufacturers ("OEMs"),
value-added resellers ("VARs"), distributors and system integrators throughout
the world.
The Company has positioned itself within the Auto ID industry by
selling both domestically and internationally, principally through indirect
distribution channels. The Company distributes its scanning products through
OEMs, VARs, distributors and systems integrators rather than directly to end
users, thus enabling the Company to avoid significant channel conflicts. The
Company's distribution relationships have enabled it to introduce its products
(generally under non-PSC labels) to new vertical markets, and have fostered the
development of strategic relationships with leading Auto ID participants with
whom PSC conducts joint product development. The Company operates within one
industry segment: automatic data collection. The following is a brief synopsis
of the Company's operations for the last five years, which should be read in
conjunction with the balance of this report, including the Consolidated
Financial Statements.
In November 1991, the Company completed a private placement of 955,000
shares of its Common Stock for aggregate consideration of approximately $5.0
million.
In December 1991, the Company merged Optel Systems Inc. into Optel
Bar Code Systems Inc., renaming the surviving company OBCS, Inc. and merged A.D.
Data Systems Corporation into Techtran Inc., renaming the surviving company A.D.
Data Systems Corp.
In May 1992, the shareholders approved a change in the name of the
Company from Photographic Sciences Corporation to PSC Inc.
In September 1992, the Company opened a sales office in the United
Kingdom that serves as its European headquarters.
In January 1993, the Company purchased selected assets and assumed
selected liabilities of BRT Corporation, a manufacturer of fixed position, high
speed industrial scanners.
In July 1993, the Company merged its OBCS, Inc. subsidiary into A.D.
Data Systems Corp. and renamed the surviving entity PSC Scanning Systems Inc.
In December 1993, the Company completed the sale of certain assets and
certain liabilities of its Switching Systems product line.
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In December 1994, the Company completed the acquisition of certain
assets and certain liabilities of LazerData Corporation ("LazerData"), a
subsidiary of BTR Corporation, located in Sanford, Florida.
In March 1995, the Company completed a secondary stock offering of 2.3
million shares of its Common Stock. The net proceeds to the Company from the
offering were approximately $23.6 million.
In April 1995, the Company completed the sale of its Image Products
product group.
In November, 1995, the Company formed a wholly owned subsidiary, PSC S.A.,
Inc. to serve as its South and Central American sales headquarters.
RISK FACTORS
The Company wishes to caution readers that the following risk factors,
among others, could affect PSC's actual consolidated results for the first
quarter of 1996 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, PSC.
Technological Change. The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards and
changing customer needs. The Company's future success will depend on its ability
to enhance its current products, to develop new products on a timely and
cost-effective basis and to respond to changing customer needs and technological
developments. Certain of the Company's competitors spend larger amounts on
research and development efforts than the Company. Any failure by the Company to
anticipate or respond adequately to changes in technology and customer
preferences, or any significant delay in product development or introduction,
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance that the Company will be
successful in developing new products or enhancing its existing products on a
timely or cost-effective basis, or that such new products or product
enhancements will achieve market acceptance.
Management of Growth. The Company is experiencing a period of rapid
growth that could place a significant strain on its resources. A component of
the Company's business strategy is to complement internal growth with strategic
acquisitions. There can be no assurance that the Company will be able to operate
acquired businesses profitably or otherwise implement its growth strategy
successfully. The Company's ability to manage its growth and integrate any
newly-acquired entities will require it to continue to improve its operations
and its financial and management information systems, and to motivate and
effectively manage its employees. If the Company's management is unable to
manage such growth effectively, the quality of the Company's products, its
ability to identify, hire and retain key personnel and its results of operations
could be materially adversely affected.
Intellectual Property. The Company's success is dependent in part on
its ability to obtain patent protection for its products, maintain trade secret
protection and operate without infringing the proprietary rights of others. The
Company currently owns 45 U.S. patents having expirations from the year 2002 to
the year 2013 and also has certain foreign patents. The Company has filed, and
intends to file, applications for additional patents covering its products.
There can be no assurance that any of these patent applications will be granted,
or that the Company will develop additional products that are patentable and do
not infringe upon the patents of others, or that the patents issued to or
licensed by the Company will provide the Company with a competitive advantage or
adequate protection for its products. In addition, there can be no assurance
that patents issued to or licensed by the Company will not be challenged,
invalidated or circumvented by others. See "Business--Intellectual Property."
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The Auto ID industry is characterized by substantial litigation
regarding patent and other intellectual property rights. The Company
aggressively defends its patents and other proprietary rights, and is currently
a plaintiff in three lawsuits alleging patent infringements on the part of
others, and these proceedings involve counterclaims against the Company. There
can be no assurance that others will not assert claims against the Company that
result in litigation. Any such litigation could result in significant expense
and divert the Company's attention from other matters. If any of the Company's
products were found to infringe a third-party patent, the third party could be
entitled to injunctive relief, which would prevent the Company from selling any
such infringing products. In addition, the Company could be required to pay
monetary damages. Although the Company could seek a license to sell products
determined to infringe a third-party patent, there can be no assurance that a
license would be available on terms acceptable to the Company. The Company could
also attempt to redesign any infringing products so as to avoid infringement,
although any effort to do so could be expensive and time-consuming, and there
can be no assurance the effort would be successful. See "Business--Legal
Matters".
Competition. The Auto ID industry is highly competitive with rapid
technological change and intellectual property developments representing key
competitive factors. The Company also competes on the basis of innovative
design, high quality manufacturing, technical expertise in scanning, level of
sales and support services, price, and overall product functionality and fitness
for use. Failure to keep pace with product and technological advances could
negatively affect the Company's competitive position and prospects for growth.
Several of the Company's competitors have substantially greater financial and
other resources than the Company. In addition, other larger corporations could
enter the Auto ID industry. No assurance can be given that the Company will be
able to compete successfully against current and future competitors or that the
competitive factors faced by the Company will not adversely affect its business,
financial condition or results of operations. See "Business--Competition".
Dependence on Sales by Third Parties: Significant Customers. The
Company's net sales are dependent upon the ability of its OEM, VAR, distributor
and systems integrator customers to develop and sell products that incorporate
the Company's scanning products. Factors, including economic conditions, patent
positions, inventory positions, the abilty to sell the Company's products to end
users, regulatory requirements and other marketing restrictions, that adversely
affect the operations of the Company's OEM, VAR, distributor and systems
integrator customers can have a substantial impact upon the Company's financial
results. No assurances can be given that the Company's OEM, VAR, distributor and
systems integrator customers will not experience financial or other difficulties
that could adversely affect their operations and, in turn, the results of
operations of the Company. During 1995, 1994 and 1993, Telxon Corporation
accounted for 17%, 22% and 16%, respectively of the Company's net sales. In
1994, net sales to Intermec, a division of Western Atlas, accounted for 10% of
net sales. A significant diminution in the sales to or loss of either of these
customers could have a material adverse effect on the Company's results of
operations. See "Business--Sales and Marketing" and "--Customer Support and
Services."
Risks Associated with International Operations. The Company's sales to
international customers increased from $6.8 million or 18% of total net sales in
1993 to $19.3 million or 22% of net sales in 1995. The Company intends to
continue to expand its operations outside of the United States and to enter
additional international markets, which will require significant management
attention and financial resources and which will result in a significant portion
of the Company's net sales being subject to the risks associated with
international sales. Such risks include changes in regulatory requirements,
compliance costs associated with quality control standards, special standards
requirements, exposure to currency fluctuations, exchange rates, tariffs and
other barriers, difficulties in staffing and managing international subsidiary
operations, potentially adverse tax consequences, country-specific product
requirements, and political and regulatory uncertainties. There can be no
assurance that these factors will not have an adverse impact on the Company's
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ability to increase or maintain its international sales or results of
operations. See "Business--Sales and Marketing."
Dependence on Key Vendors. The Company's ability to produce and ship
its products on schedule is highly dependent on timely receipt of an adequate
supply of components and materials from its key vendors. The Company currently
relies on single suppliers, some of whom manufacture at a number of locations,
for some of the key components of its products. The Company could incur
significant set-up costs and experience delays in manufacturing should it be
necessary to replace key vendors due to work stoppages, shipping delays, quality
problems, financial difficulties or other factors. There can be no assurance
that these potential costs and delays would not have a material adverse effect
on the Company's business or results of operations. See "Business--Manufacturing
and Suppliers."
Product Transitions. The introduction of new and enhanced products
requires the Company to manage the transition from older products in order to
minimize disruption in customer ordering patterns, avoid excess levels of older
material inventories and ensure that adequate supplies of new product can be
delivered to meet customer demand. There can be no assurance that the Company
will successfully manage the transition to selling new products. The failure to
do so could have a material adverse effect on the Company's business and results
of operations.
Fluctuations in Operating Results. Historically, the Company has
experienced variability in its quarterly results. Large orders can cause
favorable or unfavorable variations in quarterly comparisons. In addition, PSC's
results may vary significantly from quarter to quarter depending on other
factors such as the timing of orders and shipments, the level of development,
sales and marketing expense incurred in anticipation of future revenues, and the
timing of new product and application announcements and releases by PSC and its
competitors. Many of these factors are beyond the Company's control. PSC
believes that quarterly period-to-period comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Volatility of Stock Price. The Company's Common Shares have experienced
substantial price volatility and such volatility may occur in the future,
particularly as a result of quarter-to-quarter variations in the actual or
anticipated financial results of the Company, its competitors and other
companies in the Auto ID industry. In addition, the stock market has experienced
significant price and volume fluctuations that have affected the market price of
many technology companies and have often been unrelated to the operating
performance of these companies. Broad market fluctuations, as well as general
economic and political conditions, may adversely affect the market price of the
Common Shares.
Significant Agreement. The Company has entered into cross-license
agreements with its principal competitor in the handheld laser scanning market,
Symbol Technologies, Inc. ("Symbol"). The agreements limit the Company's annual
sales of licensed products in "Asia," as defined, to no more than 20% of its
annual revenues. In 1995, the Company's sales of licensed products in Asia
represented 5% of its total sales. In the event of a "change in control" of PSC,
the agreement could be terminated or the royalty payable to Symbol could be
increased and the sale of licensed products limited. "Change in control" as used
in the agreement includes the acquisition by another party of 30% or more of the
voting power of the equity securities of the Company, the replacement of over
50% of the current Board of Directors of the Company (other than with the
approval of two-thirds of the current Board), the sale of all or substantially
all of the assets of the Company or the sale of the Company's handheld laser
scanner business. An early termination of the cross-license agreement could have
a material adverse effect on the financial condition and results of operations
of the Company. See "Business -- Intellectual Property."
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Government Regulation. The Company's products and operations are
subject to regulation by federal, state and local agencies in the United States
and its products are subject to regulation in certain foreign countries where
the Company's products are sold. While the Company believes that its products
and operations comply with all applicable regulations, there can be no assurance
of continued compliance if these regulations were to change. Noncompliance with
respect to these regulations could have a material adverse effect on the
Company's results of operations. See "Business--Government Regulation."
Dependence on Key Personnel. The Company's future success depends in
large part on the continued service of L. Michael Hone, Chairman of the Board,
President and Chief Executive Officer, as well as on its other key technical and
management personnel. Mr. Hone's current employment agreement expires on
December 31, 1999. The Company is also dependent on its ability to continue to
attract additional qualified employees, particularly design, process and test
engineers involved in the manufacture of existing products and the development
of new products and processes. The competition for such skilled personnel is
intense and the loss of key employees could have a material adverse effect on
the Company's results of operations. See "Business--Employees" and "Management."
Anti-Takeover Effects of Certain Charter and Bylaw Provisions. The
Company's Certificate of Incorporation (the "Certificate") and Bylaws (the
"Bylaws") contain certain provisions relating to corporate governance and to the
rights of shareholders. These provisions may be deemed to have a potential
"anti-takeover" effect in that such provisions may delay, defer or prevent a
change in control of the Company. The Certificate provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. In addition, the Certificate provides that
shareholders may remove a director only for cause and only by the vote of the
holders of two-thirds of the Common Shares of the Company. This provision, when
coupled with the provision of the Certificate authorizing only the Board of
Directors to fill vacant directorships, will preclude shareholders from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies created by such removal with their
own nominees, and will make more difficult, and therefore may discourage, a
proxy contest to change control of the Company. The Certificate also provides
that special meetings of the shareholders of the Company may be called only by
the Board of Directors. These provisions of the Certificate may be changed only
by the affirmative vote of the holders of two-thirds of the Common Shares of the
Company entitled to vote on such matters at a meeting duly called for such
purpose. The Bylaws provide that shareholders seeking to bring business before
an annual meeting of shareholders, or to nominate candidates for election as
directors at an annual or special meeting of shareholders, must provide prior
written notice thereof, as set forth in the Bylaws.
BAR CODE EQUIPMENT
The Company offers a wide range of laser based bar code scanning
products such as scan engines and handheld and fixed position scanners for use
by business, industry and government in multiple application areas. In addition,
the Company markets a full line of accessories, software and supplies to support
its products. This line includes such items as cables, stands, printers,
carrying cases, batteries and battery chargers. An early entrant in the Auto ID
industry, PSC is committed to ongoing innovation in product design,
manufacturing, product performance and customer satisfaction. The Bar Code
Equipment group accounted for 100%, 98%, and 94% of the Company's sales revenues
in 1995, 1994 and 1993, respectively.
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Scan Engines
PSC's scan engines are self-contained bar code reading components which
manufacturers build into a variety of products. PSC scan engines incorporate all
of the electronic, optical and mechanical components required for laser scanning
in a single package which can be easily integrated. The various models
manufactured by PSC are based on either its 5301 "large" platform, its reduced
5303 version, or the newly introduced Minuet (TRADEMARK) DI-1000 (TRADEMARK)
family. Introduced in 1991, the 5301 platform is about the size of a deck of
playing cards and occupies a volume of 10 cubic inches. In response to industry
demands for a smaller scanning platform, in 1993 PSC introduced the 5303 scan
engine which is about half the footprint of the 5301 and occupies 3.5 cubic
inches. In 1995, PSC introduced an even smaller scan engine, the Minuet
(TRADEMARK) DI-1000(TRADEMARK) DIRECT ILLUMINATION(TRADEMARK) Bar Code Engine.
This miniature engine, which has a volume of only 1.2 cubic inches is a
revolutionary alternative to conventional reflective scanning mechanisms. In a
Direct Illumination (TRADEMARK) bar code engine system, there are no reflective
optics; the laser is mechanically swept to directly illuminate the bar code. The
Minuet (TRADEMARK) DI-1000 (TRADEMARK) can significantly enhance bar code
reading performance in a variety of OEM products such as portable data
collection devices; laptop, handheld and palmtop computers; diagnostic and test
equipment; and ticket issuing machines.
Handheld Scanners
The Company has developed a series of handheld scanning products to
meet varying customer needs for performance, size and value.
5300 HP Light Industrial/Commercial Scanners: PSC's high performance
5300 HP handheld scanners are based on its 5301 scan engine platform first
introduced in 1991. The 5300 HP Series was designed for the Light Industrial,
Commercial and Special Retail environments where performance is critical.
These high performance scanners provide snappy scanning of "real world" bar
code labels. Depending on the size and quality of bar codes, one model in the
Series can read bar codes having bars or spaces with a dimension as narrow as
2 mil. (.002 inches). A 2 mil. dimension bar code is common on small jewelry
items or on the side of a printed circuit board which can then be tracked
through a manufacturing process. A higher powered laser in the 5300 HP Series,
permits bar code reading in bright sunlight, thereby allowing the operator to
read through a windshield for vehicle identification or through a glass
showcase to read price tags.
5300 IP Ruggedized Industrial Scanners: Like the 5300 HP, PSC's high
performance 5300 IP handheld scanners are based on its 5301 scan engine
platform. The 5300 IP Series scanners were designed for extreme durability and
performance for tough jobs in demanding environments. They are ideal for use
in warehouses, distribution centers, automotive plants, utilities, in cold
storage warehouses and at chemical plants. They can withstand rugged
conditions such as multiple six foot drops to concrete and temperatures as low
as -22oF (-30oC) as are encountered in walk-in freezers. The IP products
can be manufactured and certified intrinsically safe for use under
hazardous conditions such as explosive environments found in coal mines or
in volatile chemical environments.
5300 HP/IP scanners are designed with an open slot in the scanner handle that
accommodates circuit boards with additional capabilities such as decode,
interface and optional memory, thus enabling the Company to offer
custom-manufactured scanners that OEMs then sell under their private labels.
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The Company's lifetime warranty on the scanning mechanism in each model of the
5300 Series, its 24-month warranty on its HP scanners and its 30-month
warranty on its IP scanners (which the Company believe to be the among the
most favorable in the industry) reflect the Company's confidence in the
quality of its products.
QUICK SCAN (TRADEMARK) Retail, POS Service and Commercial Scanners: The
Company introduced the QUICK SCAN (TRADEMARK) in November 1994 as a full
feature, full function, full performance, scanner incorporating the Company's
small 5303 scan engine platform and certain performance features of the 5300
Series. The QUICK SCAN GP (TRADEMARK) provides general performance scanning in
lower volume point-of-sale, point-of-service and commercial application with
consistent bar code placement and location. In 1995, the Company added the QUICK
SCAN HP (TRADEMARK), for higher volume retail and commercial applications where
handling mixed and inconsistently marked items requires greater depth of field
and enhanced scanning performance. The QUICK SCAN EP (TRADEMARK) was also added
in 1995 for extended performance and longer range scanning applications up to 5
feet. The QUICK SCAN (TRADEMARK) family is positioned as an affordable scanning
alternative for the retail point of sale market and other price sensitive
markets such as those in Europe and Latin America. Smaller than either the 5300
HP or 5300 IP, Quick Scan was ergonomically designed to be used in-doors in
"gloveless" environments. The size and shape of Quick Scan make it comfortable
to hold independent of handedness and hand size.
Specialty Handheld Scanners 538X Scanners:
These specialty scanners offer custom form factors and optics for unique
applications. These scanners share certain performance capabilities of the 5300
HP/IP scanners, but incorporate the Company's 5303 scan engine platform. The
reduced size and weight of this engine permits its use in a varied line of 538X
scanner housings, which are ergonomically adapted to customer needs and
applications. Included in this line are the 5380 Back-of-the-Hand Scanner, the
5381 Palm Top Scanner, and the 5387 SCANDLE (TRADEMARK).
The 5380 Back-of-the-Hand Scanner has a small profile and weighs only three
ounces, making it particularly suitable for "picking" applications in
distribution centers and other hands-free operations. This scanner, which allows
for hands free scanning, attaches to a comfortable glove that can be worn on
either hand and can be actuated manually with a trigger or automatically by
PSC's Autosense (REGISTERED) feature. Hands free scanning allows an operator to
use both hands to select items from shelves or racks and transmit data regarding
those items to a data terminal. Depending on its configuration, the 5380
Back-of-the-Hand Scanner can scan over a range of 1 inch to 60 inches.
The 5381 Palm Top Scanner, compactly designed and weighing 4.8 ounces, is
about the size of a TV remote control. It can be used in either hand and can be
slipped into a shirt pocket or attached to clothing with a Velcro (REGISTERED)
patch when not in use. The 5381 is the appropriate choice for point of sale and
industrial applications where size, weight and accessibility are key factors.
Top and side triggers have been provided to allow for ease of scanning either
vertical or horizontal bar codes by left or right handed operators over a range
of 1 inch to 60 inches.
The 5387 SCANDLE (TRADEMARK) has the approximate size, weight and shape of
a telephone handset. When snapped into place on a small portable computer, such
as those carried by telephone linemen, it functions as the computer's carrying
handle.
Other Handheld Scanners: The Company also manufactures and supports its
2200 Series and 4100 Series handheld scanners, both of which were introduced
prior to 1989.
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Fixed Position Scanners
With the acquisition of LazerData, the Company now offers a complete
line of unattended fixed position laser scanners, including embedded miniature
scanners, compact line scanners and high-speed omnidirectional scanners.
Included within this range are scanners capable of providing adjustable
rastering (simultaneous up-and-down and side-to-side scanning), high-speed,
long-range scanning and specialty scanning.
Miniature Scanners: The PSC 9000E Scanner is a compact, versatile,
industrial line scanner intended primarily for high speed automated sorting or
identification in the demanding environments of the manufacturing and material
handling markets. Through the use of advanced digital signal processors this
scanner can provide scan rates of between 200 and 1500 scans per second. Both
the scan engine and the decoder may be contained in a single unit. Because the
scanner can be programmed either locally or from the host computer they
provide the user with maximum flexibility.
High-End Line Scanners: The Series 6000 Ranger and the recently
introduced Series 8000 provide a line of high powered, high speed, adjustable
rastering line scanners for demanding applications, such as airline baggage
handling, overnight package delivery sortation and other high speed sortation.
It can read bar code labels moving at speeds of up to 400 feet per minute.
Features include auto-focusing and TIME SLICE DECODING (TRADEMARK) (T.S.D.)
which allows the scanner to read only a small portion of a code on each of
several successive scans and reconstruct the entire bar code. By multiplexing
(interconnecting two or more of these scanners having varying scanning
ranges), a system can be configured to simultaneously read and track bar codes
as they move past the scanners at different distances.
Omnidirectional Scanners: The Model 990 SURESCAN (REGISTERED) is a high
speed modular, omnidirectional scanner for use in large volume distribution
centers. It may be equipped with TIME SLICE DECODING (TRADEMARK) software to
read randomly oriented bar codes as, for example, labels on packages tumbling
down a chute at speeds up to 540 feet per minute at a distance of 30 inches.
The Model 990 can also be configured with up to four multiplexed scanners.
Specialty Scanners: The Model 3800 Tube Scanner, designed primarily for
industries such as the textile and fiber industries, employs a unique scan
pattern that permits the scanning of a bar code on the inside circumference of a
cylinder without having to stop or spin the cylinder. The Series 7000 AVI is
designed for automatic vehicle identification. It reads special reflective
labels on vehicles passing within 6 feet of the scanner. With a weatherproof
housing it is designed for such uses as toll booths, garages, freightyards and
railyards.
Carton Dimensioning System: The SureCube(TRADEMARK) is an automated
carton dimensioning system which measures the volume of cartons over conveyors
or in-motion scales for material handling systems. The system can be supplied
with a bar code scanner for identifying and dimensioning or integrated with an
in-motion scale to provide a completely automated system for identifying,
sizing, weighing, and sorting of cartons. It captures the carton data regardless
of the location, orientation or angle of the carton. This is especially useful
in large warehouses, package delivery services and other shipping companies.
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PSC Quick Check (TM) Verifiers
PSC's line of QUICKCHECK(TM) verifiers is designed to ensure that the
customer is producing, using and receiving quality bar code symbols.
QUICKCHECK(TM) verifiers can display a report of a simple pass/fail or provide a
detailed quality analysis. These verifiers are sold as handheld, desk top, PC
based or printer / labeler mounted on-line models. They analyze bar codes for
traditional print quality such as wide to narrow ratio, print contrast, bar
growth or loss, dimensions and formats, or analyze based upon quality parameters
found in the American National Standards Institute ("ANSI") guidelines such as
edge determination, reflectance minimum, symbol contrast, modulation,
decodability and edge contrast minimum. When mounted on-line, the QUICKCHECK(TM)
verifier results can automatically control the user's system and cause it to
pause, reprint, shutdown or activate an alarm. The newest releases in PSC's
QUICKCHECKTM verifier line include models that use PSC's 4100 handheld laser as
an optical input device and a model based on PC software. All QUICKCHECKTM
verifiers are designed and manufactured to meet national, international and
industry specified standards (such as those created by the Uniform Code Council
and the Automatic Identification Manufacturers, Inc.) and provide traceability
to the National Institute of Standards and Technology ("NIST") for compliance to
ISO 9000 and QS 9000 requirements.
Sales and Marketing
The Company sells its products domestically and internationally
principally through OEMs, VARs, distributors and systems integrators.
International sales increased from approximately $6.8 million, or 18% of net
sales, in 1993 to approximately $19.3 million or 22% of net sales, in 1995.
Management believes that the international markets for bar code products are
less developed and intends to broaden its international sales and provide
additional sales and marketing support to its international operations. The
Company sells principally through indirect channels to penetrate a range of
vertical markets and submarkets, thus providing broad market exposure for its
scanning products. These products are frequently integrated by an OEM with its
own product or by a reseller with product from other manufacturers to form a
complete automatic identification system. Management believes that this policy
of marketing its products through multiple indirect channels differentiates PSC
from its principal competitors who sell not only through indirect channels but
also to end users. In most cases the Company's products are resold by its
customers under their own names.
The Company's customers serve various vertical markets and submarkets
and a wide variety of end users. They introduce PSC's products to their end
users through their established sales and distribution networks, thus sparing
the Company the expense of supporting a large in-house sales force. By forming
strategic relationships with major OEM customers, PSC has been able to conduct
joint development and design customer-specific products and applications and
thereby further expand its market presence and broaden its distribution network.
In addition to its sales and marketing staff in Webster, New York, the
Company has ten regional sales representatives in the United States and a sales
office near Manchester, England that provide sales, service and support to the
Company's `domestic and international customers.
In November 1995, the Company formed a wholly owned subsidiary, PSC
S.A., Inc. which is responsible for selling to and supporting the Company's
distribution network throughout Central and South America. The sales office for
the new subsidiary is located in Miami, Florida.
<PAGE>
13
Foreign sales of the Company's products are subject to the normal risks
of foreign operations, such as protective tariffs, export/import controls and
transportation delays and interruptions. The Company's international sales are
invoiced in U.S. dollars except for sales in the United Kingdom where invoices
are stated in pound sterling and are thus subject to currency exchange
fluctuations. Because the Company's products are manufactured in the United
States, the Company's sales and results of operations could be affected by
fluctuations in the value of the U.S. dollar.
The Company's marketing operations include product management,
marketing services, technical services and market development functions.
Marketing personnel specify new products and product enhancements that meet
customer needs and manage product positioning and introductions. They interact
regularly with OEMs, VARs, distributors, systems integrators and end users. The
marketing personnel, in conjunction with outside vendors, conduct customer
surveys and coordinate advertising and public relations. This group creates
advertising, brochures and documentation, manages trade show exhibits and places
articles highlighting applications of PSC products in trade and industry
publications. The marketing personnel are also responsible for the development
of new market opportunities and liaisons with key customers, vendors, government
regulatory and industry standards committees.
Customer Support and Service
The Company maintains a highly responsive customer support and service
organization that bridges the Company's marketing, engineering and manufacturing
functions. The Company employs service representatives who are generally
responsible for specific territorial areas and work with the Company's sales and
marketing personnel. The customer service representatives receive training in
virtually all the Company's products and assist customers in tracking orders,
expediting the manufacturing and shipment of products and technical support of
products. The customer service representatives also issue return material
authorizations for products under warranty or that need to be returned to the
Company for servicing and identify and refer the customers to independent
providers of spare parts and services. The customer representatives are, in
turn, supported by technical support and engineering personnel who assist in
providing consumer-based support and will, if necessary, do so at the customer's
location. In 1995, PSC was recognized for customer commitment by the New York
State Governor's Excelsior Awards Program. The Company received an Excelsior
Exemplary Practices Citation for Customer Satisfaction.
Utilizing a similar support and service strategy, LazerData employs
field service personnel, located in various territories throughout the United
States, reporting to a customer service manager.
Customers
During 1995, 1994, and 1993, Telxon Corporation accounted for 17%, 22%,
and 16%, respectively, of the Company's net sales. The 1994 net sales to
Intermec, a division of Western Atlas, accounted for 10% of net sales. No other
customer accounted for more than 10% of net sales during 1995, 1994 or 1993.
Engineering, Research and Product Development
The Company conducts engineering programs for the purposes of
developing new products, improving its existing products' reliability,
ergonomics and performance, and reducing manufacturing and support costs. The
Company extensively utilizes computer-aided design manufacturing ("CAD-CAM")
tools in the simulation of scanners and in the design of mechanical
applications, including optics, digital electronic circuits and printed circuit
boards. The Company is engaged in development programs in the areas of optics,
electronics, automated manufacturing methods and mechanics. Substantially all of
the Company's research and development is performed by its own staff.
<PAGE>
14
The Company spent approximately $4,962,000, $3,810,000, and $3,754,000,
in 1995, 1994 and 1993, respectively, on engineering, research and development.
Such amounts do not include expenditures by the Company on manufacturing
engineering personnel. PSC's engineers are experienced in the specialty
disciplines of mechanical, electronic, software, optical, digital and materials
engineering.
Manufacturing and Suppliers
The Company designs, engineers and manufactures substantially all of its
handheld scanning products at its Webster, New York headquarters. PSC's
manufacturing space tripled during 1995 after it occupied its new
custom-designed plant. Employees build in groups within modular workstations,
and each employee is trained in the work of the preceding and subsequent
workstations as well as the employee's own workstation The Company utilizes
material resource planning and schedules its production to manage inventory
levels and meet customer delivery demands.
The Company seeks to design and manufacture products that optimize
performance, quality, reliability, durability and versatility. These designs
facilitate cost-efficient materials sourcing and assembly methods with high
standards of workmanship. The Company has invested and will continue to invest
in capital equipment such as printed circuit board surface mount machines that
automate production, increase capacity and reduce direct labor costs. Computer
operated equipment is used for testing at all levels of production to assure
repeatable, reliable performance and accurate data collection. The Company has
designed many of its own tools, fixtures and test equipment. The QuickCheck(TM)
product is manufactured by an independent third party. The Company believes its
relationship with this manufacturer to be good, and the loss of this
manufacturer would not have a material effect on the Company.
The Company designs, engineers and manufactures substantially all of its
fixed position scanning products in Sanford, Florida. LazerData also utilizes
contract manufacturing for the production of circuit boards and subassemblies.
Contract manufacturing activities are coordinated by LazerData's manufacturing
personnel.
The Company does not have long term supply contracts with its vendors. The
Company currently relies on single suppliers, some of whom manufacture at a
number of locations, for some key components of its products. The Company
believes that maintaining ongoing relationships with single suppliers who have
proven that they are capable of meeting the Company's standards of quality,
on-time delivery and cost containment has enabled it to increase the value of
its product to its customers. Although the Company maintains 30 to 60 day
inventories of key components and alternative sources of key materials are
available, the Company could incur set-up costs and delays in manufacturing
should it become necessary to replace key vendors due to work stoppages,
shipping delays, financial difficulty or other factors, and under certain
circumstances, these costs and delays could have a material adverse effect on
the Company's operations.
Competition
The Auto ID industry is highly competitive. The Company faces
competitive pressures from various companies in each of its product categories.
Many of the Company's competitors have substantially greater financial,
manufacturing, research and development, and marketing resources than the
Company. The Company believes its principal competitors for its handheld bar
code scanner products are Symbol Technologies, Inc. ("Symbol"), Metrologic
Instruments Inc. ("Metrologic") and Spectra-Physics Scanning Systems Inc.
("Spectra-Physics"). The Company's principal competitors in the fixed position
scanner market are Accu-Sort Systems, Inc. ("Accu-Sort") and Computer Identics
<PAGE>
15
Corporation. The ability to compete in the Auto ID marketplace is based upon
price, product functionality, performance, support and overall quality. It is
also strongly influenced by accessibility to certain patented technology.
Intellectual Property
The Company believes that certain of its products are proprietary and
consequently relies on a combination of patent, trade secret, copyright and
trademark law to establish and protect its proprietary rights. The Company
currently holds 45 United States patents and also has certain foreign patents
pertaining to various technologies associated with its products. These patents
expire on various dates between 2002 and 2013. The Company currently has a
number of patent applications pending in the United States and in a number of
foreign countries. In addition, the Company expects that its continuing research
and development efforts will result in the creation of new proprietary rights
for which it will seek patent protection.
The Company maintains an active program to obtain patents and otherwise
protect its intellectual property. Nevertheless, its competitors could develop
technology or know-how or obtain patents that could limit the Company's ability
to compete in the future. Similarly, others could challenge the validity of the
Company's patents or assert that the Company is infringing on their proprietary
rights. The Company believes that its patents are valid and enforceable and does
not believe that it is infringing on the proprietary rights of others. While the
Company believes that its patents provide it with competitive advantages with
respect to the products they cover, the Company relies primarily upon the
technical know-how, competence, innovative skills and marketing abilities of its
engineers and other employees.
The Company has obtained rights under various licenses, including
certain rights obtained by LazerData from Accu-Sort pertaining to data
reconstruction technologies. In addition, the Company has obtained rights from
Symbol, its largest competitor in the handheld scanning market. In general,
under the agreement with Symbol, both PSC and Symbol have granted to the other a
worldwide, non-exclusive license to manufacture and distribute products
utilizing technologies covered by certain patents held by the other party,
consistent in each case with the terms of the agreement. The agreement provides
for the payment of certain royalties and extends through the life of the
applicable patents, subject to earlier termination for a breach of the
agreement. The agreement limits the Company's annual sales of licensed products
in "Asia," as defined, to no more than 20% of its annual revenues. In 1995, the
Company's sales in "Asia" represented 5% of its revenues. In the event of a
"change in control" of PSC, the agreement could be terminated or the royalty
payable to Symbol could be increased and the sale of licensed products limited.
"Change in Control" is defined in the agreement as the acquisition by another
party of 30% or more of the voting power of the equity securities of the
Company, the replacement of over 50% of the current Board of Directors of the
Company, other than with the approval of two-thirds of the current Board, the
sale of all or substantially all of the assets of the Company or the sale of the
Company's handheld scanner business. The early termination of the Symbol
agreement could materially adversely affect the operations of the Company.
The Company currently holds seven trademarks that are registered with
the United States Patent and Trademark Office and a number of common law
trademarks and valuable trade secrets. It also has two foreign trademarks and
has numerous domestic and foreign trademark registrations pending.
Employees
As of March 1, 1996, PSC had approximately 500 full-time employees. The
Company believes that its future success will depend in part on its ability to
recruit and maintain highly qualified management, marketing, technical and
<PAGE>
16
administrative personnel. None of PSC's employees is represented by a labor
union. Management believes that its relationship with employees is good.
Government Regulation
Certain products of the Company must comply with regulations
promulgated by the United States Food and Drug Administration's Center for
Devices and Radiological Health (CDRH), the Federal Communications Commission
(FCC), as well as the Canadian Standard Association, the European Community
Standards (CE) and TUV Rheinland (Europe), which are corresponding agencies for
certain foreign countries. The Company's operations are also subject to certain
federal, state and local requirements relating to environmental, waste
management, health and safety regulations. Management believes that the
Company's business is operated in compliance with applicable government,
environmental, waste management, health and safety regulations. There can be no
assurance that future regulations will not require the Company to modify its
products to meet revised energy output or other requirements. Failure to comply
with future regulations could result in a material adverse effect on the
Company's results of operations.
ITEM 2: PROPERTIES
PSC's principal manufacturing, engineering, and administrative facility
consists of an approximately 132,000 square foot Company-owned building in
Webster, New York, a suburb of Rochester, New York. This facility has been
custom designed to serve the Company's operations and was constructed to permit
a relatively rapid 45,000 square foot manufacturing addition. An adjacent 20
acre parcel of land owned by the Company is also available for expansion.
The Company leases a 35,000 square foot building in an industrial park
in Sanford, Florida, a suburb of Orlando, Florida. This lease expires May 31,
1999. The Company also leases approximately 1,750 square feet in Denver,
Colorado which serves as a technical support office. This lease expires in May
1998. The Company maintains a month-to-month lease on sales offices in San Jose,
California and Skaneateles, New York.
PSC established its European headquarters in September 1992, near
Manchester, England where it leases 1,850 square feet which serves as a
marketing and sales office and service center for sales to the United Kingdom,
the European Continent and Asia. This lease expires September 1998.
PSC established its Central and South American office in February 1996
in Miami, Florida. The Company now leases approximately 1,200 square feet which
serves as a sales and technical support office for its customers in Central and
South America. The lease expires in March 1999.
All of the Company's locations are in good condition and management
believes that the Company has sufficient manufacturing capacity for the
foreseeable future.
<PAGE>
17
ITEM 3: LEGAL PROCEEDINGS
On July 1, 1992, the Company filed two patent infringement lawsuits:
one against Spectra-Physics relating to the manufacture and sale of its SP300
and SP400 models and one against Metrologic relating to the manufacture and sale
of its 900 Series, in each case in the United States District Court for the
Western District of New York located in Rochester, New York. The Company alleges
that each of Spectra-Physics and Metrologic has infringed the Company's patent
for an optical scanning device for detecting bar codes, United States Letters
Patent 4,652,750 (the "750 Patent"), and seeks injunctions enjoining
Spectra-Physics and Metrologic from further infringement and damages to
compensate it for such acts of infringement. Spectra-Physics and Metrologic have
each filed answers alleging invalidity, non-infringement, and unenforceability
of the 750 patent. These actions are stayed pending disposition of the appeal
described below.
On September 21, 1994, the Company filed a patent infringement lawsuit
in the United States District Court for the Western District of New York,
alleging that certain products of Accu-Sort infringe the 750 Patent. The suit
seeks an injunction to prevent further infringement and also seeks damages to
compensate for past infringement. Accu-Sort has answered the complaint,
asserting defenses of non-infringement and invalidity and filed a counterclaim
seeking a declaratory judgment that the 750 Patent is inter alia and not
infringed. The Company moved for summary judgment of infringement. Accu-Sort has
not alleged that the Company is infringing any Accu-Sort patent.
On October 13, 1995 the Court granted Accu-Sort's motion for summary
judgment of non-infringement, denied the Company's motion for summary judgment
of infringement, and dismissed the action. The Company has appealed all rulings
adverse to the Company in an appeal filed with the Court of Appeals for the
Federal Circuit. The appeal is still pending.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the period ended December 31, 1995.
<PAGE>
18
<TABLE>
EXECUTIVE OFFICERS OF REGISTRANT
The Company's executive officers as of December 31, 1995, were as follows.
<CAPTION>
Initial
Name Age Officer(s) Election
<S> <C> <C> <C>
L. Michael Hone ......... 46 Chairman of the Board, 1984
President and Chief Executive Officer
Dr. Jay M. Eastman ...... 47 Executive Vice President 1987
Stanley D. Seitz ........ 46 Senior Vice President, Operations 1994
William J. Woodard ...... 44 Vice President, Finance and Treasurer 1994
Dr. Dean Faklis ......... 33 Vice President Engineering and
Product Development 1995
Stuart M. Itkin ......... 45 Vice President, Worldwide Marketing 1995
Mary A. Gallahan ........ 48 Vice President, Human Resources 1994
Richard N. Stathes....... 49 Vice President North American Sales 1994
Benny R. Tafoya.......... 58 Vice President, Product Development 1994
Scott D. Deverell ....... 30 Controller, Principal Accounting Officer 1994
Joseph F. Murphy ........ 30 Corporate Counsel and Patent Attorney 1995
John D. Cochran.......... 64 Vice President Sales FPP 1995
Michael G. Reid.......... 49 Vice President Hardware Engineering FPP 1995
James R. Waldron......... 37 Vice President Software Development 1995
</TABLE>
L. Michael Hone has served as Chairman of the Board of Directors since
July 1992 and as President and as a director of the Company since December 1987
and as Chief Executive Officer since April 1989. His previous positions with the
Company were President/General Manager Webster Operations (1986-1987), Vice
President/General Manager Operations (1985-1986), Vice President Sales and
Marketing (1984-1985), National Sales Manager (1984) and Regional Sales Manager
(1981-1984). Prior to joining the Company, Mr. Hone was employed at the 3M
Company and at Citicorp. Mr. Hone attended Ohio State University where he
majored in Business Administration. Mr. Hone is also a director of Verax
Systems, Inc., Rochester, New York and Rochester Healthcare Information Group,
Inc., Rochester, New York.
Dr. Jay M. Eastman has served as Executive Vice President since
December 1987. He joined the Company in 1986 when the Company acquired Optel
Systems, Inc., a corporation which he co-founded and for which he served as
Chairman, President and Chief Executive Officer from its formation in 1981.
Until January 1983, Dr. Eastman was Director of the University of Rochester's
Laboratory for Laser Energetics. Dr. Eastman holds Ph.D. and Bachelor's degrees
in Optics from the University of Rochester and is a named inventor in seventeen
United States patents, fourteen of which relate to bar code scanning and have
been assigned to the Company and one of which relates to nuclear fusion and is
owned by the United States Department of Energy and two of which relate to laser
interferometry and are owned by the University of Rochester. Dr. Eastman is also
a director of Electric Fuel Corporation, an Insrael-based company.
<PAGE>
19
Stanley D. Seitz has served as Senior Vice President, Operations since
January 1994. Prior to joining the Company, he was Senior Director of
Operations, Compudyne, Division of CompUSA (1992 - 1993); President, PC Brand,
Inc. (1989 - 1992); and Vice President of Manufacturing, Dell Computer
Corporation (1986 - 1989). Mr. Seitz holds a BS degree with concentrations in
physics and mathematics from the University of Arizona and a Master of Business
Administration degree from the University of Chicago with concentrations in
productions and operations management plus industrial relations and human
resources management.
William J. Woodard has served as Vice President, Finance and Treasurer
since August 1994. Previously, he was Vice President and Chief Financial
Officer, Champion Products (1987 - 1994), and Director of Accounting and
Financial Reporting, Gleason Corporation (1985 - 1987). Mr. Woodard, a certified
public accountant, attended St. Bonaventure University where he received a BBA
degree in Accounting.
Dr. Dean Faklis has served as Vice President, Engineering and Product
Development since August 1995. Prior to joining the Company, he was Vice
President and a founder of Rochester Photonics Corporation (August 1989-August
1995) and on the faculty of The Institute of Optics, University of Rochester
(June 1990-May 1995). Dr. Faklis holds a BS degree in physics from Loyola
University of Chicago and Ph.D. and MS degrees in Optics from The Institute of
Optics, University of Rochester.
Stuart M. Itkin has served as Vice President, Worldwide Marketing since
March 1995. Prior to joining the Company, he was Vice President Marketing,
Stores Automated Systems (1994-1995), Senior Director of Marketing, Symbol
Technologies, Inc. (1989-1994), Vice President, International and Major
Accounting Marketing, Computer Entry Systems ("CES") (October 1986-April 1989).
Mr. Itkin holds BA and MA degrees from the University of Illinois at Urbana-
Champaign.
Mary A. Gallahan has served as Vice President, Human Resources since
May 1993. She joined the Company in July 1992 as Director of Human Resources.
Prior to joining the Company, she was Manager of Employment and Benefits, Nalge
(Sybron) Company (1990 - 1992) and Director of Human Resources, Ultra
Technologies (Eastman Kodak Company) (1984 - 1990). Mrs. Gallahan holds an
Associates degree in Business Administration from SUNY at Cobbleskill.
Richard N. Stathes has served as Vice President, Sales since January 1994.
He joined the Company in January 1992 as Vice President of Sales for Bar Code
Equipment. Prior to joining the Company, he was Director of Sales for Computer
Products Inc. of Pompano Beach, Florida from April 1991 to December 1991 and
North East Area Marketing Manager for the Hewlett Packard Company of Palo Alto,
California where he also held several sales management positions from 1981 to
April 1991. Mr. Stathes holds a BSBA degree from Syracuse University.
<PAGE>
20
Benny R. Tafoya has served as Vice President,Product Development since
January 1993 when the Company acquired BRT Corporation, a company in which Mr.
Tafoya had been the major shareholder and Chief Executive Officer from 1983 to
1993. Prior thereto, he was Executive Vice President and General Manager of
Accu-Sort Systems Inc. Mr. Tafoya holds a BS degrees in Mechanical Engineering
from Penn State University and a BSAA degree from George Washington University.
Scott D. Deverell has served as Controller since May 1990. He joined
the Company in March 1989 as an accountant. Prior to joining the Company, he was
an auditor with Arthur Andersen & Co. Mr. Deverell, a certified public
accountant, attended SUNY at Geneseo where he received a BS in Accounting.
Joseph M. Murphy has served as Corporate Counsel and Patent
Attorney since December 1992 and as Assistant Secretary since May 1995. Prior to
joining the Company, he was employed as a Technology Specialist at the
intellectual property law firm Wolf, Greenfield and Sacks, P.D. (1988-1989),
studied law at Franklin Pierce Law Center (1989-1992), and assisted in the
practice of Civil law at LawServe(TM) (1991-1992). Mr. Murphy is admitted to
practice as an attorney in New York, Massachusetts and before the United States
Patent and Trademark Office. Mr. Murphy holds a B.S. degree in Electrical
Engineering from Marquette University and a J.D. degree from Franklin Pierce Law
Center.
John E. Cochran has served as Vice President of Sales and Marketing of
the PSC LazerData Products Group since its acquisition in December 1994. He has
served in that capacity since 1986.
Michael G. Reid has served as Vice President, Hardware Development,
Fixed Position Product since August 1995. He joined the Company with the
Company's 1994 acquisition of LazerData Corporation, which Mr. Reid co-founded
in 1988. Prior to 1988, he was Vice President, Operations for InstaRead
Corporation (1984-1988). Mr. Reid holds a BSEE from Rochester Institute of
Technology.
James R. Waldron has served as Vice President, Software Development
since August of 1995. He was the Director of Software Engineering for Lazer Data
Corporation for the four years preceding PSC's acquisition of LazerData in 1994,
and worked for Intermec Corporation for the five years prior to that. Jim has a
Bachelor of Science degree from Clarion University of Pennsylvania, and is an
inventor on multiple patents related to barcode scanning.
<PAGE>
21
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Shares are traded on the Nasdaq National Market Tier
of the NASDAQ Stock Market under the symbol PSCX. The following table sets
forth, for the periods indicated, the high and low sale prices for the Common
Shares.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C> <C>
1995 4th Quarter ................... $13.00 $ 8.63
3rd Quarter ................... $15.75 $11.50
2nd Quarter ................... $14.75 $11.00
1st Quarter ................... $15.50 $10.50
1994
4th Quarter ................... $13.75 $ 8.25
3rd Quarter ................... $10.00 $ 8.13
2nd Quarter ................... $10.00 $ 7.00
1st Quarter ................... $ 8.00 $ 5.50
1993
4th Quarter ................... $ 8.50 $ 5.25
3rd Quarter ................... $ 8.50 $ 5.13
2nd Quarter ................... $ 9.25 $ 6.00
1st Quarter ................... $12.50 $ 7.25
</TABLE>
As of December 31, 1995, there were approximately 1,200 holders of record
of Common Shares.
The Company has not paid any cash dividends since 1979 and does not
anticipate paying cash dividends in the foreseeable future.
<PAGE>
22
ITEM 6: SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data)
The selected consolidated financial data presented below for each of
the five years in the period ended December 31, 1995 have been derived from the
Company's consolidated financial statements, which statements have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports thereon. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this report.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Statement of Operations Data:
Net sales ................................ $87,516 $60,447 $38,894 $35,912 $20,170
Cost of sales ............................. 50,634 32,198 20,256 17,734 11,271
-------------------------------------------------------------------------------
Gross profit ........................... 36,882 28,249 18,638 18,178 8,899
Operating expenses:
Engineering, research and development .. 4,962 3,810 3,754 2,248 1,262
Selling, general and administrative .... 23,901 16,516 12,046 8,637 5,444
Write-off of intangible assets ......... -- -- 167 957 --
Acquisition related restructuring &
Other costs .......................... -- 6,894 (1) -- -- --
-------------------------------------------------------------------------------
Income from operations .................... 8,019 1,029 2,671 6,336 2,193
Interest and other (expense) income ....... 676 110 45 (70) (458)
-------------------------------------------------------------------------------
Income before income tax .................. 8,695 1,139 (1) 2,716 6,266 1,735
Income tax provision ...................... 3,246 527 865 1,920 104
===============================================================================
Net income ................................ $ 5,449 $612 (1) $1,851 $4,346 $1,631
===============================================================================
Net income per common and
common equivalent share ............... $.54 $.08 (1) $.25 $.59 $.26
Weighted average number of common
and common equivalent shares
outstanding ........................... 10,013 7,617 7,476 7,350 6,232
(1) The acquisition related restructuring and other costs reduced 1994
income before income tax, net income and net income per share by $6.9
million, $4.5 million and $0.56 respectively.
See Note 11 of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments ........... $ 5,538 $2,720 $9,120 $11,535 $4,974
Working capital ........................... 20,397 8,014 11,779 14,125 7,591
Total assets .............................. 71,237 52,763 32,063 24,992 17,706
Long-term debt, including
current maturities ....................... 623 13,609 1,806 1,931 1,886
Total shareholders' equity ................ 53,327 22,233 21,265 18,532 12,317
</TABLE>
<PAGE>
23
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this report.
Results of Operations
The following table sets forth for the years indicated certain
consolidated financial data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993
------------------- ---------------------- -----------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales ................................... $87,516 100.0% $60,447 100.0% $38,894 100.0%
Cost of sales .............................. 50,634 57.9% 32,198 53.3% 20,256 52.1%
-------- -------- --------- --------- ---------- ----------
Gross profit .............................. 36,882 42.1% 28,249 46.7% 18,638 47.9%
Operating expenses:
Engineering, research and development ..... 4,962 5.7% 3,810 6.3% 3,754 9.7%
Selling, general and administrative ....... 23,901 27.3% 16,516 27.3% 12,046 31.0%
Write-off of intangible assets ............ -- -- -- -- 167 0.4%
Acquisition related restructuring
and other costs ......................... -- -- 6,894 (1) 11.4% -- --
-------- -------- ---------- --------- ---------- ----------
Income from operations ...................... 8,019 9.1% 1,029 1.7% 2,671 6.9%
Interest and other income, net .............. 676 0.8% 110 0.2% 45 0.1%
-------- -------- ---------- --------- ---------- ----------
Income before income taxes .................. 8,695 9.9% 1,139 (1) 1.9% 2,716 7.0%
Income tax provision ........................ 3,246 3.7% 527 0.9% 865 2.2%
-------- -------- ---------- --------- ---------- ----------
Net income .................................. $5,449 6.2% $612 (1) 1.0% $1,851 4.8%
========= ======== ========== ========= ========== ==========
</TABLE>
(1) The acquisition related restructuring and other costs reduced 1994
income before income taxes and net income by $6.9 million and $4.5
million. See Note 11 of Notes to Consolidated Financial Statements.
Although the Company operates in one business segment, net sales for
1995, 1994 and 1993 are divided into the following three product groups:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
Product Group 1995 1994 1993
- - ----------------------------- ---------------------- ---------------------- --------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Bar Code Equipment .......... $87.1 100.0% $59.1 97.8% $36.5 93.8%
Image Products .............. 0.4 -- 1.3 2.2% 1.6 4.1%
Switching Systems ........... -- -- -- -- 0.8 2.1%
------ ------ ----- ------ ----- ------
$87.5 100.0% $60.4 100.0% $38.9 100.0%
====== ====== ===== ====== ===== ======
</TABLE>
In December 1994, the Company acquired, for $9.25 million in
cash, all of the outstanding stock of LazerData Corporation. The transaction was
accounted for as a purchase and is included in the consolidated financial
statements since the date of acquisition. Accordingly, financial data for all
<PAGE>
24
periods prior to the acquisition do not reflect the operations of LazerData. In
connection with the acquisition, the Company recorded a pre-tax charge of $3.0
million for the costs of restructuring its existing fixed position scanner
product lines with those of LazerData. In addition, in the fourth quarter of
1994, the Company allocated $3.9 million of the LazerData acquisition costs to
acquired in-process research and development projects. Accordingly, these costs
were expensed as of the acquisition date. The acquisition related restructuring
and other costs reduced 1994 income before income taxes, net income and fully
diluted net income per share by $6.9 million, $4.5 million and $0.56,
respectively.
In April 1995, the Company completed the sale of its Image Products
product group. In December 1993, the Company completed the sale of substantially
all the assets and liabilities related to its Switching Systems product group.
Net Sales. Net sales increased $27.1 million, or 45% from 1994 to 1995
and $21.5 million or 55% from 1993 to 1994. The sales increase in 1995 was
primarily due to increased sales volume of the Company's handheld products, scan
engine assemblies and the inclusion of LazerData's product line of fixed
position scanners acquired in December 1994. The sales increase in 1994 was
primarily due to increased sales volume of the Company's handheld scanners and
scan engine assemblies.
International sales increased 72% in 1995 to $19.3 million and
represented 22% of net sales versus 19% in 1994 and 18% in 1993. During 1995 and
1994, the Company experienced significant sales growth in Europe and in the
Pacific Rim area as a result of increased sales and marketing efforts overseas.
Gross Profit. Gross profit as a percent of net sales was 42.1% in 1995,
46.7% in 1994 and 47.9% in 1993. The decrease in the 1995 gross profit margin
versus 1994 was due to a change in the sales mix of the Company's handheld
products, lower scan engine average selling prices associated with competitive
pricing pressure and the inclusion of the LazerData product line. LazerData's
operating results reflect lower gross profit margins than historical gross
profit margins of the Company. The decrease in the 1994 gross profit margin
versus 1993 is primarily due to a change in the Company's product mix. In
addition, decreased sales volume resulted in a lower gross profit margin for the
Company's Image Products business.
Engineering, research and development. Engineering, research and
development expenses increased $1.2 million, or 30% from 1994 to 1995 and $0.1
million, or 1.5% from 1993 to 1994. Engineering, research and development
expenses were 5.7%, 6.3% and 9.7% of net sales for 1995, 1994 and 1993,
respectively. The 1995 dollar increase was primarily related to the Company's
new product development for its handheld laser scanner products and its
LazerData product line's fixed position scanners. The 1994 dollar increase was
primarily related to the Company's new product development for its handheld
laser scanner products.
Selling, general and administrative. Selling, general and
administrative expenses increased $7.4 million, or 45%, in 1995 and $4.5
million, or 37%, in 1994. Selling, general and administrative expenses were
27.3%, 27.3% and 31.0% of net sales in 1995, 1994 and 1993, respectively. The
1995 and 1994 increased dollar amount was primarily due to higher patent related
expenses, higher royalty expenses related to sales volume, and increased
promotion and advertising expenses. The increase in patent related expenses was
due to the increased number of patent applications being filed and an increase
in litigation expenses related to patent infringement lawsuits.
Acquisition related restructuring and other costs. In the fourth
quarter of 1994, the Company provided a pre-tax charge of approximately $3.0
million for the costs of restructuring its existing fixed position scanner
product lines with those of LazerData Corporation which was acquired in December
<PAGE>
25
1994. Of the total pre-tax charge, approximately $1.6 million was to recognize
anticipated costs associated with the consolidation of manufacturing and office
facilities, $0.7 million related to write-offs of previously existing intangible
assets, and $0.7 million was provided for employee severance and benefit costs
for the elimination of approximately 12 manufacturing and engineering support
positions. As of December 31, 1995, all positions targeted in the restructuring
program have been eliminated. Restructuring actions are substantially completed
as of December 31, 1995. The restructuring accrual as of December 31, 1995 was
approximately $0.8 million. There have been no re-allocations or re-estimates to
date.
In addition in the fourth quarter of 1994, the Company allocated $3.9
million of the LazerData acquisition costs to acquired in-process research and
development projects, which represents the estimated fair values related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. The development technologies were evaluated to determine
that there were no alternative future uses. As these projects have not reached
technological feasibility and alternative future uses of these developmental
technologies do not exist, these costs were expensed as of the acquisition date.
The acquisition related restructuring and other costs reduced 1994 income before
income taxes, net income and fully diluted net income per share by $6.9 million,
$4.5 million, and $0.56, respectively. See Note 11 of Notes to Consolidated
Financial Statements.
Income tax provision. The provision for income taxes was $3.2 million
in 1995, $0.5 million in 1994 and $0.9 million in 1993. The effective tax rate
was 37.3% in 1995, 46.3% in 1994 and 31.8% in 1993. The tax provision for 1994
and 1993 reflects utilization of net operating loss carryforwards which were
completely utilized by the end of 1994. The 1994 effective tax rate increased as
a result of the non-tax deductible goodwill write-off included in the
restructuring charge. The Company expects to record income tax expense at or
about the combined federal and state statutory tax rate in 1996.
Liquidity and Capital Resources
The Company utilizes a number of measures of liquidity including the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
-------------------------
(dollars in thousands)
<S> <C> <C> <C>
Cash provided by operations ... $ 2,897 $ 4,811 $ 2,651
Working capital ............... $20,397 $ 8,014 $11,779
Long-term debt to capital
(Long-term debt to long-term
debt plus equity) ........... 0.9% 37.4% 6.6%
</TABLE>
Cash provided by operations decreased $1.9 million in 1995 versus 1994
primarily due to the increased receivables and inventory related to higher
operating volume levels. The 1994 increase in cash provided by operations versus
1993 was a result of the Company's increased inventory turnover by maintaining
handheld scanner inventory levels at approximately 1993 year-end levels, which
was offset, in part, by sales related receivables growth. At December 31, 1995,
the Company had cash and short-term investments of $5.5 million as compared to
$2.7 million at December 31, 1994 and $9.1 million at December 31, 1993. In
addition, the Company had $4.2 million of marketable securities at December 31,
1995. The increase in cash and short-term investments is primarily the result of
the Company's secondary stock offering completed during 1995.
Working capital increased $12.4 million at December 31, 1995 versus
December 31, 1994. Current assets increased $13.2 million from December 31, 1994
principally from an increase in receivables ($2.7 million) as a result of higher
sales volume, an increase in inventory ($4.0 million) as a result of higher
operating levels, an increase in cash and short-term investments ($2.8 million)
<PAGE>
26
as discussed above, and marketable securities ($4.2 million) due to the change
in classification of investments from held to maturity to available for sale.
Current liabilities at December 31, 1995 increased $0.9 million from December
31, 1994 due to higher year-end payables and accruals for royalties and
technology licenses offset by a reduction in accrued acquisition related
restructuring and other costs.
Property, plant and equipment expenditures totaled $7.4 million for the
year ended December 31, 1995 compared with $10.9 million for the year ended
December 31, 1994. The 1995 and 1994 expenditures primarily related to the
construction costs of the Company's new headquarters, manufacturing and
engineering facility. The 1995 expenditures also include additional
manufacturing equipment to increase capacity and upgrades to the Company's data
processing systems.
During 1995, the Company also spent $4.2 million for intangible assets.
The expenditures were primarily related to purchased technology licenses. The
Company acquired a license to manufacture and sell two dimensional bar code
products to expand its handheld and scan engine product category. The Company
also acquired a license to manufacture and sell a high-speed carton dimensioning
system. This dimensioning system will be integrated with the Company's line of
high-speed, fixed position scanning products.
During the year ended December 31, 1995, the Company completed its
secondary stock offering. The Company sold 2.3 million common shares at a price
of $11.00 per share. The net proceeds to the Company from the offering were
approximately $23.6 million. The Company used approximately $7.2 million of the
net proceeds from the offering to repay in full the outstanding indebtedness
under the Company's construction loan used to finance its new headquarters,
manufacturing and engineering facility. The Company also used approximately $6.8
million of the net proceeds from the offering to repay in full the outstanding
indebtedness under the Company's term loan that was used to finance the
acquisition of LazerData in December 1994.
The long-term debt to capital percentage decreased from 37.4% at
December 31, 1994 to 0.9% at December 31, 1995. The decrease is due to the
repayment in full of the Company's construction loan and term loan, as discussed
above.
At December 31, 1995, liquidity immediately available to the Company
consisted of cash and short-term investments of approximately $5.5 million. The
Company also had $4.2 million in marketable securities. In addition, in
September 1995 the Company secured a new revolving loan agreement with
Manufacturers and Traders Trust Company pursuant to which the bank has agreed to
provide a line of credit totaling $20.0 million. It replaced the Company's
previous line of credit facility that totaled $5.0 million. The agreement
expires in September 2000. As of December 31, 1995, the Company had no
outstanding borrowings under this agreement. The Company believes that it has
adequate liquidity for the next twelve months to meet its current and
anticipated operating needs from the results of its operations, existing credit
facilities and working capital. As part of its overall business strategy, the
Company may from time to time evaluate other acquisition opportunities. The
funding for these future transactions, if any, may require the Company to obtain
additional sources of financing.
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
<PAGE>
27
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This item is submitted as a separate section of this report.
See Exhibits in Part IV.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
matters.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is presented under the caption
entitled "Election of Directors Information Concerning Nominees for Directors
and Other Incumbent Members of the Board of Directors" contained in the
definitive proxy statement issued in connection with the Annual Meeting of
Shareholders to be held April 30, 1996 and is incorporated in this report by
reference thereto. The information regarding Executive Officers of the
Registrant is found in Part I of this report.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is presented under the caption
entitled "Executive Officer Compensation" contained in the definitive proxy
statement issued in connection with the Annual Meeting of Shareholders to be
held April 30, 1996 and is incorporated in this report by reference thereto,
except, however, the sections entitled "Performance Graph" and the "Report of
the Compensation Committee of the Board of Directors" are not incorporated in
this report by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is presented under the caption
entitled "Security Ownership of Certain Beneficial Owners and Management"
contained in the definitive proxy statement issued in connection with the Annual
Meeting of Shareholders to be held April 30, 1996 and is incorporated in this
report by reference thereto.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is presented under the caption
"Executive Officer Compensation - Interest of Directors and Management in
Certain Transactions" contained in the definitive proxy statement issued in
connection with the Annual Meeting of Shareholders to be held April 30, 1996 and
is incorporated in this report by reference thereto.
<PAGE>
28
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1 Financial Statements PAGE
Report of Independent Public Accountants............ 33
Consolidated Financial Statements................... 34
Notes to Consolidated Financial Statements.......... 38
(a) 2 Financial Statement Schedules:
Included in Part IV of this report:
Schedule II Valuation and Qualifying Accounts.. 50
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the consolidated financial statements or notes thereto.
(a) 3 Exhibits:
2.1 Asset Purchase Agreement among BRT Corporation, Benny R. Tafoya,
Susann C. Tafoya, A. D. Data Systems Corp. and PSC Inc., dated January
21, 1993 (incorporated by reference to Exhibit 2.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992
(the "December 31, 1992 Form 10-K")).
2.2 Stock Purchase Agreement among BTR Dunlop Inc., Electro Corporation
and LazerData Holdings, Inc. dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated December 21, 1994 ("the 1994 8-K")
3.1 Restated Certificate of Incorporation of the Company and amendments
thereto (incorporated by reference to Exhibit 3.1 of the Company's
Quarterly Report on Form 10-Q for the Quarter ended
June 30, 1995 (the "June 30, 1995 Form 10-Q")).
3.2 Bylaws of the Company as currently in effect, (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994 (the "September 30, 1994 Form
10-Q")).
4.1 Form of Certificate for Common Shares of the Company (incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-3, effective March 24, 1995 (No. 33-89178) (the "1995 S-3
Registration Statement")).
10.1* Amended and Restated Employment Agreement between the Company and L.
Michael Hone, as of August 1, 1991 (incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 (the "December 31, 1991 Form 10-K")).
10.2* Amendment No. 1 to the Amended and Restated Employment Agreement
between the Company and L. Michael Hone, as of December 20, 1993
(incorporated by reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 (the
"December 31, 1993 Form 10-K")).
10.3* Amended and Restated Employment Agreement between the Company and L.
Michael Hone, as of September 14, 1995 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 (the "September 30, 1995 Form 10-Q")).
<PAGE>
29
10.4* Amended and Restated Employment Agreement between the Company
and Jay M. Eastman, as of August 1, 1991 (incorporated by reference
to Exhibit 10.7 to the December 31, 1991 Form 10-K).
10.5* Amendment No. 1 to the Employment Agreement between the Company
and Jay M. Eastman, as of January 1, 1994 (incorporated by reference
to Exhibit 10.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 (the "December 31, 1994 Form 10-K")).
10.6* Extension of the Employment Agreement between the Company and
Jay M. Eastman, dated January 3, 1995 (incorporated by reference
to Exhibit 10.4 to the December 31, 1994 Form 10-K).
10.7* Employment Agreement between the Company and Robert S. Ehrlich, as of
August 1, 1991 (incorporated by reference to Exhibit 10.5 to the
December 31, 1991 Form 10-K).
10.8* Amendment No. 1 to the Employment Agreement between the Company
and Robert S. Ehrlich, as of June 12, 1992 (incorporated by reference
to Exhibit 10.7 to the December 31, 1992 Form 10-K).
10.9* Consulting Agreement between the Company and Robert S. Ehrlich as of
January 2, 1995 (incorporated by reference to Exhibit 10.1 to the June
30, 1995 Form 10-Q).
10.10* Employment Agreement between the Company and Benny R. Tafoya, as of
January 21, 1993 (incorporated by reference to Exhibit 10.9 to the
December 31,1992 Form 10-K).
10.11* Non-competition Agreement among the Company, A.D. Data Systems Corp.
and Benny R. Tafoya dated January 21, 1993 (incorporated by reference
to Exhibit 10.19 to the December 31, 1992 Form 10-K).
10.12* Form of Indemnification Agreement between the Company and its Directors
and Officers (incorporated by reference to Exhibit 10.10 to the
December 31, 1991 Form 10-K).
10.13* Plan for Deferral of Directors' Fees dated as of March 4, 1992
(incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992 (the "June 30, 1992 Form
10-Q")).
10.14* Amended and Restated 1987 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 (the "June 30, 1994 Form 10-Q")).
10.15* 1994 Stock Option Plan (incorporated by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-8 dated June 20, 1995
No. 33-60389).
10.16* 1990 Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.14 to the December 31, 1992 Form 10-K).
10.17* 1995 Employee Stock Purchase Plan (incorporated by reference to Exhibit
4.1 of the Company's Registration Statement on Form S-8 dated June 19,
1995 No. 33-60343).
10.18* Management Incentive Plan (incorporated by reference to exhibit 10.15
to the December 31, 1992 Form 10-K).
<PAGE>
30
10.19* Employee Profit Sharing Plan (incorporated by reference to Exhibit
10.16 to the December 31, 1992 Form 10-K).
10.20* Restated PSC Inc. 401(K) Profit Sharing Plan and Trust, as of
April 1, 1993 (incorporated by reference to Exhibit 10.18 to the
December 31, 1993 Form 10-K).
10.21 Agreement between Symbol Technologies, Inc. and Photographic Sciences
Corporation dated March 6, 1991 (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990.
10.22 Under Lease and License dated September 1992 between Scomagg Limited
the English Industrial Estates Corporation, and PSC Bar Code Limited
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992.
10.23 Agreement for Land Purchase dated July 6, 1993 between William G.
Boulter and the Company (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 (the "September 30, 1993 Form 10-Q")).
10.24 Agreement for land purchase dated November 11, 1994 between William G.
Boulter and the Company (incorporated by reference to Exhibit 10.28 to
the December 31, 1994 Form 10-K).
10.25 Lease Agreement between the Company and Hewlett Packard for Computer
hardware and software dated August 4, 1994 (incorporated by reference
to Exhibit 10.2 to September 30, 1994 Form 10-Q).
10.26 Standard Warehouse Lease between Owens and Minor Inc. (Landlord) and
LazerData Corporation (tenant) dated May 6, 1991 (incorporated by
reference to Exhibit 10.30 to the December 31, 1994 Form 10-K).
10.27 Credit Facility Agreement dated September 28, 1995 between
Manufacturers and Traders Trust Company and the Company (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
10.28 Standard Warehouse Lease between Owens & Minor, Inc. (Landlord) and
LazerData Corporation (Tenant) dated January 22, 1996............. 51
10.29 Lease Agreement between Omaha Woodmen Life Insurance Society (Landlord)
and LazerData Corporation (Tenant) dated April 11, 1995........... 71
22.1 Subsidiaries of Registrant........................................ 84
24.1 Consent of Independent Public Accountant, dated
March 22, 1996, 1996.............................................. 85
(b): Reports on Form 8-K:
None.
* Management contract or compensatory plan or arrangement
<PAGE>
31
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.
Dated: March 22, 1996 PSC Inc.
/s/ L. Michael Hone
--------------------
Chairman,
Chief Executive Officer,
President, and Director
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.
Date: March 22, 1996 Principal Executive Officer
/s/ L. Michael Hone
----------------------
L. Michael Hone
Chairman,
Chief Executive Officer,
President, and Director
Date: March 22, 1996 Chief Financial Officer
/s/ William J. Woodard
-----------------------
William J. Woodard
Vice President, Finance
and Treasurer
Date: March 22, 1996 Principal Accounting Officer
/s/ Scott D. Deverell
-----------------------
Scott D. Deverell
Controller
<PAGE>
32
Date: March 22, 1996 /s/ Milton P. Axelrod
-----------------------
Milton P. Axelrod
Director
Date: March 22, 1996 /s/ Robert S. Ehrlich
------------------------
Robert S. Ehrlich
Director
Date: March 22, 1996 /s/ James Henry
-----------------------
James Henry
Director
Date: March 22, 1996 /s/ Donald K. Hess
----------------------
Donald K. Hess
Director
Date: March 22, 1996 /s/ James O'Shea
----------------------
James O'Shea
Director
Date: March 22, 1996 /s/ Jack Rosenfeld
-----------------------
Jack Rosenfeld
Director
Date: March 22, 1996 /s/ Abby R. Solomon
-----------------------
Abby R. Solomon
Director
Date: March 22, 1996 /s/ Justin L. Vigdor
-----------------------
Justin L. Vigdor
Director
<PAGE>
33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of PSC Inc.:
We have audited the accompanying consolidated balance sheets of PSC Inc. (a New
York corporation) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PSC Inc. and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen
ARTHUR ANDERSEN LLP
Rochester, New York
January 30, 1996
<PAGE>
34
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands)
ASSETS
<CAPTION>
December 31,
---------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
Current Assets:
Cash and short-term investments ................................... $ 5,538 $ 2,720
Marketable securities ............................................. 4,204 --
Accounts receivable, net of allowance for doubtful accounts
of $387 in 1995 and $576 in 1994 ................................ 15,897 13,139
Inventories ....................................................... 10,440 6,446
Prepaid expenses and other ........................................ 623 1,148
--------------- -------------
Total current assets ........................................... 36,702 23,453
Investments ......................................................... -- 4,234
Property, Plant and Equipment, net .................................. 22,157 16,459
Deferred Tax Assets ................................................. 1,506 1,950
Intangible and Other Assets, net .................................... 10,872 6,667
=============== =============
Total assets ................................................... $71,237 $52,763
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ................................. $ 131 $ 300
Accounts payable .................................................. 8,397 7,698
Accrued expenses .................................................. 6,202 4,738
Accrued payroll and commissions ................................... 1,237 1,570
Accrued acquisition related restructuring costs ................... 338 1,133
--------------- -------------
Total current liabilities ...................................... 16,305 15,439
Long-Term Debt, less current maturities ............................. 492 13,309
Other Long-Term Liabilities ......................................... 1,113 1,782
Shareholders' Equity:
Common shares, par value $.01; 25,000 shares authorized,
9,985 and 7,472 shares issued at December 31, 1995
and 1994, respectively .......................................... 100 75
Additional paid-in capital ........................................ 45,881 20,288
Retained earnings ................................................. 7,548 2,099
Cumulative translation adjustment ................................. 35 8
Less -- 39 treasury shares, repurchased at cost ................... (237) (237)
--------------- -------------
Total shareholders' equity ..................................... 53,327 22,233
=============== =============
Total liabilities and shareholders' equity ..................... $71,237 $52,763
=============== =============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
35
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
------------ ------------ --------------
<S> <C> <C> <C>
Net Sales ................................................. $87,516 $60,447 $38,894
Cost of Sales ............................................. 50,634 32,198 20,256
------------ ------------ --------------
Gross profit ......................................... 36,882 28,249 18,638
Operating Expenses:
Engineering, research and development ................ 4,962 3,810 3,754
Selling, general and administrative .................. 23,901 16,516 12,046
Write-off of intangible assets ....................... -- -- 167
Acquisition related restructuring and other costs .... -- 6,894 --
------------ ------------ --------------
Income from operations ......................... 8,019 1,029 2,671
Interest and other income, net ............................ 676 110 45
------------ ------------ --------------
Income before provision for income taxes ....... 8,695 1,139 2,716
Income Tax Provision ...................................... 3,246 527 865
------------ ------------ --------------
Net Income ................................................ $ 5,449 $ 612 $ 1,851
============ ============ ==============
Net Income Per Common and Common Equivalent Share ......... $ .54 $ .08 $ .25
Weighted Average Number of Common and Common Equivalent
Shares Outstanding ................................... 10,013 7,617 7,476
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
36
<TABLE>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts in thousands)
<CAPTION>
Additional Cumulative Retained
Common Stock Paid-In Translation Treasury (Deficit)
Shares Amount Capital Adjustment Stock Earnings
--------- ---------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 ............. 7,086 $71 $18,825 $-- $-- ($364)
Issuance of shares according to
Employee Stock Purchase Plan ....... 8 -- 66 -- -- --
Exercise of options .................... 115 1 278 -- -- --
Acquisition of BRT Corporation ......... 61 1 627 -- -- --
Tax benefit from exercise or early
disposition of certain stock options -- -- 94 -- -- --
Purchase of treasury shares ............ (31) -- -- -- (191) --
Foreign currency translation ........... -- -- -- 6 -- --
Net income ............................. -- -- -- -- -- 1,851
--------- ---------- ------------- --------------- ------------ ------------
Balance, December 31, 1993 ............. 7,239 73 19,890 6 (191) 1,487
Issuance of shares according to
Employee Stock Purchase Plan ....... 13 -- 66 -- -- --
Exercise of options .................... 189 2 332 -- -- --
Purchase of treasury shares ............ (8) -- -- -- (46) --
Foreign currency translation ........... -- -- -- 2 -- --
Net income ............................. -- -- -- -- -- 612
--------- ---------- ------------- --------------- ------------ ------------
Balance, December 31, 1994 ............. 7,433 75 20,288 8 (237) 2,099
Issuance of shares according to
Employee Stock Purchase Plan ....... 9 -- 87 -- -- --
Exercise of options .................... 194 2 1,269 -- -- --
Tax benefit from exercise or early
disposition of certain stock options -- -- 685 -- -- --
Issuance of stock, net ................. 2,310 23 23,552 -- -- --
Foreign currency translation ........... -- -- -- 27 -- --
Net income ............................. -- -- -- -- -- 5,449
--------- ---------- ------------- --------------- ------------ ------------
Balance, December 31, 1995 ............. 9,946 $100 $45,881 $35 ($237) $7,548
========= ========== ============= =============== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
37
<TABLE>
<CAPTION>
PSC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Year Ended December 31,
-------------------------------------------
1995 1994 1993
-------------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................... $5,449 $612 $1,851
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ......................... 2,784 2,018 1,344
Write-off of intangible assets ........................ -- -- 167
(Gain)/loss on disposition of assets .................. (161) 1,169 101
Acquired research and development write-off ........... -- 3,930 --
(Increase) decrease in assets:
Accounts receivable ................................. (2,669) (5,051) (1,551)
Inventories ......................................... (4,031) 151 (3,032)
Prepaid expenses and other .......................... 301 (793) 12
Deferred tax assets ................................. 668 (1,950) --
Increase (decrease) in liabilities:
Accounts payable .................................... 699 1,213 3,965
Accrued expenses .................................... 1,297 1,028 (94)
Accrued payroll and commissions ..................... (333) 592 (112)
Accrued acquisition related restructuring costs ..... (1,107) 1,892 --
-------------- ----------- -----------
Net cash provided by operating activities ......... 2,897 4,811 2,651
-------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (7,418) (10,905) (5,036)
Cash paid for acquisition of business ......................... -- (2,450) --
Additions to intangible and other assets ...................... (4,443) (40) (328)
Issuance of notes for stock option activity ................... (593) -- --
Purchase of investments, net .................................. -- (1,335) --
-------------- ----------- -----------
Net cash used in investing activities ............. (12,454) (14,730) (5,364)
-------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt ................................... 1,046 6,219 --
Additions to other long-term liabilities ...................... 230 17 --
Principal repayments of long-term debt ........................ (14,126) (174) (170)
Payment of other long-term liabilities ........................ (420) -- --
Exercise of stock options and the issuance of stock ........... 24,933 400 344
Purchase of treasury shares ................................... -- (46) (191)
Tax benefit from exercise or early disposition
of certain stock options .................................. 685 -- 94
-------------- ----------- -----------
Net cash provided by financing activities ......... 12,348 6,416 77
-------------- ----------- -----------
Foreign currency translation .................................. 27 2 6
Net Increase (Decrease) in Cash and Short-Term Investments .... 2,818 (3,501) (2,630)
CASH AND SHORT-TERM INVESTMENTS:
Beginning of year ............................. 2,720 6,221 11,750
-------------- ----------- -----------
End of year ................................... $5,538 $2,720 $9,120
============== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid ............................................... $ 306 $ 550 $ 298
Income taxes paid ........................................... $ 3,009 $ 2,450 $ 486
Capital leases .............................................. $ 131 $ 586 $ 45
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
38
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
1. DESCRIPTION OF BUSINESS
PSC Inc. (the Company) designs, manufactures and markets handheld and
fixed position laser-based bar code scanners, scan engines and other scanning
products for the worldwide automatic identification and data collection market.
By identifying, collecting, processing and transmitting data, the Company's
scanning products serve as the "front end" of terminals or host computers used
by industry, business and government to manage and control production,
warehousing, distribution, sales and service. Headquartered in upstate New York,
with additional operations in Florida and the United Kingdom, the Company serves
original equipment manufacturers ("OEMs"), value-added resellers ("VARs"),
distributors and system integrators throughout the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of PSC Inc.
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Short-term Investments
Cash and short-term investments are highly liquid investments with
remaining maturities of three months or less. Short-term investments are
recorded at cost, which approximates market value.
Marketable Securities
Marketable securities are stated at current market value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Elements of cost include materials, labor and overhead and
consist of the following at December 31:
<TABLE>
<S> <C> <C>
1995 1994
-------------- ------------
Raw materials ......................... $6,914 $4,337
Work-in-process ....................... 2,090 1,605
Finished goods ........................ 1,436 504
-------------- ------------
$10,440 $6,446
============== ============
</TABLE>
<PAGE>
39
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
Property, Plant and Equipment
Property, plant and equipment is carried at cost and includes certain
capitalized leases. For financial reporting purposes, depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives:
Building and improvements .................... 30 - 39 years
Office furniture and equipment ............... 3-7 years
Production equipment ......................... 5-7 years
Leasehold improvements ....................... 3-15 years
Equipment under capital leases and leasehold improvements are amortized
using the straight-line method over the shorter of the estimated useful lives of
the assets or the lease term. Renewals and betterments are capitalized, and
repairs and maintenance are expensed as incurred.
Intangibles Resulting from Business Acquisitions
Intangibles resulting from business acquisitions represent the excess
cost of acquired subsidiaries over the fair value of net assets acquired and are
amortized using the straight-line method over five to ten years, their current
estimated useful lives.
In March 1995, Statement of Financial Accounting Standards No. 121
(SFAS No. 121), "Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to be Disposed of", was issued. This statement requires
companies to review long-lived assets, including certain intangibles and
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company will be
required to adopt SFAS No. 121 in 1996. The Company believes that the effect of
adoption will not be material.
Other Intangibles
Other intangibles, which consists primarily of technology and license
agreements, are stated at cost less accumulated amortization. Amortization is
calculated on a straight-line basis over periods ranging from two to ten years,
their current estimated useful lives.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109). The adoption of SFAS No. 109 did
not have a material effect upon the Company's financial position or net income
for the year ended December 31, 1993.
In accordance with SFAS No. 109, deferred income taxes are recorded to
reflect the tax consequences on future years of differences between the basis of
assets and liabilities for income tax and for financial reporting purposes. In
addition, the amount of any future tax benefits are reduced by a valuation
allowance until it is more likely than not that such benefits will be realized.
<PAGE>
40
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
Net Income per Common and Common Equivalent Share
Primary and fully-diluted net income per common and common equivalent
share are based on the weighted average number of shares of common stock and
common stock equivalents (options) outstanding during the period, computed in
accordance with the treasury stock method. The effect of considering common
stock equivalents for fully-diluted net income per share was not significant in
1995, 1994 and 1993.
Foreign Currency Translation
The financial statements of foreign operations are translated into U.S.
dollars in accordance with Financial Accounting Standards Board Statement No.
52. Accordingly, all assets and liabilities are translated at year-end exchange
rates. The gains and losses that result from this process are shown in the
cumulative translation adjustment account in the shareholders' equity section of
the balance sheet. Operating transactions are translated at weighted average
rates during the year. Transaction gains and losses are reflected in net income
and were not material.
Product Warranty
The Company's products have a warranty period of 12 to 30 months.
Estimated warranty costs are provided at the time of sale. The Company maintains
an accrual for warranty claims and adjusts this accrual periodically based on
historical experience and known warranty claims.
Research and Development Costs
All research and development costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets and liabilities and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
Certain amounts in prior years have been reclassified to conform to the
1995 presentation.
3. INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS No. 115) "Accounting for Certain Investments in Debt and Equity
Securities" in the first quarter of 1994, and the cumulative effect of adoption
did not have a material effect on the financial statements. At December 31,
1994, the Company's investment securities were classified as held to maturity,
which are recorded at amortized cost. During the fourth quarter of 1995, the
Company transferred its investments from held to maturity to available for sale
to improve its overall liquidity position. At the date of transfer, the fair
market value of the investment securities approximated cost. At December 31,
1995, these investment securities are recorded at fair market value.
<PAGE>
41
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land ............................................... $ 812 $ 812
Building ........................................... 10,516 --
Office furniture and equipment ..................... 4,333 2,328
Production equipment ............................... 10,109 4,376
Leasehold improvements ............................. 499 24
Construction in progress ........................... -- 12,246
------------ ------------
26,269 19,786
Less: accumulated depreciation and amortization . 4,112 3,327
------------ ------------
$22,157 $16,459
============ ============
</TABLE>
The Company capitalized interest costs of $453 in 1994 related to the
construction of its new office and manufacturing facility. There was no
capitalized interest in 1995 or 1993.
Depreciation expense for 1995, 1994, and 1993 amounted to $1,673,
$1,407, and $1,039, respectively. Amortization of capital lease assets is
included in depreciation expense.
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Intangibles resulting from business acquisitions ......... $8,016 $7,499
Intangibles resulting from technology acquisitions ....... 3,050 --
Other assets ............................................. 2,182 433
------------ -----------
13,248 7,932
Less: accumulated amortization ...................... 2,376 1,265
------------ -----------
$10,872 $6,667
============ ===========
</TABLE>
During 1995, the Company acquired a license to manufacture and sell two
dimensional bar code products and a license to manufacture and sell a
high-speed, carton dimensioning system.
Amortization expense for 1995, 1994, and 1993 amounted to $1,111, $611,
and $305, respectively.
<PAGE>
42
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
6. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -------------
<S> <C> <C>
Accrued warranty cost ............ $1,550 $1,250
Accrued royalty .................. 1,715 1,332
Accrued income taxes ............. 396 765
Accrued technology licenses ...... 1,620 --
Other expenses ................... 921 1,391
=========== =============
$6,202 $4,738
=========== =============
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- ------------
<S> <C> <C>
Term loan ..................... $ -- $6,800
Construction loan ............. -- 6,219
Capital lease obligations ..... 553 590
Other ......................... 70 --
--------------- ------------
623 13,609
Less: current maturities ... 131 300
--------------- ------------
$492 $13,309
=============== ============
</TABLE>
During 1995, the Company repaid and terminated its term loan facility
from which it partially financed its acquisition of LazerData Corporation in
December 1994. During 1995, the Company also repaid and terminated its
construction and permanent loan agreement which was used to partially fund the
construction of the Company's new office and manufacturing facility. The Company
has capitalized lease agreements for equipment which are payable through March
2001 at an interest rate of approximately 8%.
Long-term debt maturities are as follows for years ending December 31:
1996 ...... $131
1997 ...... 140
1998 ...... 150
1999 ...... 145
2000 ...... 21
Thereafter 36
------
$623
======
The Company is a guarantor under a mortgage agreement through February
2001 relating to its former principal manufacturing facility up to $500.
<PAGE>
43
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
8. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
Certain equipment and properties are rented under noncancelable
operating leases that expire at various dates through 2000. Total rental expense
under operating leases was approximately $786, $379, and $305, for the years
ended December 31, 1995, 1994, and 1993, respectively.
Future minimum lease payments required under these agreements are as
follows for the years ending December 31:
1996 .... $757
1997 .... 747
1998 .... 746
1999 .... 513
2000 .... 85
----------
$2,848
==========
Employment Agreements
The Company has executed employment contracts with certain senior
executives that vary in length for which the Company has a minimum commitment
aggregating approximately $1,625 at December 31, 1995.
Royalty Agreements
The Company and its subsidiary, LazerData, currently have cross-license
agreements with certain industry competitors. Under these agreements, royalties
are paid by the Company on a sliding scale up to 15% of sales of certain
licensed products. Under one of these agreements, no royalty is payable until
sales volume reaches a specified level and no royalties are payable to the
Company for the competitors' sales of licensed products. In addition, this
agreement limits the type of customers to whom the Company can sell the licensed
products as well as restricts the geographic areas in which these licensed
products can be sold. Accordingly, royalty expense under these agreements was
included in selling, general and administrative expense in 1995, 1994, and 1993.
Legal Matters
The automatic identification and data collection industry is
characterized by substantial litigation regarding patent and other intellectual
property rights. The Company aggressively defends its patents and other
proprietary rights and is currently a plaintiff in three lawsuits alleging
patent infringements on the part of others, and these proceedings involve
counterclaims against the Company. There can be no assurance that others will
not assert claims against the Company that result in litigation. Any such
litigation could result in significant expense and divert the Company's
attention from other matters. If any of the Company's products were found to
infringe a third-party patent, the third party could be entitled to injunctive
relief, which would prevent the Company from selling any such infringing
products. In addition, the Company could be required to pay monetary damages.
Although the Company could seek a license to sell products determined to
infringe a third-party patent, there can be no assurance that a license would be
available on terms acceptable to the Company. The Company could also attempt to
redesign any infringing products so as to avoid infringement, although any
effort to do so could be expensive and time-consuming, and there can be no
assurance the effort would be successful.
<PAGE>
44
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
Credit Facility
The Company has a revolving loan agreement with a domestic bank
pursuant to which the bank has agreed to provide a line of credit totaling $20.0
million. As of December 31, 1995, the Company had no outstanding borrowings
under this agreement. Such borrowings would bear interest at the bank's prime
rate or 0.95% above the defined LIBOR rate. The Company is required to pay a
commitment fee of 0.125 percent of unused credit availability. The revolving
loan agreement expires in September 2000.
9. SHAREHOLDERS' EQUITY
In March 1995, the Company completed a secondary stock offering. The
Company sold approximately 2.3 million shares at a price of $11.00 per share.
The net proceeds to the Company from the offering were approximately $23.6
million. The Company used approximately $7.2 million of the net proceeds from
the offering to repay in full the outstanding indebtedness under the Company's
construction loan used to finance its new office and manufacturing facility. The
Company also used approximately $6.8 million of the net proceeds from the
offering to repay in full the outstanding indebtedness under the Company's term
loan that was used to finance a portion of its acquisition of LazerData
Corporation in December 1994.
In 1987, the Company adopted the 1987 Stock Option Plan (1987 SOP).
Options under the 1987 SOP may be granted to employees, consultants, directors,
and officers. 686 shares remain available for grant under the 1987 SOP. Under
the 1987 SOP, all options vest over a period of years following the date of
grant. In 1994, the Company adopted the 1994 Stock Option Plan (1994 SOP).
Options outstanding under prior stock option plans continue in effect according
to their original terms. Under the 1994 SOP, the Company may grant stock options
to employees, consultants, directors, and officers. The 1994 SOP provides that
options may vest over time or based upon the performance of the Company's stock,
or both, at the discretion of the Board of Directors. The Company has reserved
1,750 shares for issuance under the 1994 SOP. Options under both plans must be
issued at an exercise price not less than fair market value on date of grant.
Options issued under both plans expire 5 to 10 years from date of grant unless
employment is terminated or death occurs earlier.
In accordance with the provisions of the Plans, the Company may make
loans to a participant to finance the exercise price and related income taxes
upon the exercise of an option. During 1995, the Company granted two loans to
participants, both of which are members of the Board of Directors of the
Company, totaling $593. Each loan is a five-year loan at an interest rate of
7.34% and is secured by the shares purchased with the proceeds of the loan.
The Company accounts for its Stock Option Plans under APB Opinion No.
25, "Accounting for Stock Issued to Employees", under which no compensation cost
has been recognized. In October 1995, Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation", was
issued. This statement encourages, but does not require companies to use the
fair value based method to measure compensation cost, which is then recognized
over the service period (usually the vesting period). Companies which continue
to measure compensation cost using the intrinsic value method as prescribed by
APB Opinion No. 25 will be required to disclose pro forma net income and, if
presented, earnings per share as if the fair value based method had been
applied. The Company will be required to adopt SFAS No. 123 on a prospective
basis beginning in 1996. The Company is unable to determine the impact of the
pro forma disclosure requirement. Such impact will be dependent upon future
stock option activity.
<PAGE>
45
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
The following is a summary of the activity in the Company's stock
option plans for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ -------------
<S> <C> <C> <C>
Options outstanding at beginning of period ........... 2,299 1,320 1,100
Options granted ...................................... 105 1,354 402
Options exercised .................................... (200) (226) (117)
Options forfeited/canceled ........................... (66) (149) (65)
-------------- ------------ -------------
Options outstanding at end of period ................. 2,138 2,299 1,320
============== ============ =============
Number of options at end of period:
Exercisable ....................................... 1,575 1,133 810
Available for grant ............................... 1,637 1,676 381
Average price of options :
Outstanding at end of period ...................... $8.41 $8.02 $7.14
Exercised ......................................... $6.52 $1.77 $2.43
</TABLE>
The Company was able to realize an income tax benefit in 1995 and 1993
from the exercise or early disposition of certain stock options. For financial
reporting purposes, this benefit resulted in a decrease in current income taxes
payable and an increase in additional paid-in capital.
Other Agreements
During 1993, the Company's Board of Directors authorized a plan in
which the Company's management could repurchase its common shares in the open
market, which was terminated in 1995. The plan authorized the repurchase of up
to 500 shares which will be held as treasury shares. No shares were repurchased
in 1995. The Company repurchased 8 shares in 1994 at a cost of $46 and 31 shares
in 1993 at a cost of $191.
Employee Stock Purchase Plan
The Company has a Stock Purchase Plan under which 250 shares of its
common stock can be issued. Under the terms of the plan, eligible employees may
purchase shares of the Company's common stock semi-annually on approximately
January 1 and July 1 through payroll deductions. The purchase price is the lower
of 85% of the fair market value of the stock on the first or last day of each
six month offering period. Employees purchased approximately 9 shares at an
average price of $9.16, 13 shares at an average price of $5.16 per share, and 8
shares at an average price of $7.82 per share during 1995, 1994 and 1993,
respectively. The current plan expires on December 31, 2000.
10. INTERNATIONAL SALES
International sales by geographic area are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- --------------
<S> <C> <C> <C>
North America, excluding the United States ............. $2,003 $1,295 $1,102
Europe ................................................. 11,004 5,588 3,665
Pacific Rim ............................................ 4,193 2,824 1,057
Other .................................................. 2,138 1,531 992
------------- ------------ --------------
$19,338 $11,238 $6,816
============= ============ ===============
</TABLE>
<PAGE>
46
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
11. ACQUISITION RELATED RESTRUCTURING AND OTHER COSTS
In the fourth quarter of 1994, the Company provided a pre-tax charge of
approximately $3.0 million for the costs of restructuring its existing fixed
position scanner product lines with those of LazerData Corporation which was
acquired in December 1994. Of the total pre-tax charge, approximately $1.6
million was to recognize anticipated costs associated with the consolidation of
manufacturing and office facilities, $0.7 million related to write-offs of
previously existing intangible assets, and $0.7 million was provided for
employee severance and benefit costs for the elimination of approximately 12
manufacturing and engineering support positions. As of December 31, 1995, all
positions targeted in the restructuring program have been eliminated.
Restructuring actions are substantially completed as of December 31, 1995. The
restructuring accrual as of December 31, 1995 was approximately $0.8 million.
There have been no re-allocations or re-estimates to date.
In addition in the fourth quarter of 1994, the Company allocated $3.9
million of the LazerData acquisition costs to acquired in-process research and
development projects, which represented the estimated fair values related to
these projects determined by an independent appraisal. Proven valuation
procedures and techniques were utilized in determining the fair market value of
each intangible asset. The development technologies were evaluated to determine
that there were no alternative future uses. As these projects have not reached
technological feasibility and alternative future uses of these developmental
technologies do not exist, these costs were expensed as of the acquisition date.
The acquisition related restructuring and other costs reduced 1994 income before
income taxes, net income and fully diluted net income per share by $6.9 million,
$4.5 million, and $0.56, respectively.
12. INCOME TAXES
The provision for income taxes consisted of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal ................. $1,686 $2,230 $635
State ................... 341 534 230
Foreign ................. 551 171 --
Deferred:
Federal ................... 585 (2,138) --
State ..................... 83 (270) --
============== =========== ==========
Total .................. $3,246 $527 $865
============== =========== ==========
</TABLE>
<PAGE>
47
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
A reconciliation between the statutory U.S. Federal income tax rate and
the Company's effective tax rate is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
Computed "expected" tax expense ............... 34.0% 34.0% 34.0%
Tax benefit - net operating loss
carryforward ................................ -- (35.1%) (18.8%)
Write-off of intangible assets ................ -- 18.2% 2.1%
Change in valuation reserve ................... (4.7%) (10.2%) 11.5%
State income taxes, net of
federal income tax benefit .................. 3.2% 31.0% 5.6%
Goodwill amortization ......................... 1.4% 14.5% 2.7%
Tax exempt interest income .................... (0.7%) (7.0%) --
Miscellaneous items, net ...................... 4.1% 0.9% (5.3%)
------------- -------------- --------------
37.3% 46.3% 31.8%
============= ============== ==============
</TABLE>
The deferred tax assets/(liabilities) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Receivables ............................................ $145 $ 149
Inventory .............................................. 386 412
Warranty reserves ...................................... 578 354
Acquisition related restructuring and other costs ...... 293 875
Acquired in-process research and development costs .... 1,360 1,533
Property, plant & equipment ............................ (531) (114)
Other, net ............................................. 130 226
----------- -----------
2,361 3,435
Less: Valuation allowance ............................. (621) (1,027)
----------- -----------
Net deferred tax asset ................................. $1,740 $ 2,408
=========== ===========
</TABLE>
13. 401(K) PLAN
The Company has a defined contribution plan available to all employees
of the Company meeting certain eligibility requirements. The Plan was
established in 1985. Each participant may elect to contribute a percentage of
their compensation. A matching contribution equal to 50% of the amount of the
employee contribution, limited to 5% of the employee's total compensation, is
made by the Company. The Company contributed approximately $193, $143, and $216
in 1995, 1994 and 1993, respectively.
14. SIGNIFICANT CUSTOMER INFORMATION
The Company sells its products principally to original equipment manufacturers,
value-added resellers, distributors and systems integrators. Net sales to the
Company's largest customer represented approximately 17%, 22%, and 16% of the
Company's net sales for the fiscal years 1995, 1994 and 1993, respectively.
During 1994, the Company's second largest customer accounted for approximately
10% of net sales. No other customers were responsible for greater than 10% of
net sales in 1995, 1994 and 1993. Sales to the Company's largest customers are
expected to continue to represent a significant portion of the Company's
revenues. The Company's arrangements with major customers are generally
nonexclusive.
<PAGE>
48
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
15. ACQUISITIONS AND DISPOSITIONS
In April 1995, the Company completed the sale of substantially all of
the assets related to its Image Products business. This resulted in a gain of
approximately $161 which was included in other income in 1995.
On December 21, 1994, the Company acquired for $9.25 million in cash
all of the outstanding stock of LazerData Corporation. LazerData is a leading
manufacturer of fixed position, high speed line, rastering and omnidirectional
bar code scanners. A portion of the purchase price ($3.9 million) was allocated
to acquired in-process research and development and accordingly was written-off
as of the purchase date. The remaining excess of the purchase price over the
fair value of the net assets acquired of approximately $5.1 million is amortized
on a straight-line basis over 10 years. The transaction was accounted for as a
purchase and is included in the consolidated financial statements since the date
of acquisition.
The following unaudited pro forma condensed consolidated results of
operations assume the operations of the Company were combined with those of
LazerData Corporation at the beginning of 1994. The pro forma information is
presented after giving effect to certain adjustments for depreciation,
amortization, interest expense and related income tax effects. The unaudited pro
forma results do not purport to be indicative of the results that actually would
have been achieved during the period indicated and are not intended to be
indicative of future results.
Pro forma
Twelve months ended
-------------------
12/31/94
--------
Net sales ............................................ $70,789
Acquisition related restructuring and other costs .... 6,894
Loss from operations ................................. (181)
Net Loss.............................................. (822)
Net Loss per common and common equivalent share....... ($.11)
In connection with the acquisition, liabilities assumed and cash paid
were as follows:
1994
-------
Fair value assets acquired ..... $12,436
Liabilities assumed ............ 3,186
Cash paid .................... 9,250
Less amounts borrowed .......... 6,800
--------
Net cash paid for acquisition 2,450
========
<PAGE>
49
PSC INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(All amounts in thousands, except per share data)
16. SELECTED QUARTERLY FINANCIAL DATA: (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ----------- ------------
Year Ended December 31, 1995
- - -----------------------------------------
<S> <C> <C> <C> <C>
Net sales ............................................. $22,263 $21,315 $22,483 $21,456
Gross profit .......................................... 10,502 9,308 8,895 8,177
Net income ............................................ 1,881 1,734 1,566 268
Net income per common
and common equivalent share ....................... $.22 $.16 $.15 $.03
Year Ended December 31, 1994
- - -----------------------------------------
Net sales ............................................. $16,739 $13,119 $13,220 $17,369
Gross profit .......................................... 8,201 6,122 5,980 7,946
Net income (loss) ..................................... 2,016 941 910 (3,255)
Net income (loss) per common
and common equivalent share ....................... $.27 $.12 $.12 ($.42)
Year Ended December 31, 1993
- - -----------------------------------------
Net sales ............................................. $8,542 $8,991 $9,696 $11,665
Gross profit .......................................... 4,216 4,286 4,512 5,624
Net income ............................................ 590 322 329 610
Net income per common
and common equivalent share ........................ $.08 $.04 $.04 $.08
</TABLE>
<PAGE>
50
SCHEDULE II
<TABLE>
PSC INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(All amounts in thousands)
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Accounts Receivable Reserve-
BALANCE, at beginning of year ............... $576 $183 $219
Provision for doubtful accounts ........... (134) 230 9
Write-offs of doubtful accounts,
net of recoveries (55) (12) (45)
Other (1) ................................. -- 175 --
------ ------- ------
BALANCE, at end of year .................... $387 $576 $183
====== ======= ======
</TABLE>
(1) Amount represents the reserve recorded in connection with the acquisition of
LazerData Corporation.
STANDARD WAREHOUSE LEASE
<PAGE>
52
TABLE OF CONTENTS TO
STANDARD WAREHOUSE LEASE
ARTICLE 1 - LEASED PREMISES, TERM AND USE
Section (a)Premises..................................................1
Section (b)Term......................................................1
Section (c)Use.......................................................1
Section (d)Option to Renew...........................................1
Section (e)Surrender.................................................1
Section (f)Holdover..................................................2
ARTICLE 2 - DATE ON WHICH RENT BEGINS
Section (a)Commencement Date.........................................2
ARTICLE 3 - RENTAL
Section (a)Base Rent.................................................2
Section (b)Taxes.....................................................2
Section (c)Triple Net Lease..........................................3
Section (d)Insurance.................................................3
ARTICLE 4 - UTILITIES AND SERVICE
Section (a)Utilities.................................................3
ARTICLE 5 - OCCUPANCY
Section (a)Use.......................................................3
Section (b)Signs.....................................................4
Section (c)Law, Rules & Regulations..................................4
Section (d)Warranty of Possession....................................4
Section (e)Inspection................................................4
ARTICLE 6 - REPAIRS AND MAINTENANCE
Section (a)Landlord Repairs..........................................4
Section (b)Tenant Repairs............................................4
Section (c)Request for Repairs.......................................5
ARTICLE 7 - ALTERATIONS AND IMPROVEMENTS
Section (a)Tenant Alterations and Improvements.......................5
Section (b)Mechanics Liens...........................................5
ARTICLE 8 - INSURANCE
Section (a)Property Insurance........................................5
Section (b)Waiver of Subrogation.....................................6
Section (c)Hold Harmless.............................................6
Section (d)Tenant's Indemnity........................................6
Section (e)Liability Insurance.......................................6
ARTICLE - DAMAGE OR DESTRUCTION
Section (a)Partial Destruction.......................................7
Section (b)Substantial Destruction...................................7
<PAGE>
53
ARTICLE 10 - CONDEMNATION
Section (a)Substantial Taking........................................7
Section (b)Partial Taking............................................7
Section (c)Landlord's Election.......................................8
Section (d)Awards....................................................8
ARTICLE 11 - ASSIGNMENT OR SUBLEASE
Section (a)Landlord Assignment.......................................8
Section (b)Tenant Assignment.........................................8
Section (c)Conditions of Assignment..................................8
ARTICLE 12 - LANDLORD'S MORTGAGE
Section (a)Rights of Mortgagee.......................................9
Section (b)Estoppel Certificates.....................................9
ARTICLE 13 - LIENS
Section (a)Landlord's Lien...........................................9
Section (b)Uniform Commercial Code...................................10
ARTICLE 14 - DEFAULT AND REMEDIES
Section (a)Default by Tenant.........................................10
Section (b)Remedies for Tenant's Default.............................10
Section (c)Default of Landlord.......................................11
ARTICLE - MISCELLANEOUS
Section (a)Acts of God...............................................11
Section (b)Attorney's Fees...........................................11
Section (c)Successors................................................11
Section (d)Rent Tax..................................................11
Section (e)Captions..................................................12
Section (f)Submission of Lease.......................................12
Section (g)Corporate Authority.......................................12
Section (h)Severability..............................................12
Section (i)Landlord's Liability......................................12
Section (j)Indemnity.................................................12
Section (k)Waiver of Performance.....................................12
Section (l)Remedies Cumulative.......................................13
Section (m)Applicable Law............................................13
Section (n)Relationship of Landlord and Tenant.......................13
ARTICLE 16 - NOTICES
Section (a)Parties...................................................13
ARTICLE 17 - AMENDMENT AND LIMITATION OF WARRANTIES
Section (a)Entire Agreement..........................................13
Section (b)Amendment.................................................14
Section (c)Limitation of Warranties..................................14
ARTICLE 18 - HAZARDOUS MATERIAL
Section (a)Hazardous Material........................................14
<PAGE>
54
ARTICLE 19 - RADON GAS
Section (a)Radon Gas.................................................15
ARTICLE 20 - SIGNATURES
Section (a)Signatures................................................15
OTHER PROVISIONS
Rent Rider
Option(s) to Renew
Exhibit "A" - Legal Description Exhibit "B" - Site Plan Exhibit "C" -
Construction by Tenant Exhibit "D" - Guaranty Exhibit "E" - Security Deposit
Exhibit "F" - First Right of Refusal Exhibit "G" - Tenant's Buy-Out Option
<PAGE>
55
STANDARD WAREHOUSE LEASE
THIS LEASE is made and entered into as of this 22 day of January, 1996, by
and between the following Landlord and Tenant: OWNS & MINOR, INC. ("Landlord")
and LAZERDATA CORPORATION ("Tenant")
W I T N E S S E T H;
ARTICLE 1
LEASED PREMISES, TERM, USE AND OPTION(S) TO EXTEND
(a) Premises. Landlord, for and in consideration of the covenants and
agreements hereinafter set forth to be kept and performed by both parties
hereto, does hereby demise and lease and agree to cause to be demised and leased
to Tenant, and Tenant does hereby lease (for the term hereinafter stipulated)
certain premises (hereinafter called the "leased premises") located in Sanford,
Florida, said premises being legally described on Exhibit "A" attached hereto
and depicted as outlined in red on the Site Plan attached hereto and hereby made
a part hereof as Exhibit "B," together with any and all easements, licenses,
privileges, rights of ingress and egress and all other appurtenances and
fixtures belonging or in any way appertaining to the leased premises.
(b) Term. The term of this Lease shall commence upon the date hereof
and shall end thirty-six (36) months after the date upon which rental is
determined to commence under the provisions of Article 2 hereof, subject to
Tenant's right to extend this Lease as provided in (d) herein.
(c) Use. The leased premises shall be used and occupied, if at all, for
the purpose of assembly, manufacturing & distribution with ancillary office
uses, or for any other lawful purposes compatible with the other uses in
Sanford, Florida's zoning regulations. If Tenant desires to change its use,
Tenant shall give Landlord a written request for specific use changes and
Landlord shall in writing within thirty (30) days after receipt of such request
either consent or refuse to consent to the proposed change in use. Landlord's
consent shall not, however, be unreasonably withheld or refused if the proposed
change in use is for lawful purposes and does not violate any restrictive
covenants in effect in Sanford Central Park.
(d) Option(s) to Renew. [Deleted]
(e) Surrender. Tenant agrees that upon the termination of this Lease,
whether by expiration of time or otherwise, possession of the leased premises
will be surrendered to Landlord in good condition and repair, except for
ordinary wear and tear or damage or destruction by acts of God or other casualty
and except for any approved alterations, and except for any condition which,
under the provisions of this Lease, Landlord is obligated to remedy or Tenant is
excused from remedying.
(f) Holdover. If Tenant continues to occupy the leased premises after
the last day of the term hereof and Landlord elects to accept rent thereafter, a
monthly tenancy terminable by either party on not less than one month's notice
shall be created, which shall be upon the same terms and conditions, including
rent, as those herein specified which are in effect immediately prior to the
termination of such term.
ARTICLE 2 - DATE ON WHICH RENT BEGINS
(a) Commencement Date. The rental payments under this Lease shall begin to
accrue on June 1, 1996 (the "Rental Commencement Date").
<PAGE>
56
ARTICLE 3 - RENTAL
(a) Base Rent. Tenant agrees to pay monthly as base rent during the
term of this Lease the sum of money set forth in the Rent Rider attached to and
made a part of this Lease, which amount shall be payable to Landlord at the
address shown in the Rent Rider attached hereto. Monthly installments of rent
shall be due and payable on or before the first day of each calendar month
commencing with the Rental Commencement Date during the term of this Lease;
provided, if the Rental Commencement Date should be a date other than the first
day of a calendar month, the monthly rent set forth above shall be prorated to
the end of that calendar month, and all succeeding installments of rent shall be
payable on or before the first day of each succeeding calendar month during the
term of this Lease. Tenant shall pay, as additional rent, all other sums due
under this Lease.
(b) Taxes. In addition to base rent, Tenant agrees to pay, as they
become due and payable, and before they become delinquent, all ad valorem taxes,
both general and special assessments and governmental charges lawfully levied or
assessed against the leased premises or any part thereof, including
improvements, during the term of this Lease and dues and assessments by means of
deed restrictions and/or owners' associations. If such general and special
assessments are payable in installments, Tenant shall only be obligated to pay
those installment payments coming due during the term of this Lease. Tenant
shall pay, in addition to the amount set forth in the preceding sentence, all
taxes and assessments which are not presently in effect but which may
hereinafter be enacted and which would be chargeable to Tenant as a consequence
of the ownership of the leased premises if in fact Tenant were the owner thereof
in fee simple at the time of such assessment or levy. All such taxes and
assessments for, during or with respect to the year in which the Lease is
commenced or terminated, shall be prorated as of the date of commencement or
termination. Tenant shall also, in like manner, pay all and any interest and
penalties hereon occasioned by its own failure to pay such taxes and assessments
as they become due and payable. Landlord shall without delay transmit to Tenant
all notices and statements received by Landlord of taxes due or assessments made
with respect to the leased premises. Notwithstanding anything herein to the
contrary, Tenant shall not be obligated to pay any income, franchise,
corporation, estates, inheritance, succession or transfer tax levied against
Landlord. Tenant shall have the right to contest or review by legal or other
proceedings, or in such other manner as Tenant may deem suitable, any assessed
valuation, real estate tax or assessment; provided that, unless Tenant will have
paid such tax or assessment under protest, Tenant shall furnish to Landlord a
surety bond or other security satisfactory to Landlord securing the payment of
such contested item or items and all interest, penalty and cost in connection
therewith upon the final determination of such contest or review. Landlord
shall, if so requested by Tenant, join in any proceeding for contest or review
of such taxes or assessments, but the entire cost of such proceedings (including
any cost, expense or attorneys' fees sustained by Landlord in connection
therewith) shall be borne by Tenant. Any amount already paid by Tenant and
subsequently recovered as the result of such contest or review shall be for the
account of Tenant. In the event Tenant fails to pay any taxes and assessments as
required by this section, Landlord may, at its option, pay such taxes and
assessments, and the amount of such taxes and assessments shall be charged to
Tenant additional rent and shall become due and payable by Tenant within (10)
days from receipt of Landlord's invoice.
(c) Triple Net Lease. It is the purpose and intent of Landlord and
Tenant that the rent provided in this Article 3 shall be absolutely net to
Landlord, and that Tenant shall pay, without notice or demand, and without
abatement, deduction or setoff and save Landlord harmless from and against, all
costs, taxes, insurance [including the cost of the insurance set forth in
Article 8 (a)], expenses of maintenance, repair and replacement, and other
charges and expenses and obligations of every kind and nature whatsoever
relating to the leased premises which may arise or become due during the term of
this Lease that are the responsibility of Tenant. If Tenant is required to make
any payment or incur any expense as provided in this Lease and fails to do so,
then Landlord, at its option, may make the payment or incur the expense on
Tenant's behalf, and the cost thereof shall be charged to Tenant as additional
rent and shall be due and payable by Tenant within ten (10) days from receipt of
Landlord's invoice.
<PAGE>
57
(d) Insurance. Tenant shall also pay as additional rent, the cost of
the property insurance which Tenant shall maintain in the name of and for the
sole benefit of Landlord, on the buildings of the leased premises pursuant to
Article 8(a) herein.
ARTICLE 4 - UTILITIES AND SERVICE
(a) Utilities. Landlord shall provide normal utility service
connections to the leased premises. Tenant shall pay the cost of all utility
services, including, but not limited to all charges for gas, electricity, water,
and sanitary sewer service attributable to the leased premises, and for all
electric lights, lamps or tubes used upon the leased premises. Tenant shall pay
all costs caused by Tenant introducing excessive pollutants or solids other than
ordinary human waste into the sanitary sewer system, including permits, fees and
charges levied by any governmental subdivision for such pollutants or solids
Tenant shall be responsible for the installation and maintenance of dilution
tanks, holding tanks, settling tanks, sewer sampling devices, sand traps, grease
traps, or similar devices as may be required by any governmental authority for
Tenant's use of the sanitary sewer system. landlord reserves the right from time
to time to make changes in the source of supply of utilities and services
provided by Landlord to the leased premises provided such changes do not lessen
the availability of supply or unreasonably increase the cost.
ARTICLE 5 - OCCUPANCY
(a) Use. Tenant warrants and represents to Landlord that the leased
premises shall be used and occupied only for the purpose set forth in Article
1(c). Tenant shall occupy the leased premises, conduct its business and control
its agents, employees, invitee and visitors in such a manner as is lawful,
reputable and will not create a nuisance. Tenant shall not permit any operations
which emits any odor or matter which intrudes into the atmosphere surrounding
the building, use any apparatus or machine which makes undue notice or causes
undue vibration in any portion of the building, place or permit any radio,
television, loudspeaker or amplifier on the roof or outside of the leased
premises or where the same can be seen or heard from outside the building.
Tenant shall neither permit any waste on the leased premises nor allow the
leased premises to be used in any way which would in any way increase or render
the first insurance or public liability insurance on the leased premises
invalid.
(b) Signs. No sign of any type or description shall be erected placed
or painted in or about the exterior of the leased premises except those
submitted to Landlord and approved by Landlord in writing. Landlord agrees not
to unreasonably withhold its consent so long as the proposed signage is in
compliance with all applicable ordinances. landlord agrees to review any
proposed signage within thirty (30) days after the receipt of written request.
Tenant shall be responsible for obtaining all permits and approvals for sign
construction. Tenant shall, at Tenant's expense, remove all signs at the
termination of this Lease, and the installation and removal shall be in such
manner as to avoid injury, defacement or overloading of the building or other
improvements.
(c) Compliance with Laws, Rules and Regulations. Tenant, at Tenant's
sole cost and expense, shall comply with all laws, ordinances, orders rules and
regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over Tenant's use, condition or occupancy of the leased premises.
(d) Warranty of Possession. Landlord warrants that it has the right and
authority to execute this Lease, and Tenant, upon payments of the required rents
and subject to the terms, conditions, covenants and agreements contained in this
Lease as well as any extension or renewal thereof shall have quiet and peaceful
possession of the leased premises. Landlord shall not be responsible for the
acts or omissions of any other tenant or third party that may interfere with
Tenant's use and enjoyment of the leased premises.
(e) Inspection. Landlord or its authorized agents shall, during normal
business hours, with reasonable notice, and in such manner not to interfere with
Tenant's business operations, have the right to enter the leased premises to
inspect the same, to supply any service to be provided by Landlord, to show the
leased premises to prospective purchasers or tenants, and to alter, improve or
repair the leased premises pursuant to the terms of this Lease, or of an
emergency nature. Tenant hereby waives any claim for damages for injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or use of the leased premises, and any other loss occasioned thereby.
<PAGE>
58
ARTICLE 6 - REPAIRS AND MAINTENANCE
(a) Landlord Repairs. Landlord shall, at its sole cost and expense,
maintain only the foundation, exterior walls and the roof of the building on the
leased premises; unless however, such failure is caused by Tenant's misuse or
abuse of the leased premises, or by Tenant's roof penetrations. Landlord shall
not be liable to Tenant, except as expressly provided in this Lease, for any
damage or inconvenience, and Tenant shall not be entitled to any abatement or
reduction of rent by reason of any repairs, alterations or additions made by
Landlord under this Lease.
(b) Tenant Repairs. Tenant shall, at its sole cost and expense,
maintain all parts of the leased premises not required to be maintained by
Landlord in good repair and condition, including, but not limited to,
improvements and replacements thereof, heating, ventilating and air conditioning
systems, plumbing and electrical systems, downspouts, store fronts, fire
sprinkler system, dock bumpers, parking lot, landscaping and any and all other
repairs or maintenance necessary for any portion or part of the leased premises.
If Tenant fails to make the repairs or replacements promptly as required herein,
Landlord may, at its option after notice as provided herein, make the repairs
and replacements and the costs of such repairs and replacements shall be charged
to Tenant as additional rent and shall become due and payable by Tenant within
ten (10) days from receipt of Landlord's invoice.
(c) Request for Repairs. All request for repairs or maintenance that
are the responsibility of Landlord pursuant to any provision of this Lease must
be made in writing to the Landlord. Landlord agrees to undertake such repairs
promptly.
ARTICLE 7 - ALTERATIONS AND IMPROVEMENTS
(a) Tenant Alterations and Improvements. Tenant shall have the right to
make interior non-structural alternations that Tenant deems necessary for the
operation of its business, but Tenant shall not make or allow to be made any
structural alterations or physical additions in or to the leased premises or any
modification of the exterior of the leased premises without first obtaining the
written consent of Landlord, which consent will not unreasonably be denied.
Tenant shall not alter or modify the store front of the leased premises in any
way without first obtaining Landlord's consent. Any alterations, physical
additions or improvement to the leased premises made by Tenant shall at once
become the property of the Landlord and shall be surrendered to Landlord upon
the termination of this Lease; provided, however, Landlord, at its option, may
require Tenant to remove any physical additions and/or repair any alterations
which have not been approved by Landlord in order to restore the leased premises
to substantially the condition existing at the time Tenant took possession, all
costs of removal and/or alterations to be borne by Tenant. This clause shall not
apply to moveable equipment or furniture owned by Tenant, which may be removed
by Tenant at the end of the term of this Lease if Tenant is not then in default
and if such equipment and furniture are not then subject to any other rights,
liens and interests of Landlord.
(d) Mechanics Liens. Tenant agrees to discharge (either by payment or
by filing of the necessary bond, or otherwise) any mechanic's, materialmen's, or
other lien against the leased premises and/or Landlord's interest therein, which
liens may arise out of any payment due for, or purported to be due for, labor,
services, materials, supplies, or equipment alleged to have been furnished to or
for Tenant in, upon or about the premises. Such discharge shall occur within ten
(10) business days after Tenant is notified of the filing of any lien.
ARTICLE 8 - INSURANCE
(a) Property Insurance. Tenant shall, in the name of and for the sole
benefit of Landlord, at all times during the term of this Lease maintain a
policy or policies of insurance upon the buildings on the leased premises paid
in advance, issued by and binding upon a solvent insurance company having a
Best's rating of B+ or better, insuring the buildings against all risk; of
<PAGE>
59
direct physical loss in an amount equal to at least eighty percent (80%) of the
full replacement cost of the building structure and its improvements as of the
date of the loss; provided, Landlord shall not be obligated in any way or manner
to insure any personal property (including, but not limited to any furniture,
machinery, goods or supplies) of Tenant upon or within the leased premises, any
fixture installed or paid for by Tenant upon or within the leased premises, or
any improvements which Tenant may construct on the leased premises. Tenant shall
have no right in or claim to the proceeds of such policy of insurance maintained
on behalf of Landlord even if the cost of such insurance is borne by Tenant as
set forth in Article 3.
(b) Waiver Subrogation. Anything in this Lease to the contrary
notwithstanding, Landlord and Tenant hereby waive and release each other of any
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the leased premises, the building of which the leased premises are
a part, of personal property within the building, by reason of fire or the
elements, regardless of cause or origin, including negligence of Landlord of
Tenant and their agents, officers and employees. Landlord and Tenant agree to
immediately give their respective insurance companies which have issued policies
of insurance covering all risk of direct physical loss, written notice of the
terms of the mutual waivers contained in this section, and to have the insurance
policies properly endorsed, if necessary, to prevent the invalidation of the
insurance coverage's by reason of the mutual waivers.
(c) Hold Harmless. Landlord shall not be liable to Tenant's employees,
agents, invitee, licensees or visitors, or to any other person, for an injury to
person or damage to property on or about the leased premises caused by any act
or omission of Tenant, its agents, servants or employees, or of any other person
entering upon the leased premises under express or implied invitation by Tenant,
or caused by the improvements located on the leased premises becoming out of
repair, the failure or cessation of any service provided by Landlord or caused
by leakage of gas, oil, water or steam or by electricity emanating from the
leased premises. Tenant agrees to indemnify and hold harmless Landlord of any
from any loss, attorney's fees, expenses or claims arising out of any such
damage or injury; provided, however, that Tenant shall not be liable for any
such injury or damage caused by the negligence or misconduct of Landlord, its
agents, servants or employees, or of any other person entering upon the leased
premises under express or implied invitation by Landlord.
(d) Tenant's Indemnity. Tenant agrees to indemnify and save Landlord
harmless from and against any and all claims and demands (except such as result
from the negligence of Landlord, its agents, contractors, servants or damage
whatsoever caused to any person or property arising, directly or indirectly, out
of the business conducted in or the use and/or occupancy of the leased premises
or occurring in, on or about the leased premises or any part thereof, or arising
directly or indirectly, from any act or omission of Tenant or any concessionaire
or sub-tenant or their respective licensees, servants, agents, employees or
contractors, and from and against any and all costs, expenses and liabilities
incurred in connection with any such claims and/or proceedings brought thereon.
The comprehensive general liability coverage maintained by Tenant pursuant to
this Lease shall specifically insure the contractual obligations of Tenant as
set forth in this article.
(e) Liability Insurance. Tenant shall, at its sole expense, maintain at
all times during the term of this Lease comprehensive general liability
insurance with respect to the leased premises and the conduct or operation of
Tenant's business therein, naming Landlord as an additional insured, with limits
of not less than $2,000,000.00 for death or bodily injury to any one or more
persons in a single occurrence and $500,000.00 for property damage. Tenant shall
deliver a certificate of such insurance to Landlord on or before the
commencement date and thereafter from time to time upon request.
ARTICLE 9 - DAMAGE OR DESTRUCTION
(a) Partial Destruction. In the event the leased premises are partially
damaged or destroyed or rendered partially unfit for Tenant's business use by
fire, tornado, earthquake or other casualty, then Landlord shall, at Landlord's
<PAGE>
60
expense, promptly repair said premises and restore the same to substantially the
condition in which they were immediately prior to the happening of such
casualty, and from the date of such casualty until the leased premises are so
repaired and restored, rent shall abate in such proportion as the total square
footage of said premises thus damaged or destroyed or rendered unfit for such
uses bears to the total square footage of the leased premises.
(b) Substantial Destruction. In the event the leased premises are
totally damaged or destroyed or rendered wholly unfit for Tenant's business use,
by fire, tornado, earthquake, or other casualty, then either party hereto shall
have the right to terminate this Lease, effective as of the date of such
casualty, by giving to the other party hereto, within thirty (30) days after the
happening of such casualty, written notice of such termination. If such notice
be given within said thirty (30) day period, this Lease shall terminate, as
afore said, rent and other charges shall abate from the happening of such
casualty, and Landlord shall promptly repay to Tenant any rent and other charges
theretofore paid in advance which has not been earned as of the date of such
casualty. In the even such notice is not given within said thirty (30) day
period, this Lease shall not terminate, and Landlord shall, at Landlord's
expense, promptly repair and rebuild said premises and restore the same to
substantially the condition in which they were immediately prior to the
happening of such casualty and rent shall abate from the date of such casualty
until said premises are so repaired, rebuilt and restored. It is mutually
understood and agreed that for the purposes of construing the provisions of this
Article relating to partial and total destruction of the leased premises, that
any damage or destruction of said premises which renders more than twenty-five
percent (25%) of it unusable shall be deemed to have totally destroyed said
premises and rendered same wholly unfit for its accustomed uses; that is to say,
in the event of any damage or destruction as a result of which more than
twenty-five percent (25%) of the total area of the leased premises should become
unfit for its accustomed uses, then the provisions of this subparagraph (b)
hereof shall apply as in the case of total destruction.
ARTICLE 10 - CONDEMNATION
(a) Substantial Taking. If the whole of the leased premises shall be
taken by any public authority under the power of eminent domain then the term of
this Lease shall cease as of the day possession shall be taken by such public
authority and the rent shall be paid up to the day with a proportionate refund
by Landlord of such rent as may have been paid in advance.
(b) Partial Taking. If less than the whole but at least twenty-five
percent (25%) or more of the building or leased premise shall be taken under
eminent domain, Tenant shall have the right either to terminate this Lease and
declare same null and void, or, subject to Landlord's right to termination as
set forth in (c) of this Article, to continue in the possession of the remainder
of the leased premises, and shall notify Landlord in writing within ten (10)
days after such taking of Tenant's intention. In the event Tenant elects to
remain in possession, all of the terms herein provided shall continue in effect,
except that the minimum rent shall be reduced in proportion to the amount of the
premises taken and Landlord shall, at its own cost and expense, promptly make
all the necessary repairs or alterations to the expense, promptly make all the
necessary repairs or alterations to the building so as to constitute the leased
premises a tenantable building.
(c) Landlord's Election. If more than twenty-five (25%) of the building
or leased premises shall be taken under power of eminent domain, Landlord may,
by written notice to Tenant delivered on or before the date of surrendering
possession to the public authority, terminate this Lease.
(d) Awards. Any and all awards for any such taking shall be paid to
Landlord, Tenant hereby assigning to Landlord any interest it may have in such
award, except that Tenant may prove and take any separate award relating to the
taking of its inventory, trade fixtures, furniture and/or leasehold
improvements, as well as any special compensation (i.e., payments that may
accrue to Tenant that are not compensation for the taking of any of Tenant's
property), such as Tenant's moving expenses.
ARTICLE 11 - ASSIGNMENT OR SUBLEASE
(a) Landlord Assignment. Landlord shall have the right to sell,
transfer or assign, in whole or in part, its rights and obligations under this
Lease and in the building, provided that such assignee or transferee assumes
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61
Landlord's obligations hereunder. Any such sale, transfer or assignment shall
operate to release Landlord from any and all liabilities under this Lease
arising after the date of such sale, assignment or transfer.
(b) Tenant Assignment. Tenant shall not assign, in whole or in part,
this Lease or allow it to be assigned, in whole or in part, without the prior
written consent of Landlord, and Tenant may not sublease the leased premises in
whole or in part without the prior written consent of Landlord, not to be
unreasonably withheld. In no event shall any assignment or sublease ever release
Tenant or any guarantor from any obligation or liability hereunder. No assignee
or sublessee of the leased premises or any portion thereof may assign or sublet
the leased premises or any portion thereof. Notwithstanding the foregoing,
Tenant ma assign this Lease, without the prior consent of Landlord, to any
corporation subsidiary or related company of Tenant, or to any successor formed
by merger or acquisition of substantially all the assets of Tenant.
(c) Conditions of Assignment. Except for a permitted assignment to a
corporate subsidiary or related company or successor by merger or acquisition as
described above, if Tenant desires to assign or sublet all or any part of the
leased premises it shall so notify Landlord at least thirty (30) days in advance
of the date on which Tenant desires to make such assignment or sublease. Tenant
shall provide landlord with a copy of the proposed assignment or sublease and
such information as Landlord might request concerning the proposed assignment or
sublease and such information as Landlord might request concerning the proposed
sublessee or assignee to allow Landlord to make informed judgments as to the
financial condition, reputation, operations and general desirability of the
proposed sublessee or assignee. Within fifteen (15) days after Landlord's
receipt of Tenant's proposed assignment or sublease and all required information
concerning the proposed sublessee or assignee, Landlord shall either give its
written consent or in writing refuse such consent. If the proposed assignee's
use qualifies under the use provisions herein (Article I(c)) and such assignee
will in writing assume all of the Tenant's obligations under this Lease, then
landlord may not unreasonably withhold its consent. In the event Landlord
consents to the assignment, Tenant will pay to Landlord one-half (1/2) of any
amounts paid by the assignee to Tenant in consideration of the assignment and
one-half (1/2) of any rental increase charged to the assignee in excess of the
rental provided in this Lease.
ARTICLE 12 - LANDLORD'S MORTGAGE
(a) Rights of Mortgagee. Tenant accepts this Lease subject and
subordinate to any recorded mortgage or deed of trust lien presently existing or
hereafter created upon the leased premises and to all existing recorded
restrictions, covenants, easements and agreements with respect to the leased
premises. Tenant agrees upon demand to execute additional instruments
subordinating this Lease as Landlord may require. If the interests of Landlord
under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any first mortgage or deed of trust on the leased
premises, Tenant shall be bound to the transferee (sometimes called the
"Purchaser") under the terms, covenants and conditions of this Lease for the
balance of the term remaining, including any extensions or renewals, with the
same force and effect as if the Purchaser were Landlord under this Lease, and,
if requested by the Purchaser and Purchaser agrees in writing not to disturb
Tenant's possession so long as Tenant is not in default of the Lease, Tenant
agrees to attorn to the Purchaser, including the first mortgagee under any such
mortgage if it be the Purchaser, as its Landlord.
(b) Estoppel Certificates. Tenant agrees to furnish, from time to time,
within fifteen (15) days after receipt of a request from Landlord or Landlord's
mortgagee, a statement certifying, if applicable, the following: Tenant is in
possession of the leased premises; the Lease is in full force and effect; the
Lease is unmodified (or stating such modification); Tenant claims no present
charge, lien, or claim of offset against rent; the rent is paid for the current
month, but is not prepaid for more than one (1) month in advance; there is no
existing default (or stating such default if such exists) by reason of some act
or omission by Landlord; and such other matters as may be reasonably required by
Landlord or Landlord's mortgagee. Tenant's failure to deliver such statement
shall be deemed to establish conclusively that this Lease is in full force and
effect except as declared by Landlord, that Landlord is not in default of any of
its obligations under this Lease, and that Landlord has not received more than
one month's rent in advance.
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ARTICLE 13 - LIENS
DELETED
ARTICLE 14 - DEFAULT AND REMEDIES
(a) Default by Tenant. The following shall be deemed to be events of
default by Tenant under this Lease; (1) Tenant shall fail to pay when due any
installment of rent or any other payment required pursuant to this Lease and
such failure is not cured within ten (10) days of written notice of such
failure; (2) Tenant shall fail to comply with any term, provision or covenant of
this Lease, other than the payment of rent, and the failure is not cured within
thirty (30) days after written notice to Tenant or if such default cannot
reasonably be cured in thirty (30) days, Tenant is not diligently pursuing a
cure; (3) Tenant shall file a petition or be adjudged bankrupt or insolvent
under any applicable federal or state bankruptcy or insolvency law of admit that
it cannot meet its financial obligations as they become due; or a receiver or
trustee shall be appointed for all or substantially all of the assets of Tenant;
or Tenant shall make a transfer in fraud of creditors or shall make an
assignment for the benefit of creditors.
(b) Remedies for Tenant's Default. Upon the occurrence of any event or
default set forth in this Lease, Landlord shall have the option to pursue any
one or more of the remedies set forth herein without any notice or demand:
(1) Landlord may enter upon and take possession of the leased
premises and remove Tenant and any other person who may be occupying all or any
part of the leased premises without being liable for any claim for damages, and
relet the leased premises on behalf of Tenant and receive the rent directly by
reason of the reletting. Tenant agrees to pay landlord on demand any deficiency
that may arise by reason of any reletting of the leased premises; further,
Tenant agrees to reimburse Landlord for any expenditures made by it in order to
relet the leased premises, including, but not limited to, remodeling and repair
costs.
(2) Landlord may enter upon the leased premises without being
liable for any claim for damages, and do whatever Tenant is obligated to do
under the terms of this Lease. Tenant agrees to reimburse Landlord on demand for
any expenses which Landlord may incur in effecting compliance with Tenant's
obligations under this Lease; further Tenant agrees that Landlord shall not be
liable for any damages resulting to Tenant from effecting compliance with
Tenant's obligations under this Lease caused by the acts or omissions of
Landlord or otherwise.
(3) Landlord may terminate this Lease, in which event Tenant
shall immediately surrender the leased premises to Landlord, and if Tenant fails
to surrender the leased premises, Landlord may, without prejudice to any other
remedy which it may have for possession or arrearages in rent, enter upon and
take possession of the leased premises and remove Tenant and any other person
who may be occupying all or any part of the leased premises without being liable
for any claim for damages. Tenant agrees to pay on demand the amount of all loss
and damage which Landlord may suffer by reason of the termination of this Lease
under this section, whether through inability to relet the leased premises on
satisfactory terms or otherwise.
(c) Default of Landlord. In addition to any other remedies available to
Tenant at law or in equity, if Landlord shall fail to perform an act or acts
required of Landlord by this Lease, and the failure is not cured within thirty
(30) days after written notice to Landlord (and any mortgagee of the leased
premises which provided Tenant with an address for notices) or if such failure
cannot reasonably be cured in thirty (30) days and Landlord is not diligently
pursuing a cure, Tenant shall have the right to perform such acts or acts and
the full amount of the actual cost and expense so incurred shall immediately be
owing by Landlord to Tenant.
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ARTICLE 15 - MISCELLANEOUS
(a) Act of God. Neither Landlord of Tenant shall be required to perform
any covenant or obligation in the Lease, or be liable in damages to the other
party, so long as the performance or nonperformance of the covenant or
obligation is delayed, caused or prevented by an act of God, force majeure or by
any other party.
(b) Attorney's Fees. In the event either Landlord or Tenant defaults in
the performance of any of the terms, covenants, agreements or conditions
contained in this Lease and Landlord or Tenant places in the hands of an
attorney the enforcement of all or any part of this Lease, the collection of any
rent due or to become due or recovery of the possession of the leased premises,
the prevailing party in any such action shall be entitled to court costs and
reasonable attorney's fees for the services of the attorney, whether suit is
actually filed or not.
(c) Successors. This Lease shall be binding upon and inure to the
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed that
should Landlord's interest in the leased premises cease to exist for any reason
during the term of this Lease, then notwithstanding the happening of such event
this Lease nevertheless shall remain unimpaired and in full force and effect,
and Tenant hereunder agrees to attorn to the then owner of the leased premises.
(d) Rent Tax. If applicable in the jurisdiction where the leased
premises are situated, Tenant shall pay and be liable for all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority, such payments to be in
addition to all other payments required to be paid to Landlord by Tenant under
the terms of this Lease. Any such payment shall be paid when due to the
appropriate governmental agency if required by such agency, otherwise
concurrently with the payment of the rent, additional rent, operating expenses
or other charge upon which the tax is based as set forth above.
(e) Caption. The captions appearing in this Lease are inserted only as
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
(f) Submission of Lease. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or any option to lease.
This lease is not effective until execution by and delivery to both landlord and
Tenant.
(g) Corporate Authority. If either Landlord or Tenant executes this
Lease as a corporation, each of the persons executing this Lease do hereby
personally represent and warrant that the entity of whose behalf they are
signing is a duly authorized and existing corporation, that it is qualified to
do business in the state in which the leased premises are located, that the
corporation has full right and authority to enter into this Lease, and that each
person signing on behalf of the corporation is authorized to do so.
(h) Severability. If any provision of this Lease or the application to
any person or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Lease and the application of such provisions to other persons
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
(i) Landlord's Liability. Landlord shall not be liable to Tenant for
losses to Tenant's property or personal injury caused by criminal acts or entry
by unauthorized persons into the leased premises or the building. If Landlord
shall be in default under this Lease and, if as a consequence of such default,
Tenant shall recover a money judgment against Landlord, such judgment shall be
satisfied only out of the right, title and interest of Landlord in the leased
premises as the same may then be encumbered and neither Landlord nor any person
or entity comprising Landlord shall be liable for any deficiency. In no event
shall Tenant have the right to levy execution against any property of Landlord
nor any person or entity comprising Landlord other than its interest in the
leased premises as herein expressly provided.
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64
(j) Indemnity. Landlord agrees to indemnify and hold harmless Tenant
from and against any liability or claim, whether meritorious or not, arising
with respect to any broker whose claim arises by, through or on behalf of
Landlord. Tenant agrees to indemnify and hold harmless Landlord from and against
any liability or claim, whether meritorious or not, arising with respect to any
broker whose claim arises by, through, or on behalf of Tenant. Landlord agrees
to pay all commissions due to Thompson-Kirk Properties, Inc., for distribution
per commission agreement with Morton G. Thalhimer, Inc.
(k) Waiver of Performance by Either Party. One or more waivers of any
covenant or term or condition of this Lease by either party shall not be
construed as a waiver of a subsequent breach of the same or any other covenant,
term or condition; nor shall any delay or omission by either party to seek a
remedy for any breach of this Lease or to exercise a right accruing to such
party by reason of such breach be deemed a waiver by such party of its remedies
or rights with respect to such breach. The consent or approval by either party
to or of any act by the other party requiring such consent or approval shall not
be deemed to waive or render unnecessary consent to or approval of any similar
act.
(1) Remedies Cumulative. All rights, privileges and remedies afforded
either of the parties hereto by this Lease or by law shall be deemed cumulative
and the exercise of any of such rights, privileges and remedies shall not be
deemed to be a waiver of any other right, privilege or remedy provided for
herein or granted by law.
(m) Applicable Law. This Lease shall be construed according to, and be
governed by, the law of the State of Florida.
(n) Relationship of Landlord and Tenant. Nothing herein contained shall
be deemed or construed by the parties hereto, nor by any third party, as
creating the relationship of principal and agent, partnership, or of joint
venture between the parties hereto, it being understood and agreed that
notwithstanding any other provision contained herein, nor any acts of the
parties hereto, pursuant to the terms hereof, shall be deemed to create any
relationship between the parties hereto other than the relationship of Landlord
and Tenant.
ARTICLE 16 - NOTICES
(a) Parties. Any notice, demand, consent, approval, request, statement,
document or other communication required or permitted to be given to or served
upon either party hereto pursuant to this Lease or applicable law shall be in
writing and shall be sent by registered or certified mail, postage prepaid,
address:
(i) if to Landlord: Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
c/o Glen Dozier
(ii) if to Tenant: LazerData Corporation
121 Central Park Place
Sanford, Florida 32771
c/o _______________
(iii) copy to: PSC Inc.
675 Basket Road
Webster, New York 14580
c/o William J. Woodard
provided, however, that Tenant may give Landlord telegraphic or facsimile notice
of the exercise of an option hereunder or of the need for emergency repairs. All
such communications mailed or transmitted by wire in accordance with the
foregoing provisions shall be deemed to have been given or served as of the date
of such mailing or transmittal. Either Landlord or Tenant may, by ten (10) days
prior notice to the other as aforesaid, designate a different address or
different addresses to which communications intended for it are to be sent.
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65
ARTICLE 17 - AMENDMENT AND LIMITATION OF WARRANTIES
(a) Entire Agreement. It is expressly agreed by Tenant, as a material
consideration for the execution of this Lease, that this Lease, with the
specific reference to written extrinsic documents, is the entire agreement of
the parties; that there are, and were, no verbal representations, warranties,
understanding, stipulations, agreements or promises pertaining to this Lease or
to the expressly mentioned written extrinsic documents not incorporate din
writing in this Lease.
(b) Amendment. This Lease may not be altered, waived, amended or extended
except by an instrument in writing signed by Landlord and Tenant.
(c) Limitation of Warranties. Landlord and Tenant expressly agree that
there are and shall be no implied warranties of merchantability, habitability,
fitness for a particular purpose or of any other kind arising out of this Lease,
and there are no warranties which extend beyond those expressly set forth in
this Lease.
ARTICLE 18 - HAZARDOUS MATERIAL
(a) Hazardous Material. Subject to the remaining provisions of the
paragraph, Tenant shall be entitled to use and store only those Hazardous
Materials (defined below), that are necessary for Tenant's business, provided
that such usage and storage is in full compliance with applicable local, state
and federal statues, orders, ordinances, rules and regulations (as interpreted
by judicial and administrative decisions). landlord shall have the right at all
times during the term of this Lease to (I) inspect the leased premises, (ii)
conduct tests and investigations to determine whether Tenant is in compliance
with the provisions of this paragraph, and (iii) request lists of all Hazardous
Materials used and stored or located on the leased premises; the cost of all
such inspections, tests and investigations to be borne by Tenant if Landlord
reasonably believes they are necessary. Tenant shall give to Landlord immediate
verbal and follow-up written notice of any spills, releases or discharges of
Hazardous Materials on the leased premises, or in any common areas or parking
lots (if not considered part of the leased premises), caused by the acts or
omissions of Tenant or its agents, employees, representatives, invitee,
licensees, subtenants, customers or contractors. Tenant covenants to
investigate, clean up and otherwise remediate any spill, release or discharge of
Hazardous Materials caused by the acts or omissions of Tenant, or its agents,
employees, representatives, invitee, licensees, subtenants, customers or
contractors at Tenant's cost and expense; such investigations, clean up and
remediation to be performed after Tenant has obtained Landlord's written
consent, which shall not be unreasonably withheld; provided however, that Tenant
shall be entitled to respond immediately to any emergency without first
obtaining Landlord's written consent. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all claims, judgments, damages,
penalties, fines, liabilities, losses, suites, administrative proceedings and
costs (including, but not limited to, attorneys and consultants fees) arising
from or related to the use, present, transportation, storage, disposal, spill,
release or discharge of Hazardous Materials on or about the premises caused by
the acts or omissions of Tenant, its agents, employees, representatives,
invitee, licensees, subtenants, customers or contractors. Tenant shall not be
entitled to install any tanks under, on or about the premises for the storage of
Hazardous Materials without the express written consent of Landlord, which may
be given or withheld in Landlord's sole express written discretion. As used
herein, the term "Hazardous Materials" shall mean (i) any hazardous or
contaminants, which are or become regulated by all applicable local, state and
federal laws, including, but not limited to, 42 U.S.C. 6901 et seq., 42 U.S.C.
9601 et seq., any Rule or Regulation of the Florida Department of Environmental
Regulation, and Florida Resource Recovery and Management Act, Chapter 403 of
Florida Statues; (ii) petroleum; (iii) asbestos; (iv) polychlorinated biphenyls;
and (v) radioactive materials. The provisions of this Paragraph shall survive
the termination of this Lease.
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66
ARTICLE 19 - RADON GAS
(a) Radon Gas. Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in Florida. Additional
information regarding radon and radon testing may be obtained from your county
public health unit. Prior to the commencement of this Lease, Landlord shall test
for the present of Radon and if such test reveals levels of radon exceeding
federal and state guidelines, then Tenant shall have the right to terminate this
Lease and recover any rent or other sums paid to Landlord unless Landlord
promptly remedies the radon level to Tenant's satisfaction.
ARTICLE 20 - SIGNATURES
SIGNED at__________ this 22 day of January 1996.
LANDLORD: TENANT:
OWENS & MINOR, INC. LAZERDATA CORPORATION
By: /s/ F. T. Smith /s/ William J. Woodard
Its:Vice President Its:VP Finance & Treasurer
Date: 2/1/96 Date: 1/22/96
RENT RIDER
Tenant agrees to pay as rental for the use and occupancy of the leased premises,
at the times and in the manner hereinafter provided, the following sums of
money:
(a) Minimum Annual Rental. For purposes hereof, "Minimum Annual Rental"
is to be payable in twelve (12) equal monthly installments, in advance,
(together with an amount equal to the applicable State of Florida Sales Tax
and/or other taxes as provided in Article 15(d)), upon the first day of each and
every month during the term hereof, commencing on the Rental Commencement Date
and thereafter during the term and during any extension thereof. In the event
such rental shall be determined to commence or end on a day other than the first
day or last day respectively of a month, then the monthly installment of the
Minimum Annual Rental for such partial month shall be prorated accordingly. All
past due rentals, additional rentals, and/or other sums due to Landlord under
the terms of this lease shall bear interest from ten (10) days after the due
date until paid by Tenant, of eighteen percent (18%) (such rate of interest in
hereinafter referred to as the Default Rate"); and such interest shall be deemed
to be additional rental. All rental provided for in this lease (those
hereinafter stipulated as well as said Minimum Annual Rental) shall be paid or
mailed to:
Owens & Minor, Inc.
4800 Cox Road
Glen Allen, Virginia 23060
or to such other payee or address as Landlord may designate in writing to
Tenant. Payments shall be deemed made only upon receipt by such payee at such
address. In no event shall Tenant have any right of offset against any base rent
or additional rent that will be due Landlord under this Lease.
(i) During the first year of the initial term of this lease, Tenant
agrees to pay to Landlord a Minimum Annual Rental of $196,956.00.
(ii) During the second year of the initial term of this lease, Tenant
agrees to pay to Landlord a minimum Annual Rental of $204,876.00.
(iii) During the third year of the initial term of this lease, Tenant
agrees to pay to Landlord a Minimum Annual Rental of $213,140.00.
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67
OPTION(S) TO RENEW
DELETED
EXHIBIT "A"
LEGAL DESCRIPTION
Lot 24, Sanford Central Park, Plat Book 33, Pages 64 through 66, Public Records
of Seminole County, Florida, NE 1/4 of Section 33, Township 19 South, Range 30
East; together with a single-story office and light manufacturing building
containing a rentable area of approximately 34,433 square feet.
EXHIBIT "B"
Photocopy of Not-to-Scale Vicinity Map of Leased Property
EXHIBIT "C"
CONSTRUCTION BY TENANT
CONSTRUCTION BY TENANT: NONE; Tenant accepts the leased premises "as is".
LANDLORD:
OWENS & MINOR, INC.
/s/ F. Thomas Smith , VP
February 1, 1996
TENANT:
LAZERDATA CORPORATION
/s/ William J. Woodard, VP
Finance and Treasurer
January 22, 1996
EXHIBIT "D"
GUARANTY
1. The undersigned Guarantor, in consideration of the direct and material
benefits that will accrue to Guarantor, and for the purpose of inducing Landlord
to execute the foregoing Lease, absolutely and unconditionally guarantees the
payment and performance of, and agrees to pay and perform as primary obligor,
all liabilities, obligations and duties (including but not limited to payment of
rent) imposed upon the Tenant under the terms of the foregoing Lease between
Owens & Minor, Inc., as Landlord, and LazerData Corporation, as Tenants, as if
Guarantor had executed the Lease as Tenant.
2. Guarantor recognizes that the obligations under this Guaranty are absolute
and unconditional, and that Landlord and its successors and assigns shall have
the right to demand performance from and proceed against Guarantor or
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68
Guarantor's collateral for enforcement of the obligations under this Guaranty
without the necessity of first proceeding against or demanding performance by
Tenant of or with respect to any obligation, duty or liability under the Lease.
3. Guarantor expressly waives notice of acceptance of this Guaranty, demand,
notice of dishonor, protest or notice of protest of every kind, notice of any
and all proceedings in connection with the Lease (including notice of Tenant's
default under the Lease), diligence in collecting any sums due under the Lease
or enforcing any of the obligations under the Lease, bringing of suit and
diligence in taking any action with reference thereto or in handling or pursuing
any of Landlord's rights under the Lease. Guarantor's obligations hereunder
shall not be altered nor shall Landlord be liable to Guarantor because of any
action or inaction of Landlord in regard to a matter waived or notice of which
is waived by Guarantor.
4. Landlord need not notify Guarantor that Landlord has sued Tenant; but if
Landlord gives written notice to Guarantor that Landlord has sued Tenant,
Guarantor shall be bound by any judgment or decree therein.
5. Guarantor's liability shall not be affected by any change of status of Tenant
through merger, consolidation, or otherwise, and this Guaranty shall continue
and shall cover all liabilities, obligations and duties under the Lease.
6. Landlord may sue any Guarantor without impairing Landlord's rights against
the other Guarantors, with or without making Tenant a party. Guarantor's
liability shall not be affected by any indulgence, release, compromise or
settlement agreed upon by Tenant and Landlord, bankruptcy or similar proceeding
instituted by or against Tenant, or any lease termination to the extend Tenant
continues to be liable.
7. This Guaranty shall be irrevocable, and in the event of the death of any
Guarantor who is a natural person, shall continue in full force and effect
against such Guarantor's estate.
8. Landlord's action or inaction with respect to any of its rights under the law
or any agreement shall not alter the obligation of Guarantor hereunder. Landlord
may pursue any remedy against Tenant or against any other Guarantor without
altering the obligations of Guarantor hereunder, and without liability to
Guarantor even though Landlord's pursuit of such remedy may result in
Guarantor's loss of rights of subrogation, or to proceed against others for
reimbursement of contribution, or any other right. No payment by a Guarantor
shall entitle it, by subrogation or otherwise, to any rights against Tenant
prior to the payment of all obligations under the Lease.
9. If Guarantor becomes liable for any indebtedness owing by Tenant to Landlord,
by endorsement of or otherwise, other than under this Guaranty, such liability
shall not be in any manner impaired or affected hereby, and the rights of
Landlord hereunder shall be cumulative of any and all other rights that Landlord
may ever have against Guarantor. The exercise by Landlord of any rights or
remedy hereunder or under any other instrument, or at law or in equity, shall
not preclude the concurrent or subsequent exercise of any other rights of
remedy.
10. Guarantor agrees to pay reasonable attorney's fees and other collection
costs if this Guaranty is place din the hands of an attorney for collection.
11. All payments by Guarantor will be made to Landlord at the address of
Landlord set forth in Article 16 of the Lease.
12. In the event of any condition of the Guaranty shall be found illegal or
invalid for any reason, the remaining provisions shall be interpreted and
construed as if the illegal or invalid provision was not a part of the Guaranty.
The unenforceability of invalidity, as determined by a court of competent
jurisdiction, of any provision of the Guaranty as to any Guarantor shall not
render unenforceable or invalid any other provision as to any other Guarantor.
13. This Guarantor shall be binding upon Guarantor, Guarantor's successor's,
heirs and assigns, and shall insure to the benefit of the Landlord, its
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69
successors and assigns. Each gender shall include all genders, and the singular
shall include the plural and the plural the singular, as the context shall
require. This Guaranty is made under and shall be governed by and construed in
accordance with the laws of Florida.
EXECUTED This 22 day of January, 1996.
GUARANTOR:
PSC INC.
/s/ William J. Woodard
William J. Woodard,
Vice President, Finance
and Treasurer
675 Basket Road
Webster, New York 14580
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EXHIBIT "E"
SECURITY DEPOSIT
DELETED
EXHIBIT "F"
FIRST RIGHT OF REFUSAL
DELETED
EXHIBIT "G"
TENANT'S BUY-OUT OPTION
In consideration for the sum of Ten Dollars ($10.00) paid to Landlord by Tenant,
the receipt of which is hereby acknowledged by Landlord, and other good and
valuable consideration, Tenant, but not any subtenant or assignee, so long as
the Lease is in full force and effect and provided Tenant is not then in default
under the Lease, Tenant is granted, at the end of the second full year of the
primary term, and not during any renewal term(s), a Lease Buy-Out Option. In the
event Tenant elects to exercise such Lease Buy-Out Option, Tenant shall give
Landlord one hundred twenty (120) days prior written notice. At the expiration
of the one hundred twenty (120) day notice period, Tenant shall tender to
Landlord the lump sum payment of Fifty-Five Thousand Dollars ($55,000.00) and
this Lease will then terminate in accordance with the terms and agreements
contained therein. In the event Tenant elects not to exercise Lease Buy-Out
Option, this Lease Buy-Out Option shall terminate for all purposes and the Lease
shall continue in full force and effect. Time is of the essence of the
provisions of this Lease Buy-Out Option.
/s/ William J. Woodard
PSC Inc.
Vice President, Finance & Treasurer
/s/ F. Thomas Smith
Owen & Minors, Inc.
Vice President
BUSINESS LEASE
1. PARTIES.
This lease dated, for reference purposes only, April 11, 1995 is made by and
between OMAHA WOODMEN LIFE INSURANCE SOCIETY (HEREIN CALLED landlord) and
LazerData Corp. (herein called TENANT).
2. PREMISES.
(a) Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord
that certain office/warehouse/showroom space (herein called "Premises")
indicated on Exhibit "A" attached hereto and made a part hereof by this
reference, said Premises being agreed, for the purpose of this Lease, and to
have an area of approximately 1,750 square feet to be known as Unit 100 of that
certain Building known as 303 Airport Blvd, Aurora, Colorado 80011.
(b) Tenant agrees that the Premises shall be used and occupied only for sales
and service of laser scanning equipment in a careful, safe and proper manner,
and that it will pay on demand for any damage to the Premises caused by the
misuse of same by it, or its agents or employees; That it will not use or permit
the Premises to be used for any other purposes and that nothing prohibited by
the laws of the United States or the State of Colorado, or the ordinances of the
city of Aurora and Arapahoe County, Colorado shall be done in or about the
Premises. Tenant agrees that it will not use or keep any substance or material
in or about the Premises which may vitate or endanger the validity of the
insurance on said building or increase the hazard or the risk to the building,
or which may prove offensive or annoying to other tenants of the building.
Tenant agrees that it will not permit any nuisance in the Premises.
(c) Tenant's Employees and Visitors. Tenant shall not permit any employees or
visitors of the Tenant to violate any covenant or obligation of the Tenant
hereunder.
3. TERM
The term of this Lease shall be for three (3) years and 0 months commencing on
the 15th day of May, 1995 and ending on the 14th day of May 1998.
4. POSSESSION
(a) If the Landlord, for any reason whatsoever, cannot deliver possession of the
said Premises to the Tenant at the commencement of the term hereof, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for any
loss or damage resulting herefrom, nor shall the expiration date of the above
term be in any way extended, but in that event, all rent and costs associated
with the Premises pursuant to this Lease shall be abated during the period
between the commencement of said term and the time when Landlord delivers
possession.
(b) In the event that Landlord shall permit Tenant to occupy the Premises prior
to the commencement date of the term, such occupancy shall be subject to all the
provisions of this Lease. Said early possession shall not advance the
termination date hereinabove provided.
(c) The representative of the Landlord in charge of supervising the completion
or remodeling of the Premises shall control conclusively the date upon which the
Premises are ready for occupancy, and rent shall thereupon commence whether
Tenant physically occupies the Premises or not. The parties hereto agree to
execute and acknowledge a written statement setting forth the date of
commencement of this Lease and the termination date but this Lease shall not be
affected in any manner should either party fail or refuse to execute such
statement.
(d) If as a result of the postponement of the commencement of the term of prior
occupancy by Tenant, the term would begin other than on the first day of the
month, the commencement date thereof shall be further postponed until the first
day of the following month, but Tenant shall pay proportionate rent at the same
monthly rate set forth herein (also in advance) for such partial month and all
other terms and conditions of this Lease shall be in force and effect during
such partial month. The Tenant by taking possession of the Premises, shall be
deemed to have agreed that the Premises are in a satisfactory order, repair and
condition, and Tenant shall provide Landlord, upon request, with a written
acknowledgment of acceptance.
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5. RENTAL
(a) Subject to the provisions below, Tenant agrees to pay, at such place as may
be designated from time to time by landlord, in lawful United States currency,
in advance on the first day of each calendar month during the lease term,
without and deduction, prior notice, demand or offset whatsoever, minimum rent
as described below. The rent payable hereunder shall be adjusted annually on the
anniversary of the commencement date during the term of this Lease.
May 15, 1995 - May 14, 1996: $850.00 per month
May 15, 1996 - May 14, 1997: $875.00 per month
May 15, 1997 - May 14, 1998: $900.00 per month
6. SECURITY DEPOSIT
Tenant has deposited with Landlord the sum of Eight Hundred Fifty and 00/000
Dollars ($850.00) as a Security Deposit (the "Security Deposit"); So long as the
Tenant is not in default and such monies have not been used to cure any prior
defaults, $850.00 which shall be held by Landlord as security for the faithful
performance by Tenant of all the terms, covenants, and conditions of this Lease
to be kept and performed by Tenant during the term hereof. If Tenant defaults
with respect to any provision of this Lease, including but not limited to the
provisions relating to the payment of rent, Landlord may (but shall not be
required to) use, spend or become obligated to spend by reason of Tenant's
default, or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default. If any portion of said deposit is used
or applied, Tenant shall within five (5) days after written demand therefore,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount and Tenant's failure to do so shall be a material
breach of this Lease. landlord shall not be required to keep this security
deposit separate from its general funds, and Tenant shall not be entitled to
interest on such deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the security deposit or any
balance thereof shall be returned to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interest hereunder) within 60 days after the
expiration of the Lease term. In the event of termination of Landlord's interest
in this Lease, Landlord shall transfer said deposit to Landlord's successor in
interest and Tenant agrees to look solely to such transferee for the return of
the security deposit.
7. ALTERATIONS AND ADDITIONS.
(a) The Landlord shall have the right at any time to enter the Premises to
examine and inspect the same, or to make such repairs, additions, or alterations
as it may deem necessary or proper for the safety, improvement or preservation
thereof, and shall at all times have the right, at its election, to make such
alterations or changes to other portions of said building as it may from time to
time deem necessary and desirable.
(b) Tenant shall make no alterations in or additions to the Premises without
first obtaining the written consent of Landlord, and all additions or
improvements made by the Tenant (with the sole exception of the addition or
removal of movable office furniture) shall be deemed a part of the real estate
and permanent structure thereon and shall remain upon and be surrendered with
said Premises as a part thereof at the end of the said term, by lapse of time,
or otherwise. In the event Tenant engages persons or companies other than Tenant
(or Tenant's employees) to improve, construct, remodel or alter the Premises,
after obtaining Landlord's consent to so improve, construct or alter the
Premises, Tenant shall notify the Landlord in writing (10) ten days before it
engages said persons or companies of the names and addresses of all persons
supplying labor or materials or both, and the date of commencement of
construction, so that Landlord may avail itself of the provisions of statues
such as C.R.S. 38-22-105 (2).
(c) In the event the Premises have previously been occupied, but Landlord has
agreed to perform remodeling work thereon, such provisions shall be set forth on
a separate attachment, hereto, to be executed between Landlord and Tenant. Other
than as set forth in such separate attachment, hereto, Landlord shall have no
obligation for the completion or remodeling of the Premises, and Tenant shall
accept the Premises in their "as is" condition on the date of the commencement
of the term of this Lease. In any event, Landlord shall not have any obligation
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73
for the repair ore placement of any portions of the interior of the Premises
which are damaged or worn out during the term hereof, regardless of the cause
therefore including, but not limited to carpeting, draperies, window coverings,
wall covering, painting or any of Tenant's property or betterments in the
Premises. Tenant shall be responsible for maintenance of exterior and interior
glass.
8. REPAIRS
(a) By taking possession of the Premises, Tenant shall be deemed to have
accepted the Premises as being in good, sanitary order, condition and repair.
Tenant shall, at Tenant's sole cost and expense, keep the Premises and every
part thereof in good condition and repair, damage thereto from cause beyond the
reasonable control of Tenant and ordinary wear and tear excepted. Tenant shall
upon the expiration or sooner termination of this Lease hereof surrender the
Premises to the Landlord in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of Tenant excepted. Except as
specifically provided in a written attachment to this lease, if any, Landlord
shall have no obligation whatsoever to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof and the parties affirm that Landlord
has made no representations to Tenant respecting the condition of the Premises
or the Building except as set forth in the written attachment, if any.
(b) The Tenant shall pay all charges for all gas, electricity, light, heat,
steam, power, telephone or other communication services used, and other services
rendered or supplied, upon or in connection with the Premises during the Term,
and shall indemnify and hold harmless the Landlord against and from any
liability therefor. The Landlord shall pay for reasonable water and sewer
charges related to the Premises.
(c) Landlord shall install or there is presently installed within the Premises
the facilities for heating, ventilating and air-conditioning of the Premises,
and Landlord shall maintain the same during the Term of Lease. Tenant shall pay
all charges for electricity used by Tenant in heating, ventilating and
air-conditioning the Premises. All repairs internal plumbing facilities
(toilets, sinks) or any other installation, equipment or facilities in the
Premises shall be made by Tenant at its expense. landlord reserves the right to
cut off and discontinue, with notice to Tenant, furnishing any heating,
ventilation, air-conditioning or other utility services furnished by Landlord at
any time when Tenant has failed to pay timely any amount whether as Rental or
otherwise) due under this Lease. Landlord shall not be liable for any damages
resulting from or arising out of any such discontinuance and the same shall not
constitute a termination of this Lease or an eviction of Tenant. Landlord shall
not be liable to Tenant in damages or otherwise (i) if any utility shall become
unavailable from any public utility company supplying or distributing such
utility, or (ii) for any interruption in any utility service (including, without
limitation, any heating, ventilation or air-conditioning), caused by the making
of any necessary repairs or improvement or by any cause beyond Landlord's
reasonable control, and the same shall not constitute a termination of this
Lease or an eviction of Tenant.
(d) Notwithstanding the provisions of Article 16, landlord shall repair and
maintain the structural portions of the Building, including the basic plumbing,
air conditioning, heating and electrical systems, installed or furnished by
Landlord, unless such maintenance and repairs are caused in whole or in part by
the act, neglect, fault or omission of any duty by the Tenant, its agents,
servants, employees or invites, in which case Tenant shall pay to Landlord the
reasonable costs of such maintenance and repair. Landlord shall not be liable
for any failure to make any such repairs or to perform any maintenance unless
such failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Article 16 hereof, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to any portion of the Building or the Premises or in or to fixtures,
appurtenances and equipment therein. Tenant waives the right to make repairs at
Landlord's expense under any law, statute or ordinance now or hereafter in
effect.
9. LIENS.
Tenant shall keep the Premises and property in which the Premises are situated
free from any liens arising out of any work performed, materials furnished or
obligations incurred by Tenant. Any such lien filed against the Premises shall
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74
constitute a default under this Lease. landlord may require, at Landlord's sole
option, that Tenant shall provide to Landlord, at Tenant's sole cost and
expense, a completion bond in an amount equal to one and one-half (1 1/2) times
any and all estimated costs of any improvements, additions, or alterations of
the Premises, to insure Landlord against any liability for mechanics' and
materialmen's liens and to insure completion of the work.
10. ASSIGNMENT AND SUBLETTING.
Tenant shall not either voluntarily or by operation of law, assign, transfer,
mortgage, pledge, hypothecate or encumber this Lease or any interest herein, and
shall not sublet or assign the said Premises or any part thereof, or any right
or privilege appurtenant thereto, or suffer any other person (the employees,
agents, servants and invites of Tenant excepted) to occupy or use the said
Premises, or any portion thereof, without the written consent to Landlord first
had an obtained, which consent shall be in Landlord's sole discretion, and a
consent to one assignment, subletting, occupation or use by any other personal
shall not be deemed to be a consent to any subsequent assignment, subletting,
occupation or use by another person. Any such assignment or subletting without
such consent shall be void, and shall, at the option of the Landlord, constitute
a default under this Lease.
11. HOLD HARMLESS.
Tenant shall indemnify and hold harmless Landlord against and from any and all
claims arising from Tenant's use of the Premises for the conduct of its business
or from any activity, work or other thing done, permitted or suffered by the
Tenant in or about the building, and shall further indemnify and hold harmless
Landlord against and from any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any act of negligence of the Tenant, or any
officer, agent, employee, guest, or invitee of Tenant, and from all and against
all cost, attorney's fees, expenses and liabilities incurred in or about any
such claim or any action or proceeding brought thereon, and, in any case, action
or proceeding brought against Landlord by reason of any such claim Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Landlord. Tenant as a material part of the
consideration to the Landlord hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises, from any cause other than
Landlord's gross negligence, and Tenant hereby waives all claims in respect
thereof against Landlord.
Landlord or its agents shall not be liable for any damage to property entrusted
to employees of the Building, nor for loss or damage to any property by theft or
otherwise, nor for any injury to or damage to persons or property resulting from
fire, explosion, falling plaster, steam, gas, electricity, water or rain which
may leak from any part of the building or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or from any other place
resulting from dampness or any other cause whatsoever, unless caused by or due
to the negligence of the Landlord, its agents, servants or employees. Landlord
or its agents shall not be liable for interference with the light or other
intangible hereditement, or for loss of business by Tenant, nor shall Landlord
be liable for any latent defect in the Premises or in the Building. Tenant shall
give prompt notice to Landlord in case of fire or accidents in the Premises or
in the Building or of defects therein or in the fixtures or equipment.
12. SUBROGATION.
As long as their respective insurers so permit, Landlord and Tenant hereby
mutually waive their respective rights of recovery against each other for any
loss insured by fire, extended coverage and other property insurance policies
existing for the benefit of the respective parties. Each party shall obtain any
special endorsements, if required by their insurer to evidence compliance with
the aforementioned waiver.
13. INSURANCE.
During the term of this Lease, Tenant, at its sole cost and expense, shall carry
and maintain the following types of insurance from an insurance company
qualified to do business in the State of Colorado and acceptable to Landlord.
Tenant will provide Landlord with a certificate of insurance which also names
Landlord as an additional insured.
(a) Public liability insurance, including bodily injury and property damage,
personal injury, with respect to all claims, demands, or actions by any person,
firm or corporation, in any way arising from related to, or connected with the
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conduct and operation of Tenant's business in the Premises or Tenant's use of
the premises. Such policies shall include broad form comprehensive general
liability, with limits not less than $1,000,000; $50,000 fire legal liability
and such higher limits as Landlord or the mortgagees of Landlord may require
from time to time:
Tenant shall furnish Landlord certificates of insurance within ten (10) days
after the execution hereof. Such policies shall provide that coverage may not be
canceled or reduced without at least ten (10) days written notice first given to
Landlord. Tenant shall have the privilege of procuring and obtaining all such
insurance through its own sources, provided, however, that if Tenant fails to
procure and maintain said Insurance, Landlord may purchase the same at Tenant's
cost, and the cost thereof shall be Additional Rent which shall be due and
payable to Landlord on the date of the next monthly rental installment. Landlord
may, however, elect not to purchase such insurance for Tenant's benefit and, in
lieu thereof, declare Tenant's default hereunder.
14. PROPERTY TAXES
Tenant shall pay, or cause to be paid, before delinquency, any and all taxes
levied or assessed and which become payable during the term hereof upon all
Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property locate din the Premises; except that which has been paid for by the
Landlord, and is the standard of the Building. In the event any or all of the
Tenant's leasehold improvements, equipment, furniture, fixtures and personal
property shall be assessed and taxed with the Building, Tenant shall pay to
Landlord its share of such taxes within ten (10) days after delivery to Tenant
by Landlord of a statement in writing setting forth the amount of such taxes
applicable to Tenant's property.
In the event Tenant does not forthwith discharge its liability for said
"personal property" taxes, or any other items as identified immediately above,
Landlord shall have the right to expand all sums necessary to discharge such
taxes and Tenant shall pay as additional rent, when the net rental payment is
due, taxes, and attorney's fees and costs.
15. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the rules and regulations that
Landlord shall from time to time promulgate. Landlord reserves the right from
time to time to make all reasonable modifications to said rules. The additions
and modifications to those rules shall be binding upon Tenant upon delivery of a
copy of them to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance of any of said rules by any other tenants or occupants.
16. ENTRY BY LANDLORD.
Landlord reserves and shall at any and all times have the right to enter the
Premises, inspect the same, to allow said Premises to be shown to prospective
purchasers or tenants, to post notices of non-responsibility, and to alter,
improve or repair the Premises and any portion of the Building of which the
Premises are a part that Landlord may deem necessary or desirable, without
abatement or rent and may for that purpose erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, always providing that the entrance to the Premises shall not be
blocked thereby, and further providing that the business of the Tenant shall not
be interfered with unreasonably. Tenant hereby waives any claims for damages or
for any injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other loss
occasioned thereby. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the Premises, excluding Tenant's vaults, safes and files, and Landlord
shall have the right to use any and all means which Landlord may deem proper to
open said doors in an emergency, in order to obtain entry to the Premises
without liability to Tenant. Any entry to the Premises obtained by Landlord by
any of said means, or otherwise, shall not under any circumstances be construed
or deemed to be forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction of Tenant from the Premises or any portion thereof.
17 RECONSTRUCTION.
In the event the Premises or the Building of which the Premises are a part are
damaged by fire or other perils covered by extended coverage insurance, Landlord
agrees to forthwith repair the same; and this Lease shall remain in full force
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and effect, except that Tenant shall be entitled to a proportionate reduction of
the rent while such repairs are being made, such proportionate reduction to be
based upon the extent to which the making of such repairs shall materially
interfere with the business carried on by the Tenant in the Premises.
If the Premises, or said Building, shall be so damaged by fire or other casualty
as to render said Premises wholly untenantable, and if such damage shall be so
great that a competent architect, in good standing, selected by landlord shall
certify in writing to Landlord and Tenant within sixty (60) days following such
casualty that said Premises, with the exercise of reasonable diligence, cannot
be made fit for occupancy within 180 working days from the happening thereof,
then this Lease at the option of Landlord or Tenant, to be exercised within ten
(10) days after receipt of such notice, shall cease and terminate from the date
of the occurrence of such damage. If either party timely exercises its rights
hereunder, Tenant shall surrender to Landlord said Premises and all interest
therein hereunder, and Landlord may reenter and take possession of said Premises
and remove Tenant therefrom. Tenant shall pay rent, duly apportioned, up to the
time of such termination of this Lease. If neither party timely elects to
terminate this Lease, Landlord shall promptly commence repair work and Tenant's
rental hereunder shall abate until such repairs are completed in the same
proportion which the part of the Premises which is rendered unusable by Tenant
in its business bears to the entire Premises. If the damage is due to the fault
or neglect of the Tenant, there shall be no abatement of rent.
If, however, the damage shall be such that said architect shall certify within
said sixty (60) day period that the said Premises can be made tenantable within
said 180-day period from the happening of such damage or other casualty, then,
except as hereinafter provided, Landlord shall repair the damage so done with
all reasonable speed and Tenant's rent shall abate until such repairs are
completed as described above, provided said damage is not due to the fault or
neglect of Tenant.
If said Premises, without the fault of Tenant, shall be slightly damaged by
first or other casualty, but no so as to render the same untenantable, Landlord,
after receiving notice in writing of this occurrence of the injury or other
casualty, shall cause the same to be repaired with reasonable promptness.
If the first or other casualty causing injury or damage to the Premises or other
parts of the Building shall have been caused by the negligence or misconduct of
Tenant, Tenant's agents, servants or employees, or by any other persons entering
upon the Premises under express or implied invitation of Tenant, such injury or
damage shall be repaired by Landlord at the expense of Tenant and there shall be
no abatement of rent.
In case the Building throughout shall be so injured or damaged, whether by fire
or otherwise (though said Premises may not be affected, or if affected, can be
repaired within said 180 days) that Landlord within sixty (60) days after the
happening of such injury shall decide not to reconstruct or rebuild said
Building, then notwithstanding anything herein to the contrary, upon notice in
writing to that effect given by Landlord to tenant within said sixty (60) days
Tenant shall pay the rent, prorate up to such date, this Lease shall terminate
from the date of delivery of said written notice, and both parties hereto shall
be freed and discharged of all further obligations hereunder.
18. SURRENDER-HOLD OVER.
Upon termination of this Lease, either by lapse of time or otherwise, Tenant
shall peaceably surrender the Premises in good condition and repair except for
ordinary wear and tear, or damage by act of God or other casualty beyond
Tenant's control, or by fire or other casualty covered by standard extended
coverage insurance. Tenant shall remove Tenant's trade fixtures upon such
termination, and repair all damages to the Premises caused by such removal.
No surrender of the Premises shall be effected by landlord's acceptance of the
keys or of the rent or by any other means whatsoever without Landlord's written
acknowledgment of such acceptance as a surrender.
Should Tenant hold over after the termination of this Lease, Tenant shall become
a Tenant from month-to-month only upon each and all of the terms herein provided
as may be applicable to such month-to-month tenancy, except that Tenant shall
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pay rental as hereafter provided, Tenant shall pay rent at the then current rate
which Landlord would charge for similar space in the Building if it became
available for leasing at the time of commencement of Tenant's month-to-month
occupancy. Such tenancy shall continue until terminated by Landlord or until
Tenant shall have given to Landlord a written notice at least one (1) month
prior to the date of termination of such monthly tenancy of its intention to
terminate such tenancy. Nothing contained herein shall be construed as requiring
Landlord to accept any tender of rent during a hold over period.
19. DEFAULT.
The following events are "Events of Default:"
(a) Tenant shall default in the due and punctual payment of rent, or any other
amounts payable hereunder, and such default shall continue for five (5) days
after receipt of written notice from landlord, provided, however, that Tenant
shall not be entitled to more than two such notices of a monetary default during
any lease year and if thereafter any rent or other amounts owing hereunder are
not paid when due, a default shall be considered to have occurred even though no
notice thereof is given;
(b) Tenant shall vacate or abandon the Premises;
(c) This Lease or the estate of Tenant hereunder shall transfer to or shall pass
to or devolve upon any other person except in the manner herein provided;
(d) This Lease or the Premises or any part thereof shall be taken upon execution
or by other process of law directed against Tenant, or shall be taken upon or
subject to any attachment at the instance of any creditor or claimant against
Tenant, and said attachment shall not be discharged or disposed within fifteen
(15) days after the levy thereof;
(e) Insolvency or Bankruptcy: Any assignment for the benefit of creditors or by
operation of law shall not be effective to transfer any rights of Tenant
hereunder to the said assignee without the written consent of Landlord having
first been obtained. If Tenant shall be declared insolvent or bankrupt, or if
any assignment of Tenant's property shall be made for the benefit or creditors
or otherwise, or if Tenant shall commit any act of insolvency or should become
insolvent or shall make any transfer or property the purpose of which might tend
to defeat the collection of rent due or to become due under this Lease, or if
Tenant's leasehold interest herein shall be levied upon under execution or
seized by virtue of any writ of any court of law, or if a trustee in bankruptcy
or a receiver be appointed for the property of Tenant, whether under the
operation of state or federal statues, then and in any such case, Landlord may,
at its option, immediately, with or without notice (notice being expressly
waived), terminate this Lease and immediately take possession of said Premises
using force as may be necessary without being guilty in any manner of trespass
or forcible entry or detainer and without the same working any forfeiture of the
obligations of Tenant hereunder. In case Tenant is adjudicated a bankrupt, or
proceeds, or is proceeded against under any laws, state or federal, for relief
of debtors, or in case a receiver is appointed to wind up in liquidate the
affairs of Tenant, Landlord, at its election, shall have a probable claim in
bankruptcy or receivership in an among equal to the sum of the last five (5)
monthly installments of the rental provided for herein, which sum is fixed and
liquidated by the parties hereto as the minimum amount of the damage sustained
by Landlord as a result of the Bankruptcy or receivership of Tenant, and shall
constitute a debt probable in bankruptcy or receivership and the amount of said
damages may be satisfied, at the election of Landlord, out of any monies or
securities deposited hereunder as security for the payment by Tenant of the rent
herein provided for:
(f) Involuntary proceedings under any such bankruptcy law or insolvency act or
for the dissolution of Tenant shall be instituted against Tenant or a receiver
or trustee shall be appointed for all or substantially all of the property of
Tenant, and such proceeding shall not be dismissed or such receivership or
trusteeship vacated within sixty (60) days after such institution or
appointment;
(g) Tenant shall fail to take possession of the Premises on the term
commencement date;
(h) Tenant shall fail to perform any of the other agreements, terms, covenants,
or conditions hereof on Tenant's part to be performed, and such nonperformance
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shall continue for a period of thirty (30) days after written notice thereof by
landlord to Tenant, or of such performance cannot be reasonably had within such
thirty (30) day period Tenant shall not in good faith have commenced such
performance within such thirty (30) days period and shall not diligently proceed
therewith to completion; upon the occurrence of an Event of Default, the
Landlord shall have the right, at its election, then or at any time thereafter
and while any such Event of Default, shall continue either:
1. To give Tenant written notice of Landlord's intention to terminate this Lease
on the date of such given notice or any later date specified therein, whereupon
Tenant's right to possession of the Premises shall cease and this Lease shall
thereupon be terminated, except as to Tenant's obligation to pay rent, as if the
expiration of the term fixed in such notice were the end of the term herein
originally demised; or
2. Without demand or notice, except as may be required by Colorado Law, to
reenter and take possession of the Premises or any part thereof, and repossess
the same as of the Landlord's former estate and expel Tenant and those claiming
through or under Tenant, and remove the effects of both or either, using such
force for such purpose as may be necessary, without being liable for prosecution
thereof, without being deemed guilty of any manner of trespass, and without
prejudice to any remedies for arrears of rent or preceding breach of covenants
or conditions. Should Landlord elect to reenter as provide din this subparagraph
(2), or should Landlord take possession pursuant to legal proceedings or
pursuant to any notice provided by law, Landlord may, from time to time, without
terminating this Lease, relet the Premises or any part thereof in Landlord or
Tenant's name, but for the account of Tenant, for such term or terms (which may
be greater or less than the period which would otherwise have constituted the
balance of the term of this Lease) and on such conditions and upon such other
terms (which may include concessions of free rent and alteration and repair of
the Premises) as Landlord, in its uncontrolled discretion, may determine, and
Landlord may collect and receive the rents therefore. Landlord shall in no way
be responsible or liable for any failure to relet the premises, or any part
thereof, or for any failure to collect rent due upon reletting. If Landlord does
relet the Premises, there will be a charge of $100.00 for its supervisory and
administrative costs for advertising and reletting the Premises, which amount
shall be in addition to any other damages due to Landlord, and shall in no way
constitute liquidated damages for Tenant's default. No such reentry or taking
possession of the Premises by Landlordshall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such election
by landlord to terminate this Lease is given to Tenant and unless such notice
specifically so states Landlord reserves the right following any such reentry
and/or reletting to exercise its right to terminate the Lease by giving Tenant
such written notice, in which event the Lease will terminate as specified in
said notice.
In the event that Landlord does not elect to terminate this Lease as permitted
in subparagraph (1) of this Article, but on the contrary, elects to take
possession as provided in subparagraph (2) hereof, Tenant shall pay to Landlord
(i) the rent and other sums herein provided, which would be payable hereunder if
such repossession had not occurred, less (ii) the net proceeds, if any, of any
reletting of the Premises after deducting all Landlord's expenses in connection
with such reletting, including, but not without limitation, all repossession
costs, brokerage commissions, legal expenses, attorney's fees, expenses of
employees, alteration and repair costs and expenses of preparation for such
reletting. If, in connection with any reletting, the new lease term extends
beyond the existing term or the Premises covered thereby include other Premises
not a part of the Premises, a fair apportionment of the rent received from such
reletting and the expense incurred in connection therewith as provided aforesaid
will be made in determining the net proceeds from such reletting and any rent
concessions will be apportioned over the term of the new Lease. Tenant shall pay
such rent and other sums to Landlord monthly on the day on which the rent would
have been payable hereunder if possession had not been retaken and Landlord
shall be entitled to receive the same from Tenant on each such day.
In the event, however, this lease is terminated (except as provided in Articles
17 and 20), Tenant shall remain liable to Landlord for damages in an amount
equal to the rent and other sums which would have been owing the Tenant
hereunder for the balance of the term, had this Lease not been terminated, less
the net proceeds, if any, of any reletting of the premises by Landlord
subsequent to such termination, after deducting all Landlord's expenses in
connection with such reletting, including but not without limitation, the
expenses enumerated above. Landlord shall be entitled to collect such damages
<PAGE>
79
from Tenant monthly on the day on which rent and other amounts would have been
payable hereunder if this Lease had not been terminated, and Landlord shall be
entitled to receive the same from Tenant on each such day. Alternatively, at the
option of Landlord, in the event this Lease is terminated, Landlord shall be
entitled to receive forwith against Tenant as damages for loss of the bargain
and not as a penalty, an aggregate sum which, at the time of such termination of
this Lease, represents the excess, if any, of the aggregate of the rent and all
other sums payable by Tenant hereunder that would have accrued for the balance
of the term divided by the aggregate rental value of the Premises (such rental
value to be computed on the basis of a Tenant paying not only a rent to Landlord
for the use and occupation of the Premises, but also the charges as are required
to be paid by Tenant under the terms of this Lease) for the balance of such
term.
Each right and remedy provided for in this Lease shall be cumulative and shall
be in addition to every other right or remedy provided for in this Lease or now
or hereafter existing at law or in equity or by statute or otherwise. All costs
incurred by Landlord in connection with collecting any amounts and damages owing
by Tenant pursuant to the provisions of this Lease or to enforce any provision
of this Lease, including reasonable attorney's fees from the date any such
matter is turned over to any attorney, whether or not one or more actions are
commenced by Landlord, shall also be recoverable by Landlord from Tenant.
Nothing contained in this Article shall limit or prejudice the right of Landlord
to provide and obtain as liquidated damages in any bankruptcy, insolvency,
receivership, reorganization or dissolution proceeding, an amount equal to the
maximum allowed by any statute or rule of law governing such proceeding and in
effect at the time when such damages are to be proved, whether or not such an
amount be greater, equal to or less than the amounts recoverable, either as
damages or rent, referred to in any of the preceding provisions of this Article.
Notwithstanding anything contained hereinabove in the Article to the contrary,
any such proceeding or action involving bankruptcy, insolvency, reorganization
arrangement, assignment for the benefit of creditors, or appointment of a
receiver or a trustee, as outlined in subparagraphs (e) and (f) above, shall be
considered to be an Event of Default only when such proceeding, action or remedy
shall be taken or brought by or against Tenant, Tenant's assignee(s) or
sublessee(s), or any other successor in interest to Tenant.
20. EMINENT DOMAIN.
If more than twenty-five percent (25) of the Premises shall be taken or
appropriated by any public or quasi-public authority under the power of eminent
domain, either party hereto shall have the right, at its option, to terminate
this Lease, and Landlord shall be entitled to any and all income, rent, award,
or any interest therein whatsoever which may be paid or made in connection with
such public or quasi-public use or purpose, and Tenant shall have no claim
against Landlord for the value of any unexpired term of this Lease. If either
less than twenty-five percent (25%) is taken, or more than twenty-five percent
(25%) of the Premises is taken and neither party elects to terminate as hrein
provided, the rental thereafter to be paid shall be equitably reduced. If any
part of the Building other than the Premise may be so taken or appropriated,
Landlord shall have the right at its option to terminate this Lease and shall be
entitled to the entire award as above provided.
21. ESTOPPEL CERTIFICATE.
Tenant shall at any time and from time to time upon not less than ten (10) day's
prior written notice from Landlord execute, acknowledge and deliver to Landlord
a statement in writing, (1) 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 rental and other charges are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's knowledge, and uncured defaults on
the part of the Landlord hereunder, or specifying such defaults if any are
claimed. Any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the real property of which the Premises
are a part. Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as may be represented by landlord, and that there are no
uncured defaults in Landlord's performance, and that not more than (1) month's
rental has been paid in advance.
<PAGE>
80
22. AUTHORITY OF PARTIES.
(a) Corporate Authority. If any of the parties liable on this Lease as Tenant is
a corporation, each individual executing this Lease on behalf of said
corporation represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation, in accordance with a duly
adopted resolution of the board of directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms.
(b) Limited Partnerships. If the Landlord herein is a limited partnership, it is
understood and agreed that any claims by Tenant on Landlord shall be limited to
the assets of the limited partnership, and furthermore, Tenant expressly waives
any and all rights to proceed against the individual general partners or the
officers, directors or shareholders of any corporate general partner, except to
the extent of their interest in said limited partnership.
23. GENERAL PROVISIONS.
(i) Plats and Riders. Clauses, plats and riders, if any signed by the Landlord
and the Tenant and endorsed on or affixed to this Lease are a part hereof, and
in the event of variation or discrepancy, the duplicate original hereof,
including such clauses, plats, and riders, if any, held by Landlord shall
control. Rules and regulations attached hereto are hereby specifically made a
part of this Lease, whether signed by Tenant or not.
(ii) Waiver. The waiver by landlord of any term covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or condition
on any subsequent breach of the same or any other term, covenant or condition
herein contained. The subsequent acceptance of rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any term
covenant or condition of this Lease, other than the failure of the Tenant to pay
the particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of the acceptance of such rent.
(iii) Notices. All Notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be in
writing. All notices and demands by the Landlord to the Tenant shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord. All notices and demands by Tenant to the Landlord shall be sent by
United States Mail, postage prepaid, addressed to the Tenant at the Premises, or
to such other place as Tenant may from time to time designate in a notice to the
Landlord. All notices and demands by Tenant to the Landlord shall be sent by
United States Mail, postage prepaid, addressed to the Landlord at the Office of
the Building, or to such other person or place as the Landlord may from time to
time designate in a notice to Tenant. Landlord to submit notice to: PSC Inc.,
c/o William Woodard, Vice President Finance, 675 Basket Road, Webster, New York
14580.
(iv) Joint Obligation. If there be more than one Tenant the obligations
hereunder imposed upon Tenants shall be joint and several.
(v) Marginal Headings. The marginal headings and Article titles to the Articles
of this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
(vi) Time. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
(vii) Successors and Assigns. The covenants and conditions herein contained,
subject to the provision s as to assignment, apply to and behind the heirs,
successors, executors, administrators and assigns of the parties hereto.
(viii) Recordation. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
<PAGE>
81
(ix) Quiet Possession. Upon Tenant paying the rent reserved hereunder and
observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the entire term hereof, subject to all the
provisions of this Lease.
(x) Late Charges. Tenant hereby acknowledges that late payment by Tenant to
landlord of rent or other sums due hereunder will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Landlord by
terms of any mortgage or trust deed covering the Premises. Accordingly, if an
installment of rent or of a sum due from Tenant shall not be received by
Landlord or Landlord's designee within five (5) days after written notice that
said amount is past due, then Tenant shall pay to Landlord a late charge equal
to ten percent (10%) of such overdue amount. The parties hereby agree that such
late charges represent a fair and reasonable estimates of the cost that Landlord
will incur by reason of the late payment by Tenant. Acceptance of such late
charges by the Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
(xi) Interest Due. If any amount due from Tenant to Landlord hereunder whether
it be rental or other charges, is not paid within five (5) days of the due date,
then upon receipt of written notice from Landlord to Tenant, Tenant shall
reimburse Landlord for additional costs in connection therewith in an amount
equal to three percent (3%) per month of the total amount due Landlord, from the
original due date until paid.
(xii) Prior Agreements. This Lease contains all of the agreements of the parties
hereto with respect to any matter covered or mentioned in this Lease, and no
prior agreements or understanding pertaining to any such matters shall be
effective for any purpose. No provision of this Lease may be amended or added to
except by an agreement in writing signed by the parties hereto or their
respective successors in interest. This Lease shall not be effective or binding
of any party until fully executed by both parties hereto.
(xiii) Inability to Perform. This Lease and the obligations of the Tenant
hereunder shall not be affected, impaired, or excused, nor shall Landlord at any
time be deemed to be in default hereunder because the Landlord is unable to
fulfill any of its obligations hereunder or is delayed in doing so, if such
inability or delay is caused by reason of strike, labor troubles, acts of God,
or any other cause beyond the reasonable control of the Landlord.
(xiv) Attorney's Fees. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party shall be
entitled to recover all costs and expenses including the fees of its attorneys
in such action or proceeding in such amount as the court may adjudge reasonable.
(xv) Sale of Premises by Landlord. In the event of any sale or conveyance of the
Building, Landlord shall be and is hereby entirely freed and relieved for all
liability under any and all of its covenants and obligations contained in or
derived from this Lease arising out of any act, occurrence or omission occurring
after the consummation of such sale, subject to the provisions of Paragraph 6
hereof; and the purchaser, at such sale or any subsequent sale of the Premises
shall be deemed, without any further agreement between the parties or their
successors in interest or between the parties and any such purchaser, to have
assumed and agreed to carry out any and all of the covenants and obligations of
the Landlord under this Lease. Tenant hereby attorns to all successor owners of
the Building, whether or not such ownership is acquired as a result of a sale,
through foreclosure of a deed of trust or mortgage, or otherwise. Any sale by
the Landlord of the Building shall operate to release Landlord from any future
liability upon any of the covenants or conditions, expressed or implied, herein
contained in favor of Tenant, and in such event Tenant agrees to look solely to
the responsibility of the successor in interest of Landlord in and on this
Lease.
(xvi) Subordination and Attornment. This Lease, and the rights of Tenant
hereunder, at Landlord's option, shall be subordinate to any mortgage, deed of
<PAGE>
82
trust (now or hereafter placed upon the Building), ground lease or declaration
of covenants, regarding maintenance and use of any areas contained in any
portion of the Building (now or hereafter placed upon the Building), advances
made under any mortgage or deed of trust and to all renewals, modifications,
consolidations, replacements and extensions thereof. Tenant agrees that with
respect to any of the foregoing documents, no documentation, other than this
Lease, shall be required to evidence such subordination. If any holder of a
mortgage or deed of trust shall elect to have this Lease superior to the lien of
its mortgage or deed of trust, and shall have given written notice thereof to
Tenant, this Lease shall be deemed prior to such mortgage or deed or trust,
whether this Lease is dated prior to or subsequent to the date of said mortgage,
deed of trust or the date of recording thereof. Tenant agrees to execute such
documents which may be required to effectuate such subordination or make this
Lease prior to the lien of any mortgage or deed of trust, as the case may be,
and failing to do so within ten (10) days after written demand, Tenant does
hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact to act in Tenant's name, place and stead. Should any mortgage
or deed of trust affecting the Building, the Property or both be foreclosed,
then: (1) the liability of the mortgagee, beneficiary or purchaser at such
foreclosure sale shall exist only so long as such mortgagee beneficiary, or
purchaser is the owner of the Building and/or Property and such liability shall
not continue or survive after further transfer of ownership; and (2) Tenant
shall be deemed to have attorned, as Tenant under this Lease, to the purchaser
at any foreclosure sale thereunder, and this Lease shall continue in force and
effect as a direct lease between and binding upon Tenant and such purchaser at
any foreclosure sale. As used in this section 23, "Mortgagee" and "beneficiary"
shall include successors and assignees of any such party, whether immediate or
remote, the purchaser of any mortgage or deed of trust, whether at foreclosure
or otherwise, and the successors, assignees and mortgagees and beneficiaries of
such purchaser, whether immediate or remote.
(xvii) Name. Tenant shall not use the name of the Building or of the development
in which the Building is situated for any purpose other than as an address of
the business to be conducted by the Tenant in the Premises.
(xviii) Separability. Any provision of this lease which shall prove to be
invalid, void or illegal shall not impair or invalidate any other provision
hereof and such other provision shall remain in full force and effect.
(xix) Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
(xx) Choice of Law. This Lease shall be governed by the laws of the State of
Colorado.
(xxi) Signs and Auctions. Tenant shall not place any sign upon the Premises or
Building or conduct any auction thereon without Landlord's prior written
consent.
(xxii) Right of Landlord to Perform. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense, and without any abatement of Rent. If
Tenant shall fail to pay any sum of money, other than Rent, required to be paid
hereunder, or shall fail to perform any other act on its part to be performed
hereunder, and such failure shall continue for fifteen (15) days after written
notice thereof by Landlord, Landlord may, but shall not be obligated to do so
and without waiving or releasing Tenant from any obligations of Tenant, make any
such payment or perform any such other act on Tenant's part to be made or
performed as in this Lease provided. All sums so paid by landlord and all
necessary incidental costs, together with interest thereon at the interest rate
set forth in subparagraph (xi) above in effect from the date of such payments by
Landlord, shall be payable to Landlord on demand, and Tenant covenants to pay
any such sums, and Landlord shall have (in addition to any other right or remedy
of Landlord) the same rights and remedies in the event of the non-payment
thereof by Tenant, as in the case of default by Tenant in the payment of Rent.
24. LIEN [Deleted]
<PAGE>
83
25. BROKERS.
Tenant warrants that it has no dealings with any real estate brokers or agents
in connection with the negotiation of this Lease except only Vintage Real Estate
Services, Inc. and it knows of no other real estate broker or agent who is
entitled to a commission in connection with this Lease.
VINTAGE REAL ESTATE SERVICES, INC. as agent for
OMAHA WOODMEN LIFE INSURANCE SOCIETY, LANDLORD
By: /s/ Rebecca B. Martin April 27, 1995
Rebecca B. Martin Date
2870 N. Speer Blvd., Denver, CO 80211
Address
TENANT
LazerData Corp.
By: /s/ Robert Lyons April 24, 1995
Robert Lyons Date
Sr. Vice President / General Manager, Title
LazerData Corporation
123 Tech Drive, Sanford, FL 32772
Address
Emergency phone # (407) 324-1230
EXHIBIT A
[Drawing of outline of building and area leased of
Buckley Center
303-343 Buckley Road
Aurora, CO]
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
PSC Scanning Systems Inc. (100% owned by the Company)
and incorporated in New York
Photographic Sciences GmbH (100% owned by the Company)
and incorporated in Germany
PSC Bar Code Limited (100% owned by the Company)
and incorporated in the United Kingdom
PSC Foreign Sales Corporation (100% owned by the Company)
and incorporated in the U.S. Virgin Islands
LazerData Holdings Inc. (100% owned by the Company)
and incorporated in New York
LazerData Corporation (100% owned by LazerData Holdings Inc.)
and incorporated in Florida
Instaread Corporation (100% owned by LazerData Corporation)
and incorporated in Florida
PSC S.A., Inc. (100% owned by the Company)
and incorporated in New York
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 File Nos. 33-30249, 33-38201, 33-45610,
33-45614, 33-80084, 33-60343, 33-60389 and on Form S-3 File Nos. 33-31409,
33-44769 and 33-89178.
/s/ Arthur Andersen LLP
Rochester, New York,
March 22, 1996
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